<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, 1996
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 9, 1996: 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.
<PAGE>
<PAGE>2
Table of Contents
Page
Part I Financial Information
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . .3
Item 2. Management's Analysis of Results of Operations * . . . . . . .8
Part II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .8
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 . . . . . . . . . . . . . ..10
- ---------------
* Management's Analysis of Results of Operations included in lieu of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which is omitted pursuant to General Instruction H(1)(a) to
Form 10-Q.
**Omitted pursuant to General Instruction H (1)(b) to Form 10-Q.
<PAGE>
<PAGE>3
Part I
Item 1. Financial Statements
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions, except stated March 31, December 31,
value and par value amounts) 1996 1995
ASSETS
Financing receivables:
Investment in finance leases $ 1,309.9 $ 1,249.7
Notes receivable 277.2 263.5
1,587.1 1,513.2
Allowance for losses on financing receivables (43.6) (42.3)
Financing receivables, net 1,543.5 1,470.9
Cash and cash equivalents 15.5 12.6
Equipment under operating leases, net 678.3 475.5
Equipment held for sale or re-lease 21.7 28.6
Accounts with McDonnell Douglas and MDFS 22.0 18.5
Other assets 48.9 43.5
$ 2,329.9 $ 2,049.6
LIABILITIES AND SHAREHOLER'S EQUITY
Short-term notes payable $ 103.1 $ 13.7
Accounts payable and accrued expenses 16.7 41.8
Other liabilities 82.9 82.5
Deferred income taxes 310.9 305.4
Long-term debt:
Senior 1,403.5 1,206.3
Subordinated 119.7 119.7
2,036.8 1,769.4
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 reained for growth 148.6 135.7
293.1 280.2
$ 2,329.9 $ 2,049.6
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) 1996 1995
OPERATING INCOME
Finance lease income $ 28.2 $ 26.0
Interest on notes receivable 5.9 8.4
Operating lease income, net of 12.0 9.6
depreciation expense
Net gain on disposal or re-lease of assets 8.1 1.6
Other 1.2 1.1
55.4 46.7
EXPENSES
Interest expense 26.9 25.7
Provision for losses 3.4 2.7
Operating expenses 3.1 3.1
Other 0.5 0.9
33.9 32.4
Income before taxes on income 21.5 14.3
Provision for income taxes 7.7 4.6
Net income 13.8 9.7
Income retained for growth at beginning of year 135.7 127.4
Dividends (0.9) (9.9)
Income retained for growth at end of period $ 148.6 $ 127.2
See notes to consolidated financial statements.
<PAGE>
<PAGE>5
McDonnell Douglas Finance Corporation and Subsidiaries Consolidated
Statement of Cash Flows
Three months ended March 31,
(Dollars in millions) 1996 1995
OPERATING ACTIVITIES
Net income $ 13.7 $ 9.7
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation expense - equipment
under operating leases 13.2 10.6
Net gain on disposal or re-lease
of assets (8.1) (1.6)
Provision for losses 3.4 2.7
Change in assets and liabilities:
Accounts with McDonnell Douglas
and MDFS (3.5) 9.4
Other assets (5.4) (9.8)
Accounts payable (25.9) (26.5)
Other liabilities 0.4 (3.0)
Deferred income taxes 5.5 2.3
Other, net (1.1) 5.3
(7.8) (0.9)
INVESTING ACTIVITIES
Net change in short-term notes
and leases receivable (29.5) 34.9
Purchase of equipment for operating
leases (224.0) (85.0)
Proceeds from disposition of equipment,
notes and leases receivable 53.0 6.0
Collection of notes and leases
receivable 29.8 6.8
Acquisition of notes and leases
receivable (104.9) (45.4)
(275.6) (82.7)
FINANCING ACTIVITIES
Net change in short-term borrowings 89.4 73.9
Debt having maturities more than 90 days:
Proceeds 262.2 117.0
Repayments (65.3) (87.7)
Payment of cash dividends - (9.0)
286.3 94.2
<PAGE>
<PAGE>6
Increase in cash and cash equivalents 2.9 10.6
Cash and cash equivalents at
beginning of year 12.6 13.1
Cash and cash equivalents at
end of period $15.5 $23.7
See notes to consolidated financial statements.
<PAGE>
<PAGE>7
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 ("McDonnell
Douglas"). The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. 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. Operating results for the
three-month period ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996.
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, 1995.
Certain 1995 amounts have been reclassified to conform to the 1996
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, $66.6 million of the Company's income retained for growth was
available for dividends at March 31, 1996.
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 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 that 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.
A certain commercial aircraft customer of the Company, located in Venezuela,
has filed for bankruptcy protection in a Venezuelan bankruptcy court. Such
customer is in default under a loan secured by an MD-83 aircraft. The amount
due to the Company under the loan at March 31, 1996, is approximately $13.1
million, which approximately equals the estimated value of the aircraft
securing the loan, net of maintenance reserves held by the Company of $1.7
million. The aircraft is currently in possession of the Venezuelan
bankruptcy trustee and the Company has retained outside counsel in Venezuela
in connection with a foreclosure and repossession of the aircraft or a
potential settlement. Although Venezuelan bankruptcy law provides for
compensation to privileged creditors, to date, the Company has been
unsuccessful in its attempts to repossess the aircraft. No assurance can be
given as to whether the Company will be successful in its attempt to
repossess the aircraft or the amount, if any, otherwise <PAGE>
<PAGE>8
recoverable by the Company in connection with such loan. The Company does
not expect any loss to have a material adverse effect on earnings, cash
flows or financial position.
At March 31, 1996, the Company had commitments to provide leasing and
other financing totaling $179.7 million.
In November 1995 the Company agreed to provide a commercial aircraft
financing customer with a credit facility of $100.0 million for the
purpose of purchasing used McDonnell Douglas aircraft. This facility
expires upon delivery of the first new McDonnell Douglas aircraft,
presently scheduled to occur in 1999. Borrowings under this agreement must
be repaid within 180 days and the interest rate is based on the London
Interbank Offering Rate. At March 31, 1996 and December 31, 1995,
receivables outstanding pursuant to this agreement totaled $39.6 million and
$8.7 million.
In conjunction with prior asset dispositions and certain guarantees, at
March 31, 1996, the Company was subject to a maximum recourse of $33.2
million. Based on trends to date, the Company's loss related to such
exposure is not expected to be significant.
The Company leases aircraft under capital leases which have been subleased
to others. At March 31, 1996, the Company had guaranteed the repayment of
$7.9 million in capital lease obligations associated with a 50% partner.
Item 2. Management's Analysis of Results of Operations
Interest on notes receivable decreased $2.5 million (29.8%) from the first
quarter of 1995, primarily attributable to aircraft-related notes that
matured in March 1995.
Operating lease income increased $2.4 million (25.0%) from the first
quarter of 1995, primarily attributable to the March 1996 financing of
two MD-11s and the March 1995 financing of two MD-82s under operating
lease agreements.
Net gain on disposal or re-lease of assets increased $6.5 million (greater
than 100%) from the first quarter of 1995, attributable primarily to the
1996 additional volume of equipment sales within the commercial equipment
leasing portfolio.
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 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 informationcurrently available,
the Company believes that 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.
<PAGE>
<PAGE>9
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
borrowing operations are summarized below.
Portfolio Balances
Portfolio balances for the Company's various business segments are
summarized as follows:
March 31, December 31,
(Dollars in millions) 1996 1995
McDonnell Douglas aircraft financing
Finance leases $ 914.2 $ 857.4
Operating leases 446.2 256.8
Notes receivable 138.8 110.9
1,499.2 1,225.1
Other commercial aircraft financing
Finance leases 124.9 126.1
Operating leases 53.8 49.6
Notes receivable 4.8 4.9
183.5 180.6
Commercial equipment leasing
Finance leases 270.7 266.3
Operating leases 178.4 169.1
Notes receivable 64.8 67.0
513.9 502.4
Other 68.8 80.6
$ 2,265.4 $ 1,988.7
New Business Volume
New business volume for the Company's various business segments is
summarized as follows:
Three months Year ended
ended March 31, December
31, (Dollars in millions) 1996 1995
McDonnell Douglas aircraft financing $ 269.9 $ 338.7
Other commercial aircraft financing - 11.0
Commercial equipment leasing 72.1 241.1
$ 342.0 $ 590.8
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
March 31, December 31,
(Dollars in millions) 1996 1995
Allowance for losses on financing receivables
at beginning of year $ 42.3 $ 40.7
Provision for losses 3.4 12.2
Write-offs, net of recoveries (0.9) (10.6)
Other (1.2) -
Allowance for losses on financing receivables
at end of period $ 43.6 $ 42.3
<PAGE>
<PAGE>10
Allowance as percent of total portfolio 1.9% 2.1%
Net write-offs as percent of average
portfolio 0.2% 0.6%
More than 90 days delinquent:
Amount of delinquent installments $ 2.1 $ 10.0
Total receivables due from delinquent $ 5.0 $ 12.1
obligors
Total receivables due from delinquent
obligors as a percentage of total portfolio 0.2% 0.6%
Receivable Write-offs, Net of Recoveries by Business Unit
The following table summarizes the loss experience of each of the
Company's continuing businesses:
Three months Year ended
ended March 31, December 31,
(Dollars in millions) 1996 1995
Commercial aircraft financing $ - $ 5.0
Commercial equipment leasing 0.5 1.7
$ 0.5 $ 6.7
Borrowing Operations
The Company's access to capital at rates that allow for a reasonable return
on new business is affected by credit rating agencies' ratings of the
Company's debt. Two of the credit rating agencies, recognizing the
Company's improved financial performance, have upgraded the Company's credit
ratings:
- - In March 1996, Standard & Poor's ("S&P") upgraded the Company's senior
debt to A- and upgraded the Company's subordinated debt to BBB+ and S&P
also affirmed its A-2 rating of the Company's commercial paper.
- - In March 1996, Duff & Phelps Credit Rating Co. raised the rating of the
Company s senior debt to A-, subordinated debt to BBB+, and commercial
paper to D1-.
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. <PAGE>
<PAGE>11
B. Reports on Form 8-K
On February 27, 1996, the Company filed a Current Report on Form
8-K, which included the Company's Consolidated Balance Sheet at
December 31, 1995 and 1994 and Consolidated Statement of Income
and Income Retained for Growth for each of the years ended December 31,
1995, 1994 and 1993. <PAGE>
<PAGE>12
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 9, 1996 /s/ STEVEN W. VOGEDING
__________________________________
Steven W. Vogeding
Vice President and Chief Financial
Officer
(Principal Financial Officer) and
Registrant's Authorized Officer
/s/ MAURA R. MIZUGUCHI
__________________________________
Maura R. Mizuguchi
Controller (Principal Accounting Officer)
<PAGE>
<PAGE>13
McDonnell Douglas Finance Corporation and Subsidiaries Computation of Ratio
of Income to Fixed Charges
Three months ended March 31,
(Dollars in millions) 1996 1995
Income:
Income before taxes on income $ 21.5 $ 14.5
Fixed charges 27.7 26.6
Income before taxes on income and fixed charges $ 49.2 $ 41.1
Fixed charges:
Interest expense $ 26.9 $ 25.7
Preferred stock dividends 0.8 0.9
$ 27.7 $ 26.6
Ratio of income before taxes on income and fixed
charges to fixed charges 1.78 1.55
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,500
<SECURITIES> 0
<RECEIVABLES> 277,200
<ALLOWANCES> (43,600)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,329,900
<CURRENT-LIABILITIES> 0
<BONDS> 1,523,200
<COMMON> 5,000
0
50,000
<OTHER-SE> 148,600
<TOTAL-LIABILITY-AND-EQUITY> 2,329,900
<SALES> 0
<TOTAL-REVENUES> 55,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 500
<LOSS-PROVISION> 3,400
<INTEREST-EXPENSE> 26,900
<INCOME-PRETAX> 21,500
<INCOME-TAX> 7,700
<INCOME-CONTINUING> 13,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
