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 June 30, 1999
OR
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _________________
- ---------------------------------------------------------------------------
BOEING CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
- ---------------------------------------------------------------------------
Delaware 95-2564584 0-10795
(State or other jurisdiction of (I.R.S. Employer (Commission File No.)
Incorporation or Organization) Identification No.)
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)
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 August 13, 1999: 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>
Part I
Item 1. Financial Statements
Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in millions, except stated value and par value) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Financing receivables:
<S> <C> <C>
Investment in finance leases $ 1,365.0 $ 1,365.0
Notes receivable 582.9 545.7
------------------------------------
1,947.9 1,910.7
Allowance for losses on financing receivables (60.1) (62.1)
------------------------------------
1,887.8 1,848.6
Cash and cash equivalents 20.2 20.3
Equipment under operating leases, net 812.5 889.2
Equipment held for sale or re-lease 73.9 62.3
Other assets 43.0 41.0
------------------------------------
$ 2,837.4 $ 2,861.4
====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 187.9 $ 236.7
Accounts payable and accrued expenses 33.4 35.6
Accounts with Boeing and BCSC 0.9 6.7
Other liabilities 94.6 84.8
Deferred income taxes 391.8 383.3
Long-term debt:
Senior 1,688.1 1,678.7
Subordinated 44.9 54.9
------------------------------------
2,441.6 2,480.7
------------------------------------
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 251.3 236.2
------------------------------------
395.8 380.7
------------------------------------
$ 2,837.4 $ 2,861.4
====================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Income and Income Retained for Growth
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(Dollars in millions) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
<S> <C> <C> <C> <C>
Finance lease income $ 28.8 $ 31.5 $ 58.0 $ 63.4
Interest income on notes receivable 12.7 8.2 25.3 14.9
Operating lease income, net of depreciation expense 16.6 17.2 33.3 34.8
Net gain on disposal or re-lease of assets 6.4 10.4 13.8 15.2
Other 0.6 0.3 1.0 0.8
------------------------------------------------------
65.1 67.6 131.4 129.1
------------------------------------------------------
EXPENSES
Interest expense 31.5 32.2 64.5 64.7
Provision for losses 1.9 2.6 3.6 5.3
Operating expenses 2.7 2.6 5.1 5.2
Other 4.7 0.8 5.1 3.8
------------------------------------------------------
40.8 38.2 78.3 79.0
------------------------------------------------------
Income before provision for income taxes 24.3 29.4 53.1 50.1
Provision for income taxes 9.1 10.9 20.2 18.5
------------------------------------------------------
Net income 15.2 18.5 32.9 31.6
Income retained for growth at beginning of period 245.0 210.5 236.2 208.6
Dividends (8.9) (0.9) (17.8) (12.1)
======================================================
Income retained for growth at end of period $ 251.3 $ 228.1 $ 251.3 $ 228.1
======================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
(Dollars in millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 32.9 $ 31.6
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense - equipment under operating leases 37.8 36.0
Net gain on disposal or re-lease of assets (13.8) (15.2)
Provision for losses 3.6 5.3
Change in assets and liabilities:
Accounts with Boeing and BCSC (5.8) 12.0
Other assets (2.0) (3.5)
Accounts payable and accrued expenses (2.2) (14.9)
Other liabilities 9.8 8.9
Deferred income taxes 8.5 13.6
Other, net (0.6) 0.3
------------------------------------
68.2 74.1
------------------------------------
INVESTING ACTIVITIES
Net change in short-term notes and leases receivable (36.0) (3.2)
Purchase of equipment for operating leases (18.7) (13.5)
Proceeds from disposition of equipment, notes and
leases receivable 87.5 82.9
Collection of notes and leases receivable 164.1 88.3
Acquisition of notes and leases receivable (197.7) (220.4)
------------------------------------
(0.8) (65.9)
------------------------------------
FINANCING ACTIVITIES
Net change in short-term borrowings (48.8) 13.3
Debt having maturities more than 90 days:
Proceeds 145.0 85.0
Repayments (145.9) (121.2)
Payment of cash dividends (17.8) (12.1)
------------------------------------
(67.5) (35.0)
------------------------------------
Net decrease in cash and cash equivalents (0.1) (26.8)
Cash and cash equivalents at beginning of year 20.3 39.1
====================================
Cash and cash equivalents at end of period $ 20.2 $ 12.3
====================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Boeing Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30,1999
(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
("BCSC"), a wholly-owned subsidiary of McDonnell Douglas Corporation ("McDonnell
Douglas"), which in turn 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 sheets and the related consolidated statements of
income and income retained for growth and cash flows for the interim periods
presented. Operating results for the six-month period ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998.
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, $66.4 million of
the Company's income retained for growth was available for dividends at June 30,
1999.
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. (collectively referred to as 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
Plaintiff's allegations, but is unable to determine at this stage of discovery
if the litigation will have any future material adverse effect on the Company's
earnings, cash flow or financial position.
The Company is a party to litigation 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 (collectively referred to as
"Aviaco"). 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 filed a counter-claim against the Company,
asserting nine claims for alleged damages relating to the Company's foreclosure
based on various tort and contractual theories.
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.
In December 1997, the Company filed a Motion for Judgment as a Matter of Law,
arguing, inter alia, to set aside the $10.0 million award as not being supported
by the record evidence or by applicable law. On February 13, 1998, the Judge
ruled in favor of the Company and set aside the $10.0 million award.
On March 2, 1998, the Judge entered a Final Judgment against the Company in the
aggregate amount, including prejudgment interest, of approximately $2.8 million
with post judgment interest thereon at the rate of 5.42% per annum. Aviaco has
appealed the Final Judgment to the United States Court of Appeals for the
Eleventh Circuit. Taking into account amounts reserved for this litigation, the
Company does not expect such litigation to have any future material adverse
effect on its earnings, cash flow or financial position.
A number of legal proceedings and claims are pending or have been asserted
against the Company, many of which 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 $155.0 million (5.6% of total
Company portfolio) and $163.3 million (5.8% of total Company portfolio) at June
30, 1999 and December 31, 1998, respectively. In April 1999, Moody's rating
agency lowered TWA's Outlook from Stable to Negative. McDonnell Douglas provides
guaranties to the Company for certain obligations of TWA under the various lease
agreements between the Company and TWA. At June 30, 1999, the maximum aggregate
coverage under such guaranties was $32.3 million. 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.
World Airways, Inc. ("World") accounted for $172.9 million (6.3% of total
Company portfolio) and $176.4 million (6.3% of total Company portfolio) at June
30, 1999 and December 31, 1998, respectively. World experienced losses in 1998
and its cash balances fell to relatively low levels. Also, Worldcorp Inc., the
majority owner of World, has made a "prepackaged" filing under Chapter 11 of the
U.S. bankruptcy code. With respect to the existing lease agreements between
World and the Company, World has requested that the Company reduce rentals and
maintenance reserve payments. The Company anticipates it will agree to such
requests, subject to satisfactory documentation. The Company has concluded that
the resulting restructuring of these lease transactions, taking into account a
guaranty from McDonnell Douglas, is not expected to have a material adverse
effect on the Company's earnings, cash flow or financial position.
On June 26, 1998, Federal Express Corporation ("FedEx") gave notice to the
Company of its intention to terminate early (in late 1999) two lease agreements
covering MD-11 freighter aircraft which FedEx leases from the Company. Even if
the leases are in fact terminated early, the Company does not anticipate any
material adverse effect on its earnings, cash flow or financial position taking
into account current demand for the aircraft, a guaranty from McDonnell Douglas
and certain other contractual rights including payments due to the Company upon
early termination.
The Company had leased six Embraer EMB-120 aircraft to Westair. As a result of
Westair's cessation of operations at the end of May 1998, the lease agreements
for such aircraft have been terminated and the aircraft have been returned to
the Company. The Company has been remarketing these aircraft (along with other
used EMB-120s it holds for sale or lease). During the second quarter of 1999,
the Company adjusted the carrying value of the ex-Westair aircraft to
approximate their fair value, resulting in a pre-tax loss of approximately $3.4
million. The Company does not expect the disposition of these aircraft to have a
material adverse effect on the Company's earnings, cash flow or financial
position.
In July 1998, the Company terminated early a lease agreement covering one used
DC-10-30 aircraft. The Company has repossessed such aircraft and has been
remarketing it in a currently weak market for this type of aircraft. Taking into
account a guaranty from McDonnell Douglas, the disposition of the aircraft is
not expected to have a material adverse effect on the Company's earnings, cash
flow or financial position.
The Company has a $50.0 million used aircraft purchase bridge facility to
AirTran Airlines ("AirTran"). This facility expires upon delivery to AirTran of
the first scheduled new Boeing 717-200 aircraft, presently expected 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 ("LIBOR"). There
were no amounts outstanding under this agreement at June 30, 1999 or December
31, 1998.
At June 30, 1999, the Company had commitments to provide leasing and other
financing totaling $176.0 million.
In conjunction with prior asset dispositions and certain guaranties, at June 30,
1999, the Company was subject to a maximum recourse of $48.3 million. Based on
trends to date, any 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 June 30, 1999, the Company had guaranteed the repayment of $4.2
million in capital lease obligations associated with a 50% partner.
Item 2. Management's Analysis of Results of Operations
- -------------------------------------------------------------------------------
Forward-Looking Information Is Subject to Risk and Uncertainty
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) that involve risk and uncertainty.
Certain statements in this Form 10-Q, particularly those in Note 3 of the Notes
to Consolidated Financial Statements, Item 2 of Part I and Items 1 and 5 of Part
II, may contain forward-looking information. The subject matter of such
statements may include, but not be limited to, the effects on the Company of the
Boeing-McDonnell Douglas merger and the Year 2000 date conversion, as well as
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 effects on
the Company of the Boeing-McDonnell Douglas merger and the Company's
relationship with Boeing, as well as strategic decisions relating to the Company
to be made by Boeing, the capital equipment requirements of United States 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 and Year 2000
date conversion plans, the impact of Year 2000 issues on the Company's
customers, vendors and service providers, defaults by customers, regulatory
uncertainties and legal proceedings.
- --------------------------------------------------------------------------------
Finance lease income decreased $5.4 million (8.5%) from the first six months of
1998, primarily attributable to two MD-11 aircraft that were sold in August
1998.
Interest on notes receivable increased $10.4 million (69.8%) from the first six
months of 1998, primarily attributable to a $171.8 million net increase in notes
receivable between June 30, 1998 and 1999.
Provision for losses decreased $1.7 million (32.1%) from the first six months of
1998, primarily attributable to the Company's determination that additional
provisions for losses were not necessary or appropriate during the current
period given the valuation and assessment of the portfolio.
Other expenses increased $1.3 million (34.2%) from the first six months of 1998,
primarily attributable to a $4.2 million write-down taken on aircraft returned
to the Company, as compared to maintenance expenses of approximately $2.1
million incurred in the first six months of 1998 on a repossessed aircraft.
Year 2000 Date Conversion
The Year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. When the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize and properly treat the Year 2000 may cause systems to
process financial and operational information incorrectly. In July of 1999 we
decided to replace our independent advisory firm for Year 2000 matters with the
independent advisory firm which installed our new lease administration system
(discussed below). The new firm has commenced work for us and we are in the
process of entering into a definitive agreement with them. As further discussed
below, the new advisory firm will assist us in converting our systems which are
not Year 2000 compliant to systems which are Year 2000 compliant and to test our
systems for Year 2000 compliance. We do not expect this change of firms to have
a material adverse effect on the cost or timing of the Company's Year 2000
compliance efforts.
We have assessed and continue to re-assess the impact of the Year 2000 issue on
our information technology ("IT") systems. One of our principal IT systems is
our lease administration system, by which we keep track of our leases, loans and
certain other financial information. In 1996, we initiated a conversion from our
existing lease administration system to programs that we have been advised are
Year 2000 compliant. We plan to complete conversion of this lease administration
system in the latter half of August of 1999. We plan to test the new lease
administration system during the third quarter of 1999 to confirm that it is
compliant. In the event that such testing proves the system not to be compliant
and the system cannot be made compliant prior to the end of 1999, our operations
could be materially adversely affected.
Our second principal IT system is our general ledger accounting system. We use
our general ledger accounting system to keep track of our financial results. We
are in the process of selecting a general ledger accounting system which is
certified by its manufacturer to be Year 2000 compliant. We expect to commence
converting our general ledger accounting system to a Year 2000 compliant system
in the third quarter of 1999. While we expect the compliant accounting system to
be operational during the fourth quarter of 1999, if it is not, our contingency
plan is to remediate our existing general ledger accounting system at a cost of
approximately $75,000. If our contingency plan for this system fails, our
operations could be materially and adversely affected.
With respect to our IT systems other than our lease administration system and
general ledger accounting system, we intend to develop contingency plans
relating to possible Year 2000 problems to the extent we deem necessary and
appropriate, taking into account the advice of the advisory firm which has begun
examining our IT systems and which we expect will complete its analysis
approximately at the end of the third quarter of 1999.
Although we do not consider it likely that Year 2000 problems inherent within
our IT systems will result in significant operational problems, the possibility
of such problems cannot be discounted at this time.
With respect to our non-IT systems such as our telephone and elevator systems,
we have assessed and continue to re-assess the impact of Year 2000 issues on
these systems. We believe that our non-IT systems are Year 2000 compliant.
However, no assurance can be given that our operations will not be materially
adversely affected by problems with the non-IT systems related to the Year 2000.
The total cost of the Year 2000 conversion efforts to date has been funded
through operating cash flows and has not had a material adverse effect on our
earnings, cash flow or financial position. This amount does not include the cost
of converting to a new lease administrative system, a project initiated in 1996
to accomplish our goal of increasing productivity irrespective of the Year 2000
issue. Based on information available to date, the estimated cost of the
remaining Year 2000 conversion efforts, including any remediation of our IT and
non-IT systems as well as testing of all our systems, is $1.5 million.
We can give no assurance that Year 2000 problems of third parties (such as
vendors, customers and other financial institutions with which we do business)
will not materially and adversely impact our operations or operating results. We
are in the process of assessing the Year 2000 readiness of those third parties
whose lack of Year 2000 readiness could have a material adverse impact on our
operations. In early 1999, we identified and sent inquiries to certain
significant customers and third parties regarding their Year 2000 readiness. We
have received a response from the majority of such third parties and their
responses to date do not indicate a likelihood that their lack of readiness will
have a material adverse effect on our operations. Our assessment of the Year
2000 readiness of certain third parties will continue throughout 1999.
This entire discussion of Year 2000 issues contains forward-looking information
which is subject to uncertainty and risk. See "Forward-Looking Information is
Subject to Risk and Uncertainty" at the outset of this Item 2.
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. (collectively referred to as 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
Plaintiff's allegations, but is unable to determine at this stage of discovery
if the litigation will have any future material adverse effect on the Company's
earnings, cash flow or financial position.
The Company is a party to litigation 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 (collectively referred to as
"Aviaco"). 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 filed a counter-claim against the Company,
asserting nine claims for alleged damages relating to the Company's foreclosure
based on various tort and contractual theories.
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.
In December 1997, the Company filed a Motion for Judgment as a Matter of Law,
arguing, inter alia, to set aside the $10.0 million award as not being supported
by the record evidence or by applicable law. On February 13, 1998, the Judge
ruled in favor of the Company and set aside the $10.0 million award.
On March 2, 1998, the Judge entered a Final Judgment against the Company in the
aggregate amount, including prejudgment interest, of approximately $2.8 million
with post judgment interest thereon at the rate of 5.42% per annum. Aviaco has
appealed the Final Judgment to the United States Court of Appeals for the
Eleventh Circuit. Taking into account amounts reserved for this litigation, the
Company does not expect such litigation to have any future material adverse
effect on its earnings, cash flow or financial position.
A number of legal proceedings and claims are pending or have been asserted
against the Company, many of which 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 2. Changes in Securities and Use of Proceeds
Omitted pursuant to instruction H(2).
Item 3. Defaults Upon Senior Securities
Omitted pursuant to instruction H(2).
Item 4. Submission of Matters to a Vote of Security Holders
Omitted pursuant to instruction H(2).
Item 5. Other Information
Summarized below is information on the effects of the Boeing-McDonnell Douglas
merger, 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 segment.
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.
Boeing is actively conducting a review of the operations of the Company. The
possible ramifications of strategic decisions to be made by Boeing with respect
to the Company are currently unknown and, therefore, cannot be quantified at
this time.
Borrowing Operations
On June 22, 1999, the Company authorized an additional $300.0 million (resulting
in an aggregate of $1.2 billion authorized) of medium-term notes to be offered
and sold from time to time in the Company's discretion pursuant to the Company's
public shelf registration (SEC Registration No. 333-37635). As of June 30, 1999,
the Company issued $716.4 million of the $1.2 billion medium-term notes
authorized, at interest rates ranging from 5.10% to 6.77% and with maturities
ranging from 10 months to 11 years, leaving an unused balance of $483.6 million
on June 30, 1999.
On July 7, 1999, the Company filed with the Securities and Exchange Commission
("SEC") a Form S-3 Registration Statement for a public shelf registration of
$2.5 billion of its debt securities (SEC File No. 333-82391). The Company has
not requested the SEC to declare such Registration Statement to be effective.
The Company presently expects to commence utilizing the new shelf registration
upon completion of its currently effective shelf registration.
Portfolio Balances
Portfolio balances for the Company's financial reporting segments are summarized
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------
Aircraft Financing
Boeing/McDonnell Douglas aircraft financing
<S> <C> <C>
Finance leases $ 783.7 $ 803.3
Operating leases 466.9 513.3
Notes receivable 49.0 82.9
-----------------------------------
1,299.6 1,399.5
-----------------------------------
Other commercial aircraft financing
Finance leases 125.4 131.6
Operating leases 21.4 30.4
Notes receivable 3.5 12.0
-----------------------------------
150.3 174.0
-----------------------------------
Commercial Equipment Leasing and Financing
Finance leases 455.9 430.1
Operating leases 324.2 345.5
Notes receivable 529.8 449.4
-----------------------------------
1,309.9 1,225.0
-----------------------------------
Other 0.6 1.4
===================================
$ 2,760.4 $ 2,799.9
===================================
</TABLE>
New Business Volume
New business volume is summarized as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
(Dollars in millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Boeing/McDonnell Douglas aircraft financing $ 2.5 $ 25.5
Other commercial aircraft financing - 22.5
Commercial equipment leasing and financing 212.4 171.8
-----------------------------------
$ 214.9 $ 219.8
===================================
</TABLE>
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------
Allowance for losses on financing receivables at beginning
<S> <C> <C>
of year $ 62.1 $ 55.9
Provision for losses 3.6 7.4
Write-offs, net of recoveries (5.6) (2.5)
Other - 1.3
====================================
Allowance for losses on financing receivables at end of
period $ 60.1 $ 62.1
====================================
Allowance as a percentage of total receivables 3.1% 3.3%
Net write-offs as percent of average receivables 0.3% 0.1%
More than 90 days delinquent:
Amount of delinquent installments $ 0.3 $ 0.5
Total receivables due from delinquent obligors 1.7 6.7
Total receivables due from delinquent obligors
as a percentage of total receivables 0.1% 0.4%
</TABLE>
Receivable Write-offs, Net of Recoveries by Segment
Commercial aircraft financing had no net write-offs of receivables for the six
months ended June 30, 1999 or 1998. Commercial equipment leasing and financing
had net write-offs of $5.6 million for the six months ended June 30, 1999 and no
write-offs of receivables for the six months ended June 30, 1998.
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.
<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 by its principal accounting
officer, thereunto duly authorized.
Boeing Capital Corporation
August 13, 1999 /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)
EXHIBIT 12
Boeing Capital Corporation and Subsidiaries
Computation of Ratio of Income to Fixed Charges
<TABLE>
<CAPTION>
Six months ended
June 30,
(Dollars in millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Income:
<S> <C> <C>
Income before provision for income taxes $ 53.1 $ 50.1
Fixed charges 66.3 66.8
------------------------------------
Income before provision for income taxes and fixed charges $ 119.4 $ 116.9
====================================
Fixed charges:
Interest expense $ 64.5 $ 64.7
Preferred stock dividends 1.8 2.1
------------------------------------
$ 66.3 $ 66.8
====================================
Ratio of income before provision for income taxes and fixed
charges to fixed charges 1.80 1.75
====================================
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,200
<SECURITIES> 0
<RECEIVABLES> 582,900
<ALLOWANCES> (60,100)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,837,400
<CURRENT-LIABILITIES> 0
<BONDS> 1,733,000
<COMMON> 5,000
0
50,000
<OTHER-SE> 251,300
<TOTAL-LIABILITY-AND-EQUITY> 2,837,400
<SALES> 0
<TOTAL-REVENUES> 131,400
<CGS> 0
<TOTAL-COSTS> 78,300
<OTHER-EXPENSES> 5,100
<LOSS-PROVISION> 3,600
<INTEREST-EXPENSE> 64,500
<INCOME-PRETAX> 53,100
<INCOME-TAX> 20,200
<INCOME-CONTINUING> 32,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,900
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
