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 June 30, 2001
OR
|_| Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________________ to _________________
Commission File Number 0-10795
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BOEING CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2564584
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 Naches Ave., SW, 3rd Floor o 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 August 8, 2001: 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.
Part I
Item 1. Financial Statements
Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
(Dollars in millions, except stated value and par value) 2001 2000
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(Unaudited)
ASSETS
Financing receivables:
Investment in finance leases $ 2,730.4 $ 1,670.7
Notes receivable 1,739.6 1,481.7
------------------------------------
4,470.0 3,152.4
Allowance for losses on financing receivables (123.9) (136.4)
------------------------------------
4,346.1 3,016.0
Cash and cash equivalents 102.2 48.6
Equipment under operating leases, net 2,412.1 2,151.0
Equipment held for sale or re-lease 211.1 101.2
Accounts due from Boeing and BCSC 159.5 215.8
Other assets 257.6 123.3
------------------------------------
$ 7,488.6 $ 5,655.9
====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 156.0 $ 652.9
Accounts payable and accrued expenses 89.4 62.5
Other liabilities 163.9 135.0
Deferred income taxes 651.5 468.8
Long-term debt:
Senior 5,463.3 3,635.4
Subordinated 24.2 29.2
------------------------------------
6,548.3 4,983.8
------------------------------------
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 425.7 234.5
Accumulated other comprehensive loss, net of tax (2.5) -
Income retained for growth 462.1 382.6
------------------------------------
940.3 672.1
------------------------------------
$ 7,488.6 $ 5,655.9
====================================
See Notes to Consolidated Financial Statements.
Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Income, Comprehensive Income and Income Retained for Growth
(Unaudited)
Three months ended Six months ended
June 30, June 30,
(Dollars in millions) 2001 2000 2001 2000
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REVENUES
Finance lease income $ 66.3 $ 36.6 $ 103.9 $ 69.4
Interest income on notes receivable 34.8 27.9 70.6 54.8
Operating lease income, net of depreciation
expense 46.0 31.7 92.6 63.1
Net gain on disposal or re-lease of assets 25.6 5.0 28.2 8.1
Other 23.9 3.5 28.6 4.0
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196.6 104.7 323.9 199.4
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EXPENSES
Interest expense 91.3 53.0 164.0 109.1
Provision for losses 3.3 2.5 6.1 4.8
Operating expenses 11.5 8.3 21.3 15.7
Other 3.1 7.6 4.9 8.4
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109.2 71.4 196.3 138.0
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Income before provision for income taxes 87.4 33.3 127.6 61.4
Provision for income taxes 31.8 12.2 46.3 22.5
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Net income 55.6 21.1 81.3 38.9
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Other comprehensive income (loss), before tax:
Cumulative effect of accounting change - - (9.2) -
Unrealized gain on derivative
instruments 0.5 - 0.2 -
Unrealized gain on investment 3.2 - 5.1 -
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Total other comprehensive income (loss),
before tax 3.7 - (3.9) -
Income tax (expense) benefit related to items
of other comprehensive income (loss) (1.3) - 1.4 -
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Total other comprehensive income (loss),
net of tax 2.4 - (2.5) -
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Comprehensive income $ 58.0 $ 21.1 $ 78.8 $ 38.9
===================================================================
Income retained for growth at beginning of
period $ 407.4 $ 295.8 $ 382.6 $ 278.9
Net income 55.6 21.1 81.3 38.9
Dividends (0.9) (0.9) (1.8) (1.8)
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Income retained for growth at end of period $ 462.1 $ 316.0 $ 462.1 $ 316.0
===================================================================
See Notes to Consolidated Financial Statements.
Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30,
(Dollars in millions) 2001 2000
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OPERATING ACTIVITIES
Net income $ 81.3 $ 38.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense - equipment under operating leases 69.8 46.5
Net gain on disposal or re-lease of assets (28.2) (8.1)
Provision for losses 6.1 4.8
Unrealized gain on derivative instruments (14.5) -
Change in assets and liabilities:
Accounts with Boeing and BCSC 56.3 12.8
Other assets (59.7) 9.8
Accounts payable and accrued expenses 26.9 (1.9)
Other liabilities (7.2) 2.9
Deferred income taxes 184.1 (2.8)
Other, net (47.8) (7.0)
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267.1 95.9
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INVESTING ACTIVITIES
Net change in short-term notes and leases receivable 65.2 (81.3)
Purchase of net assets from Boeing (859.5) (1,261.9)
Purchase of equipment for operating leases (351.5) (59.1)
Proceeds from disposition of equipment and leases receivable 88.7 54.8
Collection of notes and leases receivable 428.3 505.6
Acquisition of notes and leases receivable (1,100.9) (285.8)
-------------------------------------
(1,729.7) (1,127.7)
-------------------------------------
FINANCING ACTIVITIES
Net change in short-term notes payable (496.9) 249.1
Long-term debt:
Intercompany issuance for purchase of net assets from Boeing 395.6 1,261.9
Proceeds 2,050.0 51.6
Repayments (621.9) (559.8)
Payment of cash dividends (1.8) (1.8)
Capital contributions from Boeing 191.2 45.0
-------------------------------------
1,516.2 1,046.0
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Net increase in cash and cash equivalents 53.6 14.2
Cash and cash equivalents at beginning of year 48.6 26.9
-------------------------------------
Cash and cash equivalents at end of period $ 102.2 $ 41.1
=====================================
See Notes to Consolidated Financial Statements.
Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
(Dollars in millions) June 30, 2000
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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
==========================
There were no non-cash transactions that require disclosure for the six months
ended June 30, 2001.
See Notes to Consolidated Financial Statements.
Boeing Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
Note 1 -- Interim Reporting
Basis of Presentation
Boeing Capital Corporation (the "Company") 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, comprehensive income and income
retained for growth and cash flows for the interim periods presented. Operating
results for the six-month period ended June 30, 2001, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001. 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, 2000.
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"). This transfer was not
accounted for as new business volume. 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 recorded an intercompany receivable for $17.3 million from
Boeing in consideration for which the Company assumed Boeing's deferred taxes
with respect to the Portfolio. The promissory notes were paid in full during the
third quarter of 2000.
Financial Instruments
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements require that all derivative financial instruments,
such as interest rate swap contracts, be recognized in the financial statements
and measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or shareholder's equity (as a component of
other comprehensive loss), depending on whether the derivative is being used to
hedge changes in fair value or cash flows.
With the adoption of SFAS No. 133, the Company recognized a cumulative effect
type transition adjustment to accumulated other comprehensive loss at January 1,
2001, of $9.2 million ($5.9 million after tax).
Derivative Financial Instruments
The Company uses derivative financial instruments principally to manage the risk
that changes in interest rates will affect either the fair value of its debt
obligations or the amount of its future interest payments and to adjust certain
other transactions. The following is a summary of the Company's risk management
strategies and the effect of these strategies on the consolidated financial
statements.
Interest Rate Risk Management
The Company uses interest rate swap contracts to adjust the amount of total debt
that is subject to variable and fixed interest rates. Under an interest rate
swap contract, the Company either agrees to pay semi-annually or quarterly an
amount equal to a specified variable rate of interest multiplied by a notional
principal amount, and to receive semi-annually or quarterly in return an amount
equal to a specified fixed rate of interest multiplied by the same notional
principal amount or, vice versa, to receive a variable-rate amount and to pay a
fixed-rate amount. The notional amounts of the contract are not exchanged. No
other cash payments are made unless the contract is terminated prior to
maturity, in which case the amount paid or received in settlement is established
by agreement at the time of termination, and usually represents the market
quotation, at current rates of interest, of the remaining obligations to
exchange payments under the terms of the contract. Interest rate swap contracts
are entered into with a number of major financial institutions in order to
diversify counterparty credit risk.
Pursuant to SFAS No. 133, the Company accounts for its interest rate swap
contracts differently depending upon whether the contract receives hedge
accounting treatment and upon the nature of the exposure being hedged. Interest
rate swap contracts under which the Company agrees to pay variable rates of
interest are generally designated as hedges of changes in the fair value of the
Company's fixed-rate debt obligations. Accordingly, such interest rate swap
contracts are reflected at fair value on the Company's consolidated balance
sheets and the related portion of fixed-rate debt being hedged is reflected at
an amount equal to the sum of its carrying value plus an adjustment representing
the change in fair value of the debt obligations attributable to the interest
rate risk being hedged. In addition, changes during any accounting period in the
fair value of these interest rate swap contracts, as well as offsetting changes
in the adjusted carrying value of the related portion of fixed-rate debt being
hedged, are recognized as adjustments to interest expense on the Company's
consolidated statements of income, comprehensive income and income retained for
growth. The net effect of this accounting on the Company's operating results is
that interest expense on the portion of fixed-rate debt being hedged is
generally recorded based on variable interest rates. At June 30, 2001, the
Company held eleven interest rate swaps that are accounted for under these
criteria. For the quarter ended June 30, 2001, the Company terminated five
interest rate swaps and entered into an additional seven interest rate swaps
that met the same criteria. These interest rate swaps are considered to be
perfectly effective because they qualify for the "short-cut method" under SFAS
No. 133, and therefore, no net change in fair value will be recognized in
income.
Interest rate swap contracts under which the Company agrees to pay fixed rates
of interest are generally designated as hedges of changes in the amount of
future cash flows associated with the Company's interest payments on
variable-rate debt obligations. Accordingly, the interest rate swap contracts
are reflected at fair value on the Company's consolidated balance sheets and the
related gains or losses on these contracts are recorded in shareholder's equity
as a component of accumulated other comprehensive loss. The net effect on the
Company's operating results is that interest expense on the portion of
variable-rate debt being hedged is generally recorded based on fixed interest
rates. At June 30, 2001, the Company held one interest rate swap that is
accounted for under these criteria. This interest rate swap is considered to be
perfectly effective because it qualifies for the "short-cut method" under SFAS
No. 133, and therefore, any changes in fair value are exactly offset by changes
in the hedged cash flows.
In addition to the interest rate swaps that qualify for the short-cut method, at
June 30, 2001, the Company held seven other interest rate swaps and seven
interest exchange agreements. Under SFAS No. 133, both the interest rate swaps
and the interest exchange agreements qualify as derivative instruments. The
interest exchange agreements have identical characteristics to interest rate
swaps. Both the interest rate swaps and the interest exchange agreements
constitute an integral part of seven Japanese Leverage Leases ("JLL's") where
each JLL contains one interest rate swap and one interest exchange agreement.
Economically, the intent of the interest rate swaps is to "hedge" the exposure
created by the interest exchange agreements. However, because the exposure being
hedged is a derivative instrument, this relationship does not qualify for hedge
accounting under SFAS No. 133. As a result, changes in fair value of both
instruments are immediately recognized in income. Although changes in fair value
from these derivative instruments are recognized in income, the JLL's are
structured so that changes in fair value of interest rate swaps are
significantly offset by any changes in fair value of interest exchange
agreements in income. For the six months ended June 30, 2001, these interest
rate swaps resulted in expense of $2.3 million and the interest exchange
agreements resulted in income of $1.4 million.
As of June 30, 2001, interest rate swaps are reflected at a fair value of $24.2
million in other assets and $21.9 million in other liabilities. Offsetting
amounts are reflected in accumulated other comprehensive loss of $9.1 million
($5.8 million after tax), underlying long term senior debt of $8.7 million and
net other expense of $1.6 million. During the next twelve months, the Company
expects to reclassify to expense $2.8 million from the amount recorded in
accumulated other comprehensive loss and recognize income of $11.9 million
related to the basis adjustment of certain underlying liabilities.
The Company believes that it is unlikely that any of its counterparties will be
unable to perform under the terms of derivative financial instruments.
Credit Enhancement
The Company uses equity conversion options and warrants in certain transactions
to enhance the income potential of these transactions.
As of June 30, 2001, an equity conversion option and warrants are reflected at a
fair value of $37.5 million in other assets. These were initially recorded based
on their fair value as a discount to notes receivable of $19.9 million. The
change in fair value for the six months ended June 30, 2001 of $17.6 million was
recorded in other income.
Note 2 -- Credit Agreements and Long-Term Debt
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 permitted the Company to
offer the $2.5 billion of debt securities together with the remaining $140.0
million of debt securities under 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 received proceeds from the issuance of $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 the Company's Series XI medium-term note program. As of June 30,
2001, the Company had issued and sold $800.0 million in aggregate principal
amount of such medium-term notes, at interest rates ranging from 4.07% to 6.68%
and with maturities ranging from one to seven years.
On February 16, 2001, the Company filed with the SEC a Form S-3 Registration
Statement for a public shelf registration of $5.0 billion of its debt securities
(SEC File No. 333-55846). On February 26, 2001, the SEC declared such
Registration Statement to be effective. On March 8, 2001, the Company received
proceeds from the issuance of $750.0 million in 6.10% senior notes due 2011. On
May 10, 2001, the Company received proceeds from the issuance of $1.0 billion in
5.65% senior notes due 2006.
As of September 27, 2000, $1.0 billion of the 364-day revolving credit line of
Boeing was made available to the Company. This new credit facility replaced the
Company's $1.0 billion substantially similar credit arrangement, which
terminated in accordance with its terms on September 27, 2000, and which, in
turn, replaced the Company's former $240.0 million credit line that was
terminated on March 30, 2000. At June 30, 2001, there were no amounts
outstanding under this arrangement.
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. At June 30, 2001, the Company was in compliance with all of its debt
covenants.
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.
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.
Other
Viacao Aerea Rio-Grandense ("VARIG") accounted for $327.2 million (4.8% of total
Company portfolio) and $339.4 million (6.4% of total Company portfolio) at
June 30, 2001 and December 31, 2000, respectively. VARIG has defaulted on its
obligations under leases within the Portfolio in recent years, which has
resulted in deferrals and restructurings. The Company is currently considering
whether to grant deferrals of certain delinquent payments owing from VARIG.
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.
On April 9, 2001, the Company's existing leases with Trans World Airlines, Inc.
("TWA") were amended, restated and assigned by TWA to a wholly owned subsidiary
of American Airlines, Inc. ("American"), whose obligations under the leases are
guaranteed by American. The amendments to these leases include, among other
changes, substantially reduced rental rates. As a result, the Company collected
the full amounts owing under first loss deficiency guaranties from McDonnell
Douglas for certain obligations of TWA under the lease agreements between the
Company and TWA relating to MD-83 aircraft.
In addition to the existing leases with TWA, on April 9, 2001, the Company
acquired a portfolio of aircraft that were previously operated by TWA from
Boeing and entered into amended and restated leases with American or a
subsidiary of American (whose obligations are guaranteed by American), for 51
aircraft, consisting of 34 MD-80, two B-757 and 15 B-717 aircraft. These
acquired assets were recorded at $859.5 million, which is net of non-recourse
financing of $425.0 million. This non-recourse financing was repaid on May 24,
2001 from proceeds received on that day from the issuance by American of
$1,319.6 million of Enhanced Equipment Trust Certificates (EETC) which is also
non-recourse to the Company. Of the proceeds of such issuance, $634.8 million
related to the 32 aircraft in which the Company has an interest and the proceeds
thereof were used by the Company to pay off the original non-recourse financing
and the remainder was applied to general corporate purposes. Additionally, the
Company recorded $143.5 million in deferred taxes in conjunction with this
acquisition. After giving effect to this acquisition, American is the Company's
largest customer, accounting for approximately 15.7% and 14.7% of the total
Company portfolio as of April 9, 2001 and June 30, 2001, respectively. The
Company has received long-term rental guaranties from Boeing on certain of the
shorter-term leases to ensure that the leases meet the Company's minimum
investment requirements. These guaranties apply to 8.2% of the total Company
portfolio as of June 30, 2001. This asset acquisition is more particularly
described in the Company's Current Report on Form 8-K and Form 8-K/A dated
April 9, 2001 (filed with the SEC on April 24, 2001 and June 26, 2001,
respectively).
At June 30, 2001, the Company had commitments to provide leasing and other
financing totaling $1,937.5 million, of which $1,332.0 million related to
aircraft financing commitments. The Company anticipates that not all of these
commitments will be utilized.
Boeing and BCSC had unfunded aircraft financing commitments existing at June 30,
2001 of approximately $3,772.6 million. The Company may ultimately fund a
portion of such commitments, subject to approval on a transaction by transaction
basis by the Company's investment committee, which may require credit
enhancements from Boeing or other parties or other conditions to meet the
Company's investment requirements.
In conjunction with prior asset dispositions and certain guaranties, at June 30,
2001, the Company was subject to a maximum contingent liability of $105.4
million; however, $7.4 million of such amount has been indemnified by Boeing and
is included in the amounts guaranteed by Boeing. Based on trends to date, any
losses related to such exposure are not expected by the Company to be
significant.
Item 2. Management's Analysis of Results of Operations
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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 Notes 1, 2 and 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 $34.5 million (49.7%) from the first six months
of 2000, primarily attributable to new volume of finance leases within the
aircraft financial services (formerly referred to as commercial aircraft
financing) portfolio.
Interest on notes receivable increased $15.8 million (28.8%) from the first six
months of 2000, primarily attributable to new volume of commercial financial
services (formerly referred to as commercial finance) and aircraft financial
services notes receivable.
Net operating lease income increased $29.5 million (46.8%) from the first six
months of 2000, primarily attributable to new volume of commercial financial
services and aircraft financial services operating leases.
Net gain on disposal or re-lease of assets increased $20.1 million (248.1%) from
the first six months of 2000, primarily attributable to $24.1 million of income
from sales within the aircraft financial services portfolio during the second
quarter of 2001, offset by a decrease in gains within the commercial financial
services portfolio.
Other income increased $24.6 million (615.0%) from the first six months of 2000,
primarily attributable to $16.6 million of net unrealized gain on derivative
instruments in accordance with SFAS No. 133, $5.1 million in intercompany
interest income on a note between the Company and Boeing and dividend income of
$2.0 million.
Interest expense increased $54.9 million (50.3%) from the first six months of
2000, primarily attributable to debt issued in connection with a higher level of
borrowings as a result of increased financing activity.
Provision for losses increased $1.3 million (27.1%) from the first six months of
2000, primarily attributable to the increase in financing receivables within the
commercial financial services and aircraft financial services portfolios.
Operating expenses increased $5.6 million (35.7%) from the first six months of
2000, primarily attributable to the addition of employees offset by a decrease
in non-recurring professional service fees incurred as compared to the first six
months of 2000.
Other expenses decreased $3.5 million (41.7%) from the first six months of 2000,
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, offset by an increase in expenses incurred in 2001
relating to aircraft held for sale or re-lease.
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.
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 and receivable write-offs, net of recoveries by segment.
Borrowing Operations
The Company principally relies on funds from operations and borrowings to
operate its business. Borrowings include commercial paper, secured and unsecured
senior and subordinated long-term debt and bank borrowings. The Company also
utilizes interest rate swap agreements to manage interest costs and risk
associated with changing interest rates.
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 permitted the Company to
offer the $2.5 billion of debt securities together with the remaining $140.0
million of debt securities under 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 received proceeds from the issuance of $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 the Company's Series XI medium-term note program. As of June 30,
2001, the Company had issued and sold $800.0 million in aggregate principal
amount of such medium-term notes, at interest rates ranging from 4.07% to 6.68%
and with maturities ranging from one to seven years.
On February 16, 2001, the Company filed with the SEC a Form S-3 Registration
Statement for a public shelf registration of $5.0 billion of its debt securities
(SEC File No. 333-55846). On February 26, 2001, the SEC declared such
Registration Statement to be effective. On March 8, 2001, the Company received
proceeds from the issuance of $750.0 million in 6.10% senior notes due 2011. On
May 10, 2001, the Company received proceeds from the issuance of $1.0 billion in
5.65% senior notes due 2006.
As of September 27, 2000, $1.0 billion of the 364-day revolving credit line of
Boeing was made available to the Company. This new credit facility replaced the
Company's $1.0 billion substantially similar credit arrangement, which
terminated in accordance with its terms on September 27, 2000, and which, in
turn, replaced the Company's former $240.0 million credit line that was
terminated on March 30, 2000. At June 30, 2001, there were no amounts
outstanding under this arrangement.
Portfolio Balances
Portfolio balances for the Company's financial reporting segments are summarized
as follows:
June 30, December 31,
(Dollars in millions) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Aircraft Financial Services
Boeing commercial aircraft
Finance leases $ 2,037.1 $ 977.2
Operating leases 1,848.1 1,692.0
Notes receivable 777.8 595.0
-----------------------------------
4,663.0 3,264.2
-----------------------------------
Other commercial aircraft
Finance leases 100.7 107.7
Operating leases 71.0 58.4
Notes receivable 2.2 2.5
-----------------------------------
173.9 168.6
-----------------------------------
Commercial Financial Services
Finance leases 592.6 585.7
Operating leases 493.0 400.7
Notes receivable 955.4 883.7
-----------------------------------
2,041.0 1,870.1
-----------------------------------
Space and Defense Financial Services
Notes receivable 3.7 -
-----------------------------------
3.7 -
-----------------------------------
Other 0.5 0.5
-----------------------------------
$ 6,882.1 $ 5,303.4
===================================
New Business Volume
New business volume is summarized as follows:
Six months ended
June 30,
(Dollars in millions) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Aircraft financial services - Boeing commercial aircraft $ 1,093.3 $ 2.0
Aircraft financial services - Other commercial aircraft 14.6 -
Commercial financial services 356.6 343.0
Space and defense financial services 15.8 -
-----------------------------------
$ 1,480.3 $ 345.0
===================================
Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
June 30, December 31,
(Dollars in millions) 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Allowance for losses on financing receivables at beginning
of year $ 136.4 $ 60.7
Provision for losses 6.1 10.2
Write-offs, net of recoveries (18.3) (12.4)
Allowance acquired from Boeing - 77.9
Other (0.3) -
-------------------------------------
Allowance for losses on financing receivables at end of
period $ 123.9 $ 136.4
=====================================
Allowance as a percentage of total receivables 2.8% 4.3%
Net write-offs as a percentage of average receivables 0.4% 0.5%
More than 90 days delinquent:
Amount of delinquent installments $ 11.5 $ 8.7
Total receivables due from delinquent obligors 155.4 129.2
Total receivables due from delinquent obligors
as a percentage of total receivables 3.5% 4.1%
Receivable Write-offs, Net of Recoveries by Segment
Aircraft financial services had no net write-offs of receivables for the six
months ended June 30, 2001 or 2000. Commercial financial services had net
write-offs of receivables of $18.3 million for the six months ended June 30,
2001 and had net recoveries of receivables of $0.4 million for the six months
ended June 30, 2000. Space and defense financial services had no net write-offs
of receivables for the six months ended June 30, 2001 or 2000.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 12 Computation of Ratio of Income to Fixed Charges.
B. Reports on Form 8-K
1. Form 8-K dated April 9, 2001 to report the acquisition of an aircraft
portfolio from Boeing.
2. Form 8-K/A dated April 9, 2001 to report additional information regarding
the aircraft portfolio acquisition from Boeing.
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 8, 2001 /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