United States
Securities and Exchange Commission
Washington, D.C. 20549
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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 September 30, 1997
OR
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________________ to _________________
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BOEING CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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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)
(562) 627-3000
(Registrant's telephone number, including area code)
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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, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|
Common shares outstanding at November 14, 1997: 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>
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......................................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.....................................10
Item 6. Exhibits and Reports on Form 8-K......................14
- ----------------
* 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>
- ---------------------------------------------------------------------
Part I
- ---------------------------------------------------------------------
Item 1. Financial Statements
Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
(Dollars in millions, except stated value and par value) 1997 1996
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Financing receivables:
<S> <C> <C>
Investment in finance leases $ 1,510.5 $ 1,631.2
Notes receivable 262.4 308.9
-------------------------------------------
1,772.9 1,940.1
Allowance for losses on financing receivables (53.4) (48.6)
-------------------------------------------
1,719.5 1,891.5
-------------------------------------------
Cash and cash equivalents 15.5 16.9
Equipment under operating leases, net 730.5 689.5
Equipment held for sale or re-lease 13.5 14.0
Other assets 34.1
41.7
-------------------------------------------
$ 2,513.1 $ 2,653.6
===========================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 105.1 $ 161.3
Accounts payable and accrued expenses 17.4 47.7
Accounts with McDonnell Douglas Corporation 20.0 -
Other liabilities 100.0 90.0
Deferred income taxes 374.0 340.2
Long-term debt:
Senior 1,451.9 1,594.1
Subordinated 79.8 94.8
-------------------------------------------
2,148.2 2,328.1
-------------------------------------------
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 220.4 181.0
-------------------------------------------
364.9 325.5
===========================================
$ 2,513.1 $ 2,653.6
===========================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Boeing Capital Corporation and Subsidiaries
Consolidated Statement of Income and Income Retained for Growth
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(Dollars in millions) 1997 1996 1997 1996
=================================================================== ============== ============= ============= ==============
OPERATING INCOME
<S> <C> <C> <C> <C>
Finance lease income $ 34.0 $ 30.0 $ 104.6 $ 87.3
Interest income on notes receivable 6.3 6.2 19.9 17.7
Operating lease income, net of depreciation expense 14.0 14.9 41.7 41.2
Net gain on disposal or re-lease of assets 6.5 0.8 10.6 11.1
Other 2.2 0.5 5.1 3.1
-------------- ------------- ------------- --------------
63.0 52.4 181.9 160.4
-------------- ------------- ------------- --------------
EXPENSES
Interest expense 30.8 30.1 95.0 87.1
Provision for losses 2.9 3.5 8.7 10.8
Operating expenses 2.8 3.0 8.5 9.1
Other 0.7 1.4 4.0 2.6
-------------- ------------- ------------- --------------
37.2 38.0 116.2 109.6
-------------- ------------- ------------- --------------
Income before taxes on income 25.8 14.4 65.7 50.8
Provision for income taxes 9.2 4.8 23.7 17.8
-------------- ------------- ------------- --------------
Net income 16.6 9.6 42.0 33.0
Income retained for growth at beginning of period 204.7 157.4 181.0 135.7
Dividends (0.9) (0.9) (2.6) (2.6)
-------------- ------------- ------------- --------------
Income retained for growth at end of period $ 220.4 $ 166.1 $ 220.4 $ 166.1
============== ============= ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Boeing Capital Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
(Dollars in millions) 1997 1996
=====================================================================================================================
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 42.0 $ 33.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense-- equipment under operating leases 44.0 42.9
Net gain on disposal or re-lease of assets (10.6) (11.1)
Provision for losses 8.7 10.8
Change in assets and liabilities:
Accounts with McDonnell Douglas Corporation 20.0 18.5
Other assets 7.6 1.2
Accounts payable and accrued expenses (31.2) (19.6)
Other liabilities 10.0 4.2
Deferred income taxes 33.8 28.4
Other, net (0.6) (3.1)
------------------------------------------
123.7 105.2
------------------------------------------
INVESTING ACTIVITIES
Net change in short-term notes and leases receivable 101.7 10.4
Purchase of equipment for operating leases (128.7) (267.2)
Proceeds from disposition of equipment, notes and leases receivable 87.6 41.5
Collection of notes and leases receivable 183.6 139.6
Acquisition of notes and leases receivable (153.5) (335.4)
------------------------------------------
90.7 (411.1)
------------------------------------------
FINANCING ACTIVITIES
Net change in short-terms (56.2) 70.6
Debt having maturities more than 90 days:
Proceeds 60.0 408.3
Repayments (217.9) (168.5)
Payment of cash dividend (1.7) (1.7)
------------------------------------------
(215.8) 308.7
------------------------------------------
Increase (decrease) in cash and cash equivalents (1.4) 2.8
Cash and cash equivalents at beginning of year 16.9 12.6
==========================================
Cash and cash equivalents at end of period $ 15.5 $ 15.4
==========================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Boeing Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 -- Basis of Presentation
Boeing Capital Corporation (formerly McDonnell Douglas Finance Corporation) (the
"Company") is a wholly-owned subsidiary of Boeing Capital Services Corporation
(formerly McDonnell Douglas Financial Services Corporation) ("BCSC"), a
wholly-owned subsidiary of McDonnell Douglas Corporation ("McDonnell Douglas"),
which in turn, as of August 1, 1997, is wholly-owned by The Boeing Company
("Boeing"). The accompanying unaudited consolidated financial statements have
been prepared by the Company 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 of
the Company, 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 nine-month period ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996.
Certain 1996 amounts have been reclassified to conform to the 1997 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, $118.8 million of
the Company's income retained for growth was available for dividends at
September 30, 1997.
Note 3 -- Commitments and Contingencies
On November 1, 1996, The Allen Austin Harris Group, Inc. (the "Plaintiff") filed
a complaint in the Superior Court of the State of California, County of Alameda,
against the Company, McDonnell Douglas, McDonnell Douglas Aerospace - Middle
East Limited and the Selah Group, Inc. (the "Defendants"). The Plaintiff, which
had hoped to establish a manufacturing plant abroad with various assistance from
the Defendants, seeks more than $57.0 million in alleged damages (primarily
consisting of lost profits) based on various theories. The Company believes it
has meritorious defenses to all of the allegations and that the litigation will
have no material adverse effect on the Company's earnings, cash flow or
financial condition.
<PAGE>
The Company is a party to litigation pending in the United States District
Court, Southern District of Florida, entitled McDonnell Douglas Finance
Corporation adv. Aviaco International Leasing, Inc., Aviaco Traders
International, Inc. and Craig L. Dobbin with Related Counter-Claims. The
foregoing litigation arose out of an action brought by the Company in July 1991
seeking remedies on account of defaults by the other parties to the litigation
under loan and related documents involving a $17.9 million loan made by the
Company. In January 1994, in response to the Company's foreclosure of two
aircraft and a related aircraft lease agreement which had been collateral for
the loan, Aviaco Traders International, Inc., Aviaco International Leasing, Inc.
and Craig L. Dobbin (collectively referred to as "Aviaco") filed a counter-claim
against the Company, asserting nine claims for alleged damages based on various
tort and contractual theories relating to the Company's foreclosure.
The case proceeded to jury trial on the three of nine claims which survived the
Company's Motion for Summary Judgment. The case was submitted to the jury on
October 16, 1997. On October 17, 1997, the jury returned a verdict in favor of
Aviaco awarding aggregate damages of approximately $12.2 million, including
damages of approximately $10.0 million for the failure to exercise reasonable
care with regard to the related lease agreement. The jury also awarded
pre-judgment interest, which under applicable law is 7% per annum, to be
determined by the Judge.
The Company believes the $10.0 million award is not supported by the record
evidence or by applicable law. The Company intends to take appropriate action to
contest that award through post-trial motions and, if necessary, an appeal.
Given the inherent uncertainties of litigation, however, no assurance can be
given that the Company will be successful in reducing the jury's verdict. In the
event the Company is ultimately unsuccessful in eliminating the $10.0 million
award, this litigation would have a material adverse impact on the Company's
earnings.
A number of other legal proceedings and claims are pending or have been asserted
against the Company. A substantial number of such legal proceedings and claims
are covered by third parties, including insurance companies. The Company
believes that the final outcome of such proceedings and claims will not have a
material adverse effect on its earnings, cash flow, or financial position.
Trans World Airlines, Inc. ("TWA") accounted for $231.9 million (9.3% of total
Company portfolio) and $249.5 million (9.5% of total Company portfolio) at
September 30, 1997, and December 31, 1996, respectively. TWA continues to
operate under a reorganization plan, confirmed by the United States Bankruptcy
Court in 1995, that restructured its indebtedness and leasehold obligations to
its creditors. In addition, TWA continues to face financial and operational
challenges. Additionally, TWA's independent auditors included an explanatory
paragraph in their "Independent Auditors' Report" for TWA's December 31, 1996
financial statements, expressing "substantial doubt" about TWA's ability to
continue as a going concern. McDonnell Douglas provides guaranties to the
Company for certain obligations of TWA under the various lease agreements
between the Company and TWA. At September 30, 1997, the maximum aggregate
coverage under such guaranties was $40.4 million. In addition, McDonnell Douglas
provides a supplemental guaranty in favor of the Company for up to an additional
$10.0 million of the Company's financings to TWA. This guaranty supplements
individual guaranties provided by McDonnell Douglas with respect to certain of
the Company's financings to TWA to the extent that the estimated fair market
value of the financings (after applying the individual guaranties) is less than
the net asset value of the financings on the Company's books. The supplemental
guaranty terminates in March 1998. TWA has reported relatively low cash balances
of $104.6 million as of September 30, 1997, compared to $248.5 million at
September 30, 1996. As of the date hereof, TWA is current on its obligations to
the Company. If, however, TWA were to default on its obligations to the Company,
this could have a material adverse effect on the Company's earnings, cash flow
or financial position.
At September 30, 1997, the Company had commitments to provide leasing and other
financing totaling $153.2 million.
In conjunction with prior asset dispositions and certain guaranties, at
September 30, 1997, the Company was subject to a maximum recourse of $68.8
million. Based on trends to date, the Company's losses related to such exposure
are not expected by the Company to be significant.
The Company leases aircraft under capital leases which have been subleased to
others. At September 30, 1997, the Company had guaranteed the repayment of $6.4
million in capital lease obligations associated with a 50% partner.
Item 2. Management's Analysis of Results of Operations
From time to time, the Company may make certain statements that contain
projections or "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) and involve risk and uncertainty.
Certain statements in this Form 10-Q, and particularly in Item 1 of Part II, may
contain forward-looking information. The subject matter of such statements may
include, but not be limited to, the Boeing-McDonnell Douglas merger and its
possible effects, future earnings, costs, expenditures, losses, residual values,
and various business environment trends. In addition to those contained herein,
forward-looking statements and projections may be made by management of the
Company orally or in writing including, but not limited to, various sections of
the Company's filings with the Securities and Exchange Commission under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
Actual results and trends in the future may differ materially from projections
depending on a variety of factors including, but not limited to, the impact of
the Boeing-McDonnell Douglas merger and the Company's relationship with its new
shareholder, decisions made by the newly constituted Board of Directors, the
capital equipment requirements of U.S. and foreign businesses, capital
availability and cost, changes in law and tax benefits, the tax position of
Boeing (including the applicability of the alternative minimum tax), competition
from other financial institutions, the Company's successful execution of
internal operating plans, defaults by customers, regulatory uncertainties and
legal proceedings.
Finance lease income increased $17.3 million (19.8%) from the first nine months
of 1996, primarily attributable to the financings of two MD-11 aircraft funded
in December 1996 under finance lease agreements.
Interest on notes receivable increased $2.2 million (12.4%) from the first nine
months of 1996, primarily attributable to increased volume in 1996 within the
commercial equipment leasing portfolio.
Other income increased $2.0 million (64.5%) from the first nine months of 1996,
primarily attributable to approximately $1.6 million in prepayment penalties
received for an early payoff on a commercial equipment leasing note receivable.
Interest expense increased $7.9 million (9.1%) from the first nine months of
1996, attributable to a higher level of borrowings in 1997, resulting from
increased financing activity in 1996.
Provision for losses decreased $2.1 million (19.4%) from the first nine months
of 1996, primarily attributable to the Company's determination that additional
provisions for losses relating to the commercial aircraft portfolio in excess of
those previously provided were not necessary or appropriate during the current
period and to a decrease in new aircraft lease volume, which aggregated $81.2
million in the first nine months of 1997, compared to aircraft lease volume of
$358.9 million in the first nine months of 1996.
Other expenses increased $1.4 million (53.9%) from the first nine months of
1996, primarily attributable to maintenance expenses of approximately $1.8
million on an airplane that was repossessed in March 1997.
Part II
Item 1. Legal Proceedings
On November 1, 1996, The Allen Austin Harris Group, Inc. (the "Plaintiff") filed
a complaint in the Superior Court of the State of California, County of Alameda,
against the Company, McDonnell Douglas, McDonnell Douglas Aerospace - Middle
East Limited and the Selah Group, Inc. (the "Defendants"). The Plaintiff, which
had hoped to establish a manufacturing plant abroad with various assistance from
the Defendants, seeks more than $57.0 million in alleged damages (primarily
consisting of lost profits) based on various theories. The Company believes it
has meritorious defenses to all of the allegations and that the litigation will
have no material adverse effect on the Company's earnings, cash flow or
financial condition.
The Company is a party to litigation pending in the United States District
Court, Southern District of Florida, entitled McDonnell Douglas Finance
Corporation adv. Aviaco International Leasing, Inc., Aviaco Traders
International, Inc. and Craig L. Dobbin with Related Counter-Claims. The
foregoing litigation arose out of an action brought by the Company in July 1991
seeking remedies on account of defaults by the other parties to the litigation
under loan and related documents involving a $17.9 million loan made by the
Company. In January 1994, in response to the Company's foreclosure of two
aircraft and a related aircraft lease agreement which had been collateral for
the loan, Aviaco Traders International, Inc., Aviaco International Leasing, Inc.
and Craig L. Dobbin (collectively referred to as "Aviaco") filed a counter-claim
against the Company, asserting nine claims for alleged damages based on various
tort and contractual theories relating to the Company's foreclosure.
<PAGE>
The case proceeded to jury trial on the three of nine claims which survived the
Company's Motion for Summary Judgment. The case was submitted to the jury on
October 16, 1997. On October 17, 1997, the jury returned a verdict in favor of
Aviaco awarding aggregate damages of approximately $12.2 million, including
damages of approximately $10.0 million for the failure to exercise reasonable
care with regard to the related lease agreement. The jury also awarded
pre-judgment interest, which under applicable law is 7% per annum, to be
determined by the Judge.
The Company believes the $10.0 million award is not supported by the record
evidence or by applicable law. The Company intends to take appropriate action to
contest that award through post-trial motions and, if necessary, an appeal.
Given the inherent uncertainties of litigation, however, no assurance can be
given that the Company will be successful in reducing the jury's verdict. In the
event the Company is ultimately unsuccessful in eliminating the $10.0 million
award, this litigation would have a material adverse impact on the Company's
earnings.
A number of other legal proceedings and claims are pending or have been asserted
against the Company. A substantial number of such legal proceedings and claims
are covered by third parties, including insurance companies. The Company
believes that the final outcome of such proceedings and claims will not have a
material adverse effect on its earnings, cash flow, or financial position.
Item 5. Other Information
Summarized below is information on the effects of the Boeing-McDonnell Douglas
merger, the Company's borrowing operations, portfolio balances, new business
volume, analysis of allowance for losses on financing receivables and credit
loss experience, and receivable write-offs, net of recoveries by business unit.
The Effects of the Boeing-McDonnell Douglas Merger
On August 1, 1997, the Boeing-McDonnell Douglas merger was consummated pursuant
to an Agreement and Plan of Merger dated as of December 14, 1996, among Boeing,
West Acquisition Corp., a wholly-owned subsidiary of Boeing ("Sub"), and
McDonnell Douglas (the "Merger Agreement"). Under the terms of the Merger
Agreement, Sub was merged into McDonnell Douglas, with McDonnell Douglas
surviving as a wholly-owned subsidiary of Boeing.
The Board of Directors of the Company was reconstituted following the
consummation of the Boeing-McDonnell Douglas merger. The new Board intends to
conduct a detailed review of the Company and its assets, corporate structure,
strategy, capitalization, operations, properties, policies, management and
personnel and to consider what, if any, changes would be desirable in light of
the circumstances then existing, and may thereafter determine to implement such
changes.
The many possible long-term effects of the merger on the Company (for example,
decisions regarding the strategic value of the Company to Boeing, the impact of
the merger on residual values of aircraft in the Company's portfolio, the tax
position of Boeing and the effect of decisions relating to the financing of
Boeing aircraft) are currently unknown and, therefore, cannot be quantified at
this time.
The Company, McDonnell Douglas and Boeing intend to file a consolidated federal
income tax return, with the consolidated tax payments, if any, being made by
Boeing. Boeing, BCSC and the Company have entered into agreements (the "Boeing
Operating Agreements") which provide that so long as consolidated federal tax
returns are filed, payments shall be made, directly or indirectly, by Boeing to
the Company or by the Company to Boeing, as appropriate, equal to the difference
between the consolidated tax liability and Boeing's tax liability computed
without consolidation with the Company. If, subsequent to any such payments by
Boeing (or the Company), the payer incurs tax losses which may be carried back
to the year for which such payments were made, the payee nevertheless will not
be obligated to repay any portion of such payments.
The Operating Agreement among the Company, BCSC and McDonnell Douglas remains in
effect and amounts payable under the Boeing Operating Agreements take into
account payments made under the Operating Agreement, provided that in no event
will the Company receive an amount which is materially less, or be obligated to
pay an amount which is materially greater, than it would have received, or been
obligated to pay, under the Operating Agreement. Likewise, the informal
arrangement which generally entitles the Company to rely upon the realization of
tax benefits for the portion of projected taxable earnings allocated to the
Company remains in effect.
There can be no assurance, however, that these (and other) intercompany
arrangements will not change as time permits the Company's new Board members and
shareholder to study and become more familiar with these working arrangements.
While it is difficult to predict the applicability of the alternative minimum
tax to Boeing and the effect thereof under such informal arrangement, if
Boeing were subject to alternative minimum tax liability for an extended
period, it could have a material adverse impact on the competitiveness of the
Company's pricing of new business and on the earnings of the Company.
On November 3, 1997, Boeing announced that it will continue to produce MD-80 and
MD-90 aircraft only until approximately mid-1999. Boeing also stated that MD-80
and MD-90 customers, with 1,200 such aircraft in service overall, can expect the
same level of long-term support that Boeing provides for all of its aircraft,
whether they are in or out of production. The Company's commercial aircraft
portfolio as of September 30, 1997 included 36 MD-80s and three MD-90s,
representing $460.7 million and $101.1 million, respectively, in net asset value
or 18.4% and 4.0%, respectively, of the Company's total portfolio. The Company
periodically reviews the carrying and residual values of all aircraft in its
portfolio. Such reviews will include the effects, if any, of the November 3,
1997 announcement as they become known or can be reasonably estimated. While
management believes that current residual values are conservative, significant
declines in market value could impact the gain or loss on disposition of these
aircraft.
Borrowing Operations
On October 10, 1997 the Company filed with the Securities and Exchange
Commission ("Commission") a Form S-3 Registration Statement for a public shelf
registration of $1.2 billion of its debt securities (SEC File No. 333-37635). On
October 31, 1997, the Commission declared such Registration Statement to be
effective. The Company has authorized the sale and issuance from time to time at
the Company's discretion of up to $400 million of such debt securities in the
form of the Company's Series X medium-term notes.
Under the discussion of Borrowing Operations, the Company's Report on Form 10-K
dated December 31, 1996 states that on December 16, 1996, as a result of the
Boeing-McDonnell Douglas merger, the rating agencies placed the Company on
review with positive implications. On July 17, 1997, Moody's Investors Service
said that it upgraded the ratings of Boeing and McDonnell Douglas but that the
ratings for the Company remain under review for possible upgrade because
"critical questions regarding the strategic value and future business plan for
the Company remain unanswered."
On July 31, 1997, Standard & Poor's raised its ratings on Boeing, McDonnell
Douglas and the Company. The Company's senior unsecured debt rating was raised
to AA from A- and its subordinated debt rating was raised to AA- from BBB+. The
Company's commercial paper rating was raised to A-1+ from A-2. Standard & Poor's
stated that "The upgrade on McDonnell Douglas Finance Corporation reflects the
benefits of the merger, including the 100% indirect ownership by Boeing."
Standard & Poor's also stated that "the finance unit's ratings are not equalized
with those of Boeing because there is some uncertainty about the strategic fit
of financial services in Boeing's long-term business mix."
As of July 25, 1997, the Company is no longer rated by Duff & Phelps Credit
Rating Company because McDonnell Douglas is no longer rated as a result of the
Boeing-McDonnell Douglas merger.
Although security ratings impact the rate at which the Company can borrow funds,
a security rating is not a recommendation to buy, sell or hold securities. In
addition, a security rating is subject to revision or withdrawal at any time by
the assigning rating organization and each rating should be evaluated
independently of any other rating.
<PAGE>
Portfolio Balances
Portfolio balances for the Company's two business segments are summarized as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Aircraft Financing
Boeing/McDonnell Douglas aircraft financing
<S> <C> <C>
Finance leases $ 1,007.7 $ 1,132.6
Operating leases 398.4 402.0
Notes receivable 66.3 82.9
--------------------------------------------
1,472.4 1,617.5
--------------------------------------------
Other commercial aircraft financing
Finance leases 131.8 136.9
Operating leases 52.9 56.0
Notes receivable 4.4 4.5
--------------------------------------------
189.1 197.4
--------------------------------------------
Commercial Equipment Leasing
Finance leases 371.0 361.7
Operating leases 279.2 231.5
Notes receivable 176.9 176.6
--------------------------------------------
827.1 769.8
--------------------------------------------
Other 14.8 44.9
--------------------------------------------
$ 2,503.4 $ 2,629.6
============================================
</TABLE>
New Business Volume
New business volume is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
(Dollars in millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boeing/McDonnell Douglas aircraft financing $ 81.2 $ 338.8
Other commercial aircraft financing - 20.1
Commercial equipment leasing 188.1 236.6
---------------------------------------------
$ 269.3 $ 595.5
=============================================
</TABLE>
<PAGE>
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for losses on financing receivables at beginning of year $ 48.6 $ 42.3
Provision for losses 8.7 14.2
Write-offs, net of recoveries (2.3) (6.0)
Other (1.6) (1.9)
--------------------------------------------
Allowance for losses on financing receivables at end of
period $ 53.4 $ 48.6
============================================
Allowance as percent of total portfolio 2.1% 1.8%
Net write-offs as percent of financing receivables 0.1% 0.3%
More than 90 days delinquent:
Amount of delinquent installments $ 1.9 $ 2.1
Total receivables due from delinquent obligors 1.5 23.4
Total receivables due from delinquent obligors
as a percentage of total portfolio 0.1% 0.9%
</TABLE>
Receivable Write-offs, Net of Recoveries by Business Unit
The following table summarizes the writeoffs (recoveries) of each of the
Company's continuing businesses:
<TABLE>
<CAPTION>
Nine months ended September 30,
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial aircraft financing $ - $ -
Commercial equipment leasing (0.3) 3.3
--------------------------------------------
$ (0.3) $ 3.3
============================================
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10 Amended and Restated Operating Agreement
Exhibit 12 Computation of ratio of income to fixed charges.
Exhibit 27 Financial Data Schedule.
B. Reports on Form 8-K
None.
<PAGE>
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 financial officer and its principal accounting
officer, thereunto duly authorized.
Boeing Capital Corporation
November 14, 1997 /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>
EXHIBIT 10
AMENDED AND RESTATED OPERATING AGREEMENT
THIS AGREEMENT, dated effective as of August 1, 1997 by and between
Boeing Capital Services Corporation ("BCSC"), formerly McDonnell Douglas
Financial Services Corporation ("MDFS"), a Delaware corporation, and Boeing
Capital Corporation ("BCC"), formerly McDonnell Douglas Finance Corporation
("MDFC"), a Delaware corporation, is hereby amended to read as follows;
"THIS AGREEMENT, dated effective as of August 1, 1997 by and between
Boeing Capital Services Corporation ("BCSC"), formerly McDonnell Douglas
Financial Services Corporation ("MDFS"), a Delaware corporation, and Boeing
Capital Corporation ("BCC"), formerly McDonnell Douglas Finance Corporation
("MDFC"), a Delaware corporation;
W I T N E S S E T H:
WHEREAS, McDonnell Douglas Corporation ("MDC") and the parties hereto
have entered into an Amended and Restated Operating Agreement dated effective as
of April 12, 1993 (the "Operating Agreement"), which provides that MDC shall pay
MDFS for certain tax savings realized by MDC as a result of including MDFS and
its subsidiaries in its consolidated return and that MDFS shall pay MDC for
certain additional taxes incurred by MDC as a result of including MDFS and its
subsidiaries in such return.
WHEREAS, The Boeing Company ("Boeing") and BCSC have entered into a
Supplemental Operating Agreement dated effective as of August 1, 1997 (the
"Supplemental Operating Agreement"), which provides that Boeing shall pay BCSC
for certain tax savings realized by Boeing as a result of including BCSC and its
subsidiaries in its consolidated return and that BCSC shall pay Boeing for
certain additional taxes incurred by Boeing as a result of including BCSC and
its subsidiaries in such return.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Federal Income Taxes. Pursuant to the Supplemental Operating
Agreement, it is the intention of Boeing to continue to file its Federal income
tax returns on a consolidated basis with MDC and BCSC and its subsidiaries in
accordance with the income tax regulations under Section 1502 of the Internal
Revenue Code of 1986, as amended. With respect to each taxable year for which
such practice remains in effect, BCSC agrees to pay to BCC an amount equal to
the excess of (i) the amount of Boeing consolidated Federal income taxes which
would be due for such taxable year if such taxes were computed by excluding BCC
and its subsidiaries, over (ii) the amount of Boeing consolidated Federal income
tax which would be due for such taxable year if such taxes were computed
including BCC and its subsidiaries. If for any such taxable year the amount of
taxes computed in accordance with clause (ii) hereof shall exceed the amount of
taxes computed under clause (i), BCC shall pay BCSC an amount equal to the
excess of the clause (ii) amount over the clause (i) amount. If subsequent to
any payments made by BCSC (or BCC) pursuant to this Section 1, Boeing or BCSC
(or BCC) shall incur Federal income tax losses which under applicable law could
be carried back to the taxable year for which such payments were made, BCC (or
BCSC) will nevertheless be under no obligation to repay to BCSC (or BCC) any
portion of such payments.
Section 2. Miscellaneous.
2.1 This Agreement is not and does not constitute a direct or
indirect guarantee by BCSC of any obligation or debt of BCC.
2.2 This Agreement may be amended, waived or terminated at any
time by written agreement of the parties.
2.3 In no event shall BCC receive an amount under this Agreement
which is materially less (or be obligated to pay an amount which is materially
greater) than the amount that BCC would have received, or have been
obligated to pay, under Section 4 of the Operating Agreement dated as of
January 15, 1975 between MDC and MDFC in the form attached hereto as Exhibit A.
2.4 BCSC hereby assigns to BCC its rights and obligations under
Sections 1, 2 and 3 of the Operating Agreement. 2.5 The Operating
Agreement between MDFS and MDFC dated February 8, 1989 with regard to
Federal Income Taxes is hereby terminated."
BOEING CAPITAL SERVICES CORPORATION
By /S/ THOMAS J. MOTHERWAY
Its President
BOEING CAPITAL CORPORATION
By /S/ MICHAEL C. DRAFFIN
Its Vice President
Boeing Capital Corporation and Subsidiaries
Computation of Ratio of Income to Fixed Charges Exhibit 12
<TABLE>
<CAPTION>
Nine months ended September 30,
Dollars in millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Income:
<S> <C> <C>
Income before provision for income taxes $ 65.7 $ 50.8
Fixed charges 97.6 89.7
-------------------------------------------
Income before provision for income taxes and fixed charges $ 163.3 $ 140.5
===========================================
Fixed charges:
Interest expense $ 95.0 $ 87.1
Preferred stock dividends 2.6 2.6
-------------------------------------------
$ 97.6 $ 89.7
===========================================
Ratio of income before provision for income taxes and fixed
charges to fixed charges 1.67 1.57
===========================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,500
<SECURITIES> 0
<RECEIVABLES> 262,400
<ALLOWANCES> (53,400)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,513,100
<CURRENT-LIABILITIES> 0
<BONDS> 1,531,700
<COMMON> 5,000
0
50,000
<OTHER-SE> 220,400
<TOTAL-LIABILITY-AND-EQUITY> 2,513,100
<SALES> 0
<TOTAL-REVENUES> 181,900
<CGS> 0
<TOTAL-COSTS> 116,200
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 8,700
<INTEREST-EXPENSE> 95,000
<INCOME-PRETAX> 65,700
<INCOME-TAX> 23,700
<INCOME-CONTINUING> 42,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
