<PAGE>
================================================================================
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 September 30, 2000
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)
------------------------
<TABLE>
<S> <C> <C>
Delaware 95-2564584 0-10795
(State or other jurisdiction (I.R.S. Employer (Commission File No.)
of Incorporation or Organization) Identification No.)
</TABLE>
500 Naches Ave., SW, 3rd Floor -- Renton, Washington 98055
(Address of principal executive offices)
(425) 393-2914
(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 November 13, 2000: 50,000 shares
Registrant meets the conditions set forth in General Instruction H(1)(a) and (b)
to Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
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<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in millions, except stated value and par value) 2000 1999
---------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Financing receivables:
Investment in finance leases $ 1,709.4 $ 1,372.8
Notes receivable 1,197.5 708.0
------------------------------
2,906.9 2,080.8
Allowance for losses on financing receivables (138.6) (60.7)
------------------------------
2,768.3 2,020.1
Cash and cash equivalents 55.3 26.9
Equipment under operating leases, net 1,517.6 828.2
Equipment held for sale or re-lease 84.9 66.0
Accounts due from Boeing and BCSC 20.2 2.6
Other assets 46.1 99.8
------------------------------
$ 4,492.4 $ 3,043.6
==============================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 110.0 $ 271.0
Accounts payable and accrued expenses 26.7 38.5
Other liabilities 130.1 96.5
Deferred income taxes 464.5 427.5
Long-term debt:
Senior 3,155.0 1,741.8
Subordinated 25.0 44.9
------------------------------
3,911.3 2,620.2
------------------------------
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 184.6 89.5
Income retained for growth 341.5 278.9
------------------------------
581.1 423.4
------------------------------
$ 4,492.4 $ 3,043.6
==============================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income and Income Retained for Growth
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(Dollars in millions) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Finance lease income $ 38.4 $ 28.2 $ 107.8 $ 86.2
Interest income on notes receivable 29.5 12.9 84.3 38.2
Operating lease income, net of
depreciation expense 31.9 15.4 95.0 48.7
Net gain on disposal or re-lease of
assets 8.4 5.5 16.5 19.3
Other 2.2 0.5 6.2 1.5
------------------------------------------------------
110.4 62.5 309.8 193.9
------------------------------------------------------
EXPENSES
Interest expense 56.3 31.2 165.4 95.7
Provision for losses 2.6 1.9 7.4 5.5
Operating expenses 7.6 2.9 23.3 8.0
Other 1.8 1.4 10.2 6.5
------------------------------------------------------
68.3 37.4 206.3 115.7
------------------------------------------------------
Income before provision for income taxes 42.1 25.1 103.5 78.2
Provision for income taxes 15.8 9.6 38.3 29.8
------------------------------------------------------
Net income 26.3 15.5 65.2 48.4
Income retained for growth at beginning of
period 316.0 251.3 278.9 236.2
Dividends (0.8) (8.8) (2.6) (26.6)
------------------------------------------------------
Income retained for growth at end of period $ 341.5 $ 258.0 $ 341.5 $ 258.0
======================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
(Dollars in millions) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 65.2 $ 48.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense - equipment under operating leases 68.4 55.3
Net gain on disposal or re-lease of assets (16.5) (19.3)
Provision for losses 7.4 5.5
Change in assets and liabilities:
Accounts with Boeing and BCSC (2.3) (25.0)
Other assets 53.7 (29.8)
Accounts payable and accrued expenses (14.0) (19.5)
Other liabilities 3.1 13.2
Deferred income taxes 19.7 34.4
Other, net (21.7) (2.6)
-------------------------------
163.0 60.6
-------------------------------
INVESTING ACTIVITIES
Net change in short-term notes and leases receivable (56.4) (15.2)
Purchase of net assets from Boeing (1,261.9) -
Purchase of equipment for operating leases (199.4) (19.2)
Proceeds from disposition of equipment and leases receivable 70.7 128.2
Collection of notes and leases receivable 535.2 213.1
Acquisition of notes and leases receivable (444.5) (352.6)
-------------------------------
(1,356.3) (45.7)
-------------------------------
FINANCING ACTIVITIES
Net change in short-term notes payable (161.0) (25.3)
Long-term debt:
Intercompany issuance for purchase of net assets from Boeing 1,261.9 -
Proceeds 1,551.6 267.0
Repayments (1,474.0) (242.9)
Payment of cash dividends (1.8) (25.7)
Capital contribution from Boeing 45.0 -
-------------------------------
1,221.7 (26.9)
-------------------------------
Net increase (decrease) in cash and cash equivalents 28.4 (12.0)
Cash and cash equivalents at beginning of year 26.9 20.3
-------------------------------
Cash and cash equivalents at end of period $ 55.3 $ 8.3
===============================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in millions) September 30, 2000
-------------------------------------------------------------------------------------------
<S> <C>
NON-CASH INVESTING AND FINANCING ACTIVITIES FOR STOCK TRANSFER
INCLUDED IN THE PORTFOLIO ACQUISITION (SEE NOTE 1):
Acquisition of leases receivable $ (170.0)
=====================
Acquisition of accounts payable $ 1.4
=====================
Acquisition of intercompany payables $ 60.1
=====================
Acquisition of long-term debt $ 58.4
=====================
Capital contribution from Boeing for stock transfer $ 50.1
=====================
</TABLE>
There were no non-cash investing and financing activities for the nine months
ended September 30, 1999.
See notes to consolidated financial statements.
5
<PAGE>
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note 1 -- Basis of Presentation
Boeing Capital Corporation (the "Company"), formerly McDonnell Douglas
Finance Corporation, is a wholly owned subsidiary of Boeing Capital Services
Corporation ("BCSC"), which is 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 accounting
principles generally accepted in the United States of America 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 accounting principles generally accepted in the
United States of America 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 nine-month
period ended September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. 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, 1999.
As of March 31, 2000, the Company acquired certain tangible assets and
assumed certain liabilities of Boeing and certain subsidiaries of Boeing,
pursuant to a Term Sheet dated as of January 1, 2000 as well as various
definitive asset transfer agreements dated as of March 31, 2000 (collectively
referred to as the "Transfer Agreements"). Under the terms of the Transfer
Agreements, the Company acquired, effective as of January 1, 2000, a
significant portion of Boeing's customer financing portfolio, including lease
and loan agreements and the related receivables and assets (the "Portfolio").
The purchase price was paid in the form of promissory notes, dated January 1,
2000, in the aggregate principal amount of $1,261.9 million, together with an
equity contribution to the Company of $50.1 million. The Company has recorded
an intercompany receivable for $17.3 million from Boeing in consideration for
which the Company will assume Boeing's deferred taxes with respect to the
Portfolio. The statements should be read in conjunction with the notes to the
Statements of Net Assets Acquired and Statements of Revenues, Direct Expenses
and Identified Corporate Expenses included in the Company's Form 8-K dated
April 13, 2000.
The pro forma unaudited consolidated results of operations as though the
Portfolio had been acquired as of January 1, 1999 are estimated as follows:
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in millions) September 30, 1999
--------------------------------------------------------------------------------
<S> <C>
Revenues $ 299.5
Net income $ 28.0
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combinations been in effect on January 1,
1999, or of future results of operations.
6
<PAGE>
Note 2 -- Credit Agreements and Long-Term Debt
As of September 27, 2000, $1.0 billion of the 364-day revolving credit line
of Boeing has been made available to the Company. This new credit facility
replaces the Company's former $1.0 billion substantially similar credit
arrangement, which terminated in accordance with its terms on September 27,
2000.
The provisions of the most restrictive debt covenant prohibit the payment of
cash dividends by the Company to the extent that the Company's consolidated
assets would be less than 115% of its consolidated liabilities after dividend
payments.
Note 3 -- Commitments and Contingencies
Litigation
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
Plaintiff's allegations, but is unable to determine at this stage of the
proceedings 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, among other things, 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
7
<PAGE>
thereon at the rate of 5.42% per annum. Aviaco appealed the Final Judgment to
the United States Court of Appeals for the Eleventh Circuit. On June 8, 2000,
the Court of Appeals affirmed the Final Judgment. In July 2000, Aviaco filed
a petition for rehearing. In October 2000, the Court denied Aviaco's
petition. Taking into account amounts reserved for this litigation, the
Company does not expect such litigation to have any material adverse effect
on its earnings, cash flow or financial position.
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.
Other
Viacao Aerea Rio-Grandense ("VARIG") accounted for $343.4 million (7.8% of
total Company portfolio) as of September 30, 2000. VARIG has defaulted on its
obligations under leases within the Portfolio in recent years, which has
resulted in deferrals and restructurings. Taking into account collateral
values, as well as certain first loss deficiency and lease rental guaranties,
which Boeing has provided to the Company covering a portion of the VARIG
obligations, it is not expected that the VARIG transactions will have a
material adverse effect on the Company's earnings, cash flow or financial
position.
World Airways, Inc. ("World") accounted for $168.3 million (3.8% of total
Company portfolio) and $170.2 million (5.9% of total Company portfolio) at
September 30, 2000 and December 31, 1999, respectively. Based on publicly
available information, World reported net income of $19.7 million for the
nine months ended September 30, 2000. During the third quarter 2000, World
restated year-to-date results due to a significant positive accounting change
of $22.2 million. McDonnell Douglas provides first loss deficiency and lease
rental guaranties to the Company for certain obligations of World under
various lease agreements between the Company and World. Taking into account
the guaranties and collateral values, it is not expected that the World
transactions will have a material adverse effect on the Company's earnings,
cash flow or financial position.
Trans World Airlines, Inc. ("TWA") accounted for $135.3 million (3.1% of
total Company portfolio) and $147.3 million (5.1% of total Company portfolio)
at September 30, 2000 and December 31, 1999, respectively. In April 1999,
Moody's Investors Service lowered TWA's Outlook from Stable to Negative.
Based on publicly available information, in the third quarter of 2000, TWA
incurred another net loss and reported a year-to-date net loss of $115.1
million for the nine months ended September 30, 2000. McDonnell Douglas
provides first loss deficiency guaranties to the Company for certain
obligations of TWA under the various lease agreements between the Company and
TWA. At September 30, 2000, the maximum aggregate coverage under such
guaranties was $40.9 million. As of the date hereof, TWA is current on its
payment obligations to the Company. If, however, TWA were to default on its
payment obligations to the Company, this could have a material adverse effect
on the Company's earnings, cash flow or financial position.
At September 30, 2000, the Company had commitments to provide leasing and
other financing totaling $646.0 million, of which $317.6 million related to
financing new Boeing commercial aircraft. The Company anticipates that not
all of these commitments will be utilized and that it will be able to arrange
for third-party investors to assume a portion of the remaining commitments.
In conjunction with prior asset dispositions and certain guaranties, at
September 30, 2000, the Company was subject to a maximum contingent liability of
$96.5 million. Based on trends to date, any losses related to such exposure are
not expected by the Company to be significant.
8
<PAGE>
The Company leases aircraft under capital leases which have been subleased to
others. At September 30, 2000, the Company had guaranteed the repayment of
$3.6 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, and particularly 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 impact on the Company of
strategic decisions of Boeing, the level of new financing opportunities made
available to the Company by Boeing, 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 Company's relationship with Boeing, as well as strategic decisions of
Boeing relating to the Company, the capital equipment requirements of United
States and foreign businesses, capital availability and cost, changes in laws
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 particularly
including implementation of the Company's directive from Boeing to lead the
Boeing-wide customer financing efforts, defaults by customers, regulatory
uncertainties and legal proceedings.
--------------------------------------------------------------------------------
Finance lease income increased $21.6 million (25.0%) from the first nine
months of 1999, primarily attributable to new volume of commercial finance
leases and an increase in finance leases as a result of the Portfolio
acquisition (see Note 1 of the Notes to Consolidated Financial Statements in
Item 1).
Interest on notes receivable increased $46.1 million (120.7%) from the first
nine months of 1999, primarily attributable to new volume of commercial
finance (formerly referred to as commercial equipment leasing and financing)
notes receivable and an increase in notes receivable as a result of the
Portfolio acquisition.
Net operating lease income increased $46.3 million (95.1%) from the first
nine months of 1999, primarily attributable to an increase in operating
leases as a result of the Portfolio acquisition.
Gain on disposal or re-lease of assets decreased $2.8 million (14.5%) from
the first nine months of 1999, primarily attributable to three large sales
within the commercial finance portfolio in the first nine months of 1999, as
compared to the first nine months of 2000.
Other income increased $4.7 million (313.3%) from the first nine months of
1999, primarily attributable to $2.5 million of fee income, $1.1 million in
intercompany interest income earned on cash
9
<PAGE>
received by Boeing on the Company's behalf for payments on leases and loans
included in the Portfolio acquisition and $1.1 million in intercompany
interest income on a note between the Company and BCSC.
Interest expense increased $69.7 million (72.8%) from the first nine months
of 1999, primarily attributable to the debt incurred in connection with the
Portfolio acquisition and a higher level of borrowings in 2000 as a result of
increased financing activity.
Provision for losses increased $1.9 million (34.5%) from the first nine
months of 1999, primarily attributable to the increase in financing
receivables as a result of the Portfolio acquisition.
Operating expenses increased $15.3 million (191.3%) from the first nine
months of 1999, primarily attributable to the addition of employees and
nonrecurring professional service fees incurred in 2000 for various project
assistance.
Other expenses increased $3.7 million (56.9%) from the first nine months of
1999, primarily attributable to a $6.7 million write-off of charges relating
to the discontinuation of a new lease administration system conversion
project in the second quarter of 2000, as compared to a $4.2 million
write-down taken on aircraft returned to the Company in the second quarter of
1999.
Impact of Boeing's Customer Financing Consolidation
In 1999, the commercial aircraft financing group had negligible new business
volume largely due to the fact that the Company was awaiting the decision
made by Boeing in the fourth quarter of 1999 that the Company would have
responsibility for Boeing's customer financing efforts. Now that such
decision has been made, the Company is expected to experience a very
significant increase in new commercial aircraft financing volume compared
with prior years.
As of March 31, 2000, the Company acquired certain tangible assets and
assumed certain liabilities of Boeing and certain subsidiaries of Boeing,
pursuant to a Term Sheet dated as of January 1, 2000 as well as the various
definitive asset transfer agreements dated as of March 31, 2000. Under the
terms of the Transfer Agreements, the Company acquired, effective as of
January 1, 2000, a significant portion of Boeing's customer financing
portfolio, including lease and loan agreements and the related receivables
and assets. The purchase price was paid in the form of promissory notes,
dated January 1, 2000, in the aggregate principal amount of $1,261.9 million,
together with an equity contribution to the Company of $50.1 million. The
Company has recorded an intercompany receivable for $17.3 million from Boeing
in consideration for which the Company will assume Boeing's deferred taxes
with respect to the Portfolio.
A portion of Boeing's unfunded commercial aircraft financing commitments
existing as of September 30, 2000 of approximately $7,428.3 million may be
funded by the Company, on a transaction by transaction basis, subject to
approval of each transaction by the Company's investment committee (which may
require credit enhancements from Boeing or other parties or other conditions
the Company deems necessary to meet the Company's investment requirements).
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to instruction H(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. (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 the
proceedings 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, among other things, 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 appealed the Final Judgment to the United States Court of Appeals for
the Eleventh Circuit. On June 8, 2000, the Court of Appeals affirmed the
Final Judgment. In July 2000, Aviaco filed a petition for rehearing. In
October 2000, the Court denied
11
<PAGE>
Avaico's petition. Taking into account amounts reserved for this litigation,
the Company does not expect such litigation to have any material adverse
effect on its earnings, cash flow or financial position.
A number of other 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 borrowing operations, portfolio balances, new
business volume, analysis of allowance for losses on financing receivables and
credit loss experience, receivable write-offs, net of recoveries by segment and
appointment of new officer.
Borrowing Operations
On July 7, 1999, the Company filed with the SEC a Form S-3 Registration
Statement (SEC File No. 333-82391) for a public shelf registration of $2.5
billion of its debt securities. In the third quarter of 2000, the Company
filed Amendments to its Form S-3 Registration Statement which will permit the
Company to offer the $2.5 billion together with the remaining $140.0 million
from the Company's prior Registration Statement (SEC File No. 333-37635),
pursuant to Rule 429. On August 31, 2000, the SEC declared the Registration
Statement (SEC File No. 333-82391) to be effective. On September 27, 2000,
the Company issued $1.5 billion in senior global notes consisting of three
tranches: $500.0 million Floating Rate Senior Notes due 2002, $500.0 million
7.10% Senior Notes due 2005 and $500.0 million 7.375% Senior Notes due 2010.
The remaining $1.14 billion was allocated to a new medium-term note program.
As of September 30, 2000, there were no issuances under this program.
As of September 27, 2000, $1.0 billion of the 364-day revolving credit line
of Boeing has been made available to the Company. This new credit facility
replaces the Company's $1.0 billion substantially similar credit arrangement,
which terminated in accordance with its terms on September 27, 2000. The
agreements relating to the new credit line are included with this report on
Form 10-Q as Exhibit 10.1 and Exhibit 10.2.
12
<PAGE>
Portfolio Balances
Portfolio balances for the Company's financial reporting segments are summarized
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in millions) 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL AIRCRAFT FINANCING
Boeing commercial aircraft financing
Finance leases $ 986.1 $ 744.7
Operating leases 1,085.3 470.0
Notes receivable 353.2 51.8
-----------------------------
2,424.6 1,266.5
-----------------------------
Other commercial aircraft financing
Finance leases 111.5 119.8
Operating leases 23.9 21.3
Notes receivable 2.7 3.2
-----------------------------
138.1 144.3
-----------------------------
COMMERCIAL FINANCE
Finance leases 611.8 508.3
Operating leases 408.4 336.9
Notes receivable 841.1 652.4
-----------------------------
1,861.3 1,497.6
-----------------------------
OTHER 0.5 0.6
-----------------------------
$ 4,424.5 $ 2,909.0
=============================
</TABLE>
New Business Volume
New business volume is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
(Dollars in millions) 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
Boeing commercial aircraft financing $ 96.6 $ 7.0
Other commercial aircraft financing - 0.1
Commercial finance 547.3 363.3
-----------------------------
$ 643.9 $ 370.4
=============================
</TABLE>
13
<PAGE>
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in millions) 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for losses on financing receivables at beginning
of year $ 60.7 $ 62.1
Provision for losses 7.4 7.4
Net write-offs (7.2) (8.8)
Allowance acquired from Boeing 77.7 -
-----------------------------
Allowance for losses on financing receivables at end of
period $ 138.6 $ 60.7
=============================
Allowance as a percentage of total receivables 4.8% 2.9%
Net write-offs as percent of average receivables 0.2% 0.4%
More than 90 days delinquent:
Amount of delinquent installments $ 10.7 $ 0.1
Total receivables due from delinquent obligors 109.8 0.8
Total receivables due from delinquent obligors
as a percentage of total receivables 3.8% 0.1%
</TABLE>
Receivable Write-offs, Net of Recoveries by Segment
Commercial aircraft financing had no net write-offs of receivables for the nine
months ended September 30, 2000 or 1999. Commercial finance had net write-offs
of receivables of $7.2 million and $6.7 million for the nine months ended
September 30, 2000 and September 30, 1999, respectively.
Appointment of New Officer
On November 1, 2000, James F. Palmer was elected President of the Company,
replacing Thomas J. Motherway. Mr. Palmer, a senior vice president of Boeing and
a member of the Executive Council of Boeing, has been a member of the Company's
board of directors since November 1999. In his capacity as President of the
Company, Mr. Palmer will report to the Office of the Chairman of Boeing. On
October 31, 2000, Phil Condit, the CEO of Boeing, announced that "We are
elevating the reporting level of Boeing Capital Corporation and moving Jim
Palmer into the leadership position to enable us to use his strong financial and
leadership skills to rapidly expand our position in this fast-growing,
high-opportunity business area."
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.1 Revolving Credit Agreement, dated September 27, 2000.
Exhibit 10.2 Borrower Subsidiary Letter, dated September 27, 2000.
Exhibit 12 Computation of Ratio of Income to Fixed Charges.
Exhibit 27 Financial Data Schedule.
B. Reports on Form 8-K
Form 8-K dated September 18, 2000 to report under Item 5, the Operating
Agreements entered into by the Company, BCSC and Boeing.
15
<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
November 13, 2000 /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)
and Chief Operations Officer
16
