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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 March 31, 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 - 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 April 30, 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.
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PART I
ITEM 1. FINANCIAL STATEMENTS
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
(Dollars in millions, except stated value and par value) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Financing receivables:
Investment in finance leases $ 1,844.0 $ 1,670.7
Notes receivable 1,465.5 1,481.7
------------------------------------
3,309.5 3,152.4
Allowance for losses on financing receivables (130.0) (136.4)
------------------------------------
3,179.5 3,016.0
Cash and cash equivalents 40.7 48.6
Equipment under operating leases, net 2,241.0 2,151.0
Equipment held for sale or re-lease 79.2 101.2
Accounts due from Boeing and BCSC 155.6 215.8
Other assets 224.0 123.3
------------------------------------
$ 5,920.0 $ 5,655.9
====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 123.0 $ 652.9
Accounts payable and accrued expenses 27.1 62.5
Other liabilities 151.7 135.0
Deferred income taxes 464.8 468.8
Long-term debt:
Senior 4,432.2 3,635.4
Subordinated 29.2 29.2
------------------------------------
5,228.0 4,983.8
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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 - $100 par value; authorized 100,000
shares; issued and outstanding 50,000 shares 5.0 5.0
Capital in excess of par value 234.5 234.5
Accumulated other comprehensive loss, net of tax (4.9) -
Income retained for growth 407.4 382.6
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692.0 672.1
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$ 5,920.0 $ 5,655.9
====================================
See Notes to Consolidated Financial Statements.
-2-
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income, Comprehensive Income and Income Retained
for Growth
(Unaudited)
Three months ended
March 31,
(Dollars in millions) 2001 2000
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Finance lease income $ 37.6 $ 32.8
Interest income on notes receivable 35.8 26.9
Operating lease income, net of depreciation expense 46.6 31.4
Net gain on disposal or re-lease of assets 2.6 3.1
Other 4.7 0.5
-----------------------------------
127.3 94.7
-----------------------------------
EXPENSES
Interest expense 72.7 56.1
Provision for losses 2.8 2.3
Operating expenses 9.8 7.4
Other 1.8 0.8
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87.1 66.6
-----------------------------------
Income before provision for income taxes 40.2 28.1
Provision for income taxes 14.5 10.3
-----------------------------------
Net income 25.7 17.8
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Other comprehensive loss, before tax:
Cumulative effect of accounting change (9.2) -
Unrealized losses on derivative instruments (0.3) -
Unrealized gain on investment 1.9 -
-----------------------------------
Total other comprehensive loss, before tax (7.6) -
Income tax benefit related to items of other comprehensive loss 2.7 -
-----------------------------------
Total other comprehensive loss, net of tax (4.9) -
-----------------------------------
Comprehensive income $ 20.8 $ 17.8
===================================
Income retained for growth at beginning of period $ 382.6 $ 278.9
Net income 25.7 17.8
Dividends (0.9) (0.9)
-----------------------------------
Income retained for growth at end of period $ 407.4 $ 295.8
===================================
See Notes to Consolidated Financial Statements.
-3-
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
(Dollars in millions) 2001 2000
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OPERATING ACTIVITIES
Net income $ 25.7 $ 17.8
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense - equipment under operating leases 33.3 24.6
Net gain on disposal or re-lease of assets (2.6) (3.1)
Provision for losses 2.8 2.3
Losses on derivative instruments 0.4 -
Change in assets and liabilities:
Accounts with Boeing and BCSC 60.2 (18.0)
Other assets (55.8) (4.6)
Accounts payable and accrued expenses (36.4) (16.0)
Other liabilities (2.9) (0.5)
Deferred income taxes (1.3) (6.7)
Other, net (22.5) (9.0)
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0.9 (13.2)
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INVESTING ACTIVITIES
Net change in short-term notes and leases receivable 32.0 (8.3)
Purchase of net assets from Boeing - (1,261.9)
Purchase of equipment for operating leases (136.9) (2.2)
Proceeds from disposition of equipment and leases receivable 38.2 359.6
Collection of notes and leases receivable 104.2 92.2
Acquisition of notes and leases receivable (283.9) (86.5)
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(246.4) (907.1)
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FINANCING ACTIVITIES
Net change in short-term notes payable (529.9) 111.1
Long-term debt:
Intercompany issuance for purchase of net assets from Boeing - 1,261.9
Proceeds 850.0 -
Repayments (82.5) (486.0)
Capital contribution from Boeing - 45.0
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237.6 932.0
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Net increase (decrease) in cash and cash equivalents (7.9) 11.7
Cash and cash equivalents at beginning of year 48.6 26.9
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Cash and cash equivalents at end of period $ 40.7 $ 38.6
=====================================
See Notes to Consolidated Financial Statements.
-4-
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
(Dollars in millions) March 31, 2000
- ---------------------------------------------------------------------------------------------------------------
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 which require disclosure for the three
months ended March 31, 2001.
See Notes to Consolidated Financial Statements.
-5-
BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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
three-month period ended March 31, 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." This standard requires 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.
-6-
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. 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 minimize 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 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. The Company holds nine interest rate swaps
that are accounted for under these 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.
These gains and losses are then reclassified as an adjustment to interest
expense over the same period in which the related interest payments being
hedged are recognized in income. The net effect of this accounting on the
Company's operating results is that
-7-
interest expense on the portion of variable-rate debt being hedged is
generally recorded based on fixed interest rates. The Company holds only 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 recognized in income are exactly offset by changes in the hedged cash
flows.
In addition to the interest rate swaps that qualify for the short-cut method,
the Company holds 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, and
therefore, are considered as derivative instruments under SFAS No. 133. 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 period ended March 31, 2001, these
interest rate swaps resulted in income of $5.3 million and the interest
exchange agreements resulted in an expense of $5.6 million.
As of March 31, 2001, interest rate swaps are reflected at a fair value of
$43.0 million in other assets and $19.6 million in other liabilities.
Offsetting amounts are reflected in accumulated other comprehensive loss of
$9.5 million, underlying long term senior debt of $33.3 million and net other
expense of $0.4 million. During the next twelve months, the Company expects
to reclassify to expense $2.5 million from the amount recorded in accumulated
other comprehensive loss and recognize income of $4.1 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.
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
-8-
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 $1.1 billion was allocated to the Company's Series XI
medium-term note program. As of March 31, 2001, the Company had issued and
sold $600.0 million in aggregate principal amount of such medium-term notes,
at interest rates ranging from 5.33% 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.
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 March 31, 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 March 31, 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 $333.7 million (6.0% of
total Company portfolio) and $339.4 million (6.4% of total Company portfolio)
at March 31, 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. 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.
-9-
Trans World Airlines, Inc. ("TWA") accounted for $133.2 million (2.4% of
total Company portfolio) and $134.5 million (2.5% of total Company portfolio)
at March 31, 2001 and December 31, 2000, respectively. TWA filed for
protection under Chapter 11 of the bankruptcy code on January 10, 2001. On
April 9, 2001, the Company's existing leases with TWA were amended, restated
and assigned by TWA to a wholly owned subsidiary of American Airlines, Inc.
("American"), where 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 from Boeing and entered into 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. After giving effect to this
acquisition, American is the Company's largest customer, accounting for
approximately 15.7% of the total Company portfolio as of April 9, 2001. This
asset acquisition is more particularly described in the Company's Current
Report on Form 8-K dated April 9, 2001 (filed with the SEC on April 24, 2001).
At March 31, 2001, the Company had commitments to provide leasing and other
financing totaling $1,929.8 million, of which $1,465.5 million related to
aircraft financing commitments. 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.
Boeing and BCSC had unfunded aircraft financing commitments existing at March
31, 2001 of approximately $6,221.5 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 March
31, 2001, the Company was subject to a maximum contingent liability of $103.2
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.
-10-
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 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 $4.8 million (14.6%) from the first three
months of 2000, primarily attributable to new volume of finance leases within
the commercial financial services (formerly referred to as commercial
finance) and the aircraft financial services (formerly referred to as
commercial aircraft financing) portfolios.
Interest on notes receivable increased $8.9 million (33.1%) from the first
three months of 2000, primarily attributable to new volume of commercial
financial services and aircraft financial services notes receivable.
Net operating lease income increased $15.2 million (48.4%) from the first
three months of 2000, primarily attributable to new volume of commercial
financial services and aircraft financial services operating leases.
Other income increased $4.2 million (840.0%) from the first three months of
2000, primarily attributable to $1.2 million of fee income and $2.6 million
in intercompany interest income on a note between the Company and Boeing.
Interest expense increased $16.6 million (29.6%) from the first three months
of 2000, primarily attributable to debt issued in connection with a higher
level of borrowings as a result of increased financing activity.
Operating expenses increased $2.4 million (32.4%) from the first three months
of 2000, primarily attributable to the addition of employees offset by a
decrease in nonrecurring professional service fees incurred as compared to
the first three months of 2000.
-11-
Other expenses increased $1.0 million (125.0%) from the first three months of
2000, primarily attributable to 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.
-12-
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 $1.1 billion was allocated to the Company's Series XI
medium-term note program. As of March 31, 2001, the Company had issued and
sold $600.0 million in aggregate principal amount of such medium-term notes,
at interest rates ranging from 5.33% 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.
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 March 31, 2001, there were no amounts
outstanding under this arrangement.
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PORTFOLIO BALANCES
Portfolio balances for the Company's financial reporting segments are summarized
as follows:
March 31, December 31,
(Dollars in millions) 2001 2000
- -----------------------------------------------------------------------------------------
AIRCRAFT FINANCIAL SERVICES
Boeing commercial aircraft
Finance leases $ 1,153.0 $ 977.2
Operating leases 1,751.5 1,692.0
Notes receivable 535.1 595.0
-----------------------------------
3,439.6 3,264.2
-----------------------------------
Other commercial aircraft
Finance leases 105.2 107.7
Operating leases 67.9 58.4
Notes receivable 2.3 2.5
-----------------------------------
175.4 168.6
-----------------------------------
COMMERCIAL FINANCIAL SERVICES
Finance leases 585.8 585.7
Operating leases 421.6 400.7
Notes receivable 927.6 883.7
-----------------------------------
1,935.0 1,870.1
-----------------------------------
OTHER 0.5 0.5
-----------------------------------
$ 5,550.5 $ 5,303.4
===================================
NEW BUSINESS VOLUME
New business volume is summarized as follows:
Three months ended
March 31,
(Dollars in millions) 2001 2000
- -----------------------------------------------------------------------------------------------
Aircraft financial services - Boeing commercial aircraft $ 251.6 $ 2.0
Aircraft financial services - Other commercial aircraft 10.2 -
Commercial financial services 158.3 86.7
-----------------------------------
$ 420.1 $ 88.7
===================================
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Analysis of Allowance for Losses on Financing Receivables and Credit Loss
Experience
March 31, December 31,
(Dollars in millions) 2001 2000
- -------------------------------------------------------------------------------------------------
Allowance for losses on financing receivables at beginning
of year $ 136.4 $ 60.7
Provision for losses 2.8 10.2
Write-offs, net of recoveries (9.0) (12.4)
Allowance acquired from Boeing - 77.9
Other (0.2) -
-------------------------------------
Allowance for losses on financing receivables at end of
period $ 130.0 $ 136.4
=====================================
Allowance as a percentage of total receivables 3.9% 4.3%
Net write-offs as a percentage of average receivables 0.3% 0.5%
More than 90 days delinquent:
Amount of delinquent installments $ 7.6 $ 8.7
Total receivables due from delinquent obligors 117.6 129.2
Total receivables due from delinquent obligors
as a percentage of total receivables 3.6% 4.1%
RECEIVABLE WRITE-OFFS, NET OF RECOVERIES BY SEGMENT
Aircraft financial services had no net write-offs of receivables for the
three months ended March 31, 2001 or 2000. Commercial financial services had
net write-offs of receivables of $9.0 million for the three months ended
March 31, 2001 and had no net write-offs for the three months ended March 31,
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 February 23, 2001 to release earnings for the year
ended December 31, 2000.
2. Form 8-K dated March 1, 2001 to include certain exhibits with respect
to the Company's Registration Statement on Form S-3 (File No.
333-55846).
-15-
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
April 30, 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
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