UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
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
Boeing Capital Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 95-2564584 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
500 Naches Ave. SW, 3rd Floor • Renton, Washington 98055
(Address of principal executive offices)
(425) 965-4002
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
No common stock is held by non-affiliates of the registrant. Common stock shares outstanding at April 26, 2005: 50,000 shares
Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.
1
| Part I. Financial Information (Unaudited) |
Page | |||||||
| Item 1. |
||||||||
| Condensed Consolidated Balance Sheets | 3 | |||||||
| Condensed Consolidated Statements of Operations | 4 | |||||||
| Condensed Consolidated Statements of Shareholder’s Equity and Comprehensive Income |
5 | |||||||
| Condensed Consolidated Statements of Cash Flows | 6 | |||||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||||
| Item 2. |
Management’s Narrative Analysis of the Results of Operations |
21 | ||||||
| Item 4. |
26 | |||||||
| Part II. Other Information |
||||||||
| Item 1. |
27 | |||||||
| Item 5. |
27 | |||||||
| Item 6. |
28 | |||||||
| 29 | ||||||||
| 30 | ||||||||
2
PART I. FINANCIAL INFORMATION
Boeing Capital Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| (Dollars in millions, except par value) | March 31, 2005 |
December 31, 2004 |
||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 410 | $ | 642 | ||||
| Receivables: |
||||||||
| Finance leases |
2,786 | 3,474 | ||||||
| Notes and other |
2,173 | 2,228 | ||||||
| 4,959 | 5,702 | |||||||
| Allowance for losses on receivables |
(125 | ) | (240 | ) | ||||
| 4,834 | 5,462 | |||||||
| Accounts with Boeing and Boeing Capital Services Corporation |
7 | – | ||||||
| Equipment under operating leases, net |
4,093 | 3,615 | ||||||
| Investments |
276 | 326 | ||||||
| Assets held for sale or re-lease, net |
33 | 37 | ||||||
| Assets of discontinued operations |
69 | 70 | ||||||
| Other assets |
137 | 168 | ||||||
| $ | 9,859 | $ | 10,320 | |||||
| LIABILITIES AND SHAREHOLDER’S EQUITY |
||||||||
| Liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ | 92 | $ | 149 | ||||
| Other liabilities |
365 | 332 | ||||||
| Accounts with Boeing and Boeing Capital Services Corporation |
– | 210 | ||||||
| Deferred income tax |
1,187 | 1,194 | ||||||
| Debt |
6,830 | 7,024 | ||||||
| 8,474 | 8,909 | |||||||
| Commitments and contingencies – Note 11 |
||||||||
| Minority interest |
6 | 7 | ||||||
| Shareholder’s equity: |
||||||||
| Common shares – $100 par value; authorized 100,000 shares; issued and outstanding 50,000 shares |
5 | 5 | ||||||
| Additional paid-in capital |
1,282 | 1,272 | ||||||
| Accumulated other comprehensive loss, net of tax |
(34 | ) | (25 | ) | ||||
| Retained earnings |
126 | 152 | ||||||
| 1,379 | 1,404 | |||||||
| $ | 9,859 | $ | 10,320 | |||||
See Notes to Condensed Consolidated Financial Statements.
3
Boeing Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||
| (Dollars in millions) | 2005 | 2004 | ||||
| REVENUE |
||||||
| Finance lease income |
$ | 48 | $ | 57 | ||
| Interest income on notes receivable |
43 | 45 | ||||
| Operating lease income |
124 | 109 | ||||
| Investment income |
10 | 10 | ||||
| Net gain on disposal |
– | 18 | ||||
| Other income |
12 | 12 | ||||
| 237 | 251 | |||||
| EXPENSES |
||||||
| Interest expense |
89 | 84 | ||||
| Depreciation expense |
61 | 55 | ||||
| Provision for losses |
4 | 5 | ||||
| Operating expense |
25 | 12 | ||||
| Asset impairment expense |
9 | 13 | ||||
| Other expense |
7 | 10 | ||||
| 195 | 179 | |||||
| Minority interest income |
2 | 1 | ||||
| Income from continuing operations before provision for income tax |
44 | 73 | ||||
| Provision for income tax |
15 | 26 | ||||
| Income from continuing operations |
29 | 47 | ||||
| Income from discontinued operations, net of tax |
– | 9 | ||||
| Net income |
$ | 29 | $ | 56 | ||
See Notes to Condensed Consolidated Financial Statements.
4
Boeing Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholder’s Equity and Comprehensive Income
(Unaudited)
| (Dollars in millions, except stated value) | Total | Common Shares |
Additional Paid-In Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Comprehensive Income |
||||||||||||||||
| Balance at January 1, 2004 |
$ | 1,942 | $ | 5 | $ | 1,263 | $ | (10 | ) | $ | 684 | |||||||||||
| Capital contributions from Boeing(1) |
2 | – | 2 | – | – | |||||||||||||||||
| Net income |
56 | – | – | – | 56 | $ | 56 | |||||||||||||||
| Unrealized loss on derivative instruments, net of tax |
(1 | ) | – | – | (1 | ) | – | (1 | ) | |||||||||||||
| Unrealized loss on investments, net of tax |
(2 | ) | – | – | (2 | ) | – | (2 | ) | |||||||||||||
| Balance at March 31, 2004 |
$ | 1,997 | $ | 5 | $ | 1,265 | $ | (13 | ) | $ | 740 | $ | 53 | |||||||||
| Balance at January 1, 2005 |
$ | 1,404 | $ | 5 | $ | 1,272 | $ | (25 | ) | $ | 152 | |||||||||||
| Capital contributions from Boeing(1) |
10 | – | 10 | – | – | |||||||||||||||||
| Cash dividends to Boeing |
(55 | ) | – | – | – | (55 | ) | |||||||||||||||
| Net income |
29 | – | – | – | 29 | $ | 29 | |||||||||||||||
| Unrealized gain on derivative instruments, net of tax |
1 | – | – | 1 | – | 1 | ||||||||||||||||
| Unrealized loss on investments, net of tax |
(10 | ) | – | – | (10 | ) | – | (10 | ) | |||||||||||||
| Balance at March 31, 2005 |
$ | 1,379 | $ | 5 | $ | 1,282 | $ | (34 | ) | $ | 126 | $ | 20 | |||||||||
| (1) | Balance represents non-cash contributions from Boeing and Boeing Capital Services Corporation. |
We have authorized 100,000 shares of Series A preferred stock with no par value and a $5,000 stated value. No shares were issued and outstanding at March 31, 2005 and 2004.
See Notes to Condensed Consolidated Financial Statements.
5
Boeing Capital Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, |
||||||||
| (Dollars in millions) | 2005 | 2004 | ||||||
| OPERATING ACTIVITIES |
||||||||
| Net income(1) |
$ | 29 | $ | 56 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization expense |
64 | 55 | ||||||
| Net gain on disposal |
– | (18 | ) | |||||
| Provision for losses |
4 | 5 | ||||||
| Net (gain) loss on derivative instruments and investments |
3 | (3 | ) | |||||
| Asset impairment expense |
9 | 13 | ||||||
| Share-based plans expense |
10 | 2 | ||||||
| Other non-cash adjustments related to discontinued operations |
– | 10 | ||||||
| Provision (benefit) from deferred income tax |
(2 | ) | 7 | |||||
| Change in assets and liabilities: |
||||||||
| Other assets |
20 | 37 | ||||||
| Accrued interest and rents |
(7 | ) | 9 | |||||
| Accounts payable and accrued expenses |
(57 | ) | (81 | ) | ||||
| Other liabilities |
12 | (22 | ) | |||||
| Accounts with Boeing and Boeing Capital Services Corporation |
42 | 37 | ||||||
| Other |
(2 | ) | 1 | |||||
| Net cash provided by operating activities |
125 | 108 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Net change in short-term leases, notes and other receivables |
– | (12 | ) | |||||
| Transfers of net assets from Boeing |
(178 | ) | – | |||||
| Purchase of investments |
– | (10 | ) | |||||
| Proceeds from available-for-sale investments |
14 | 21 | ||||||
| Proceeds from held-to-maturity investments |
– | 19 | ||||||
| Purchase of equipment for operating leases |
(28 | ) | (81 | ) | ||||
| Proceeds from disposition of equipment and receivables |
– | 47 | ||||||
| Principal payments of leases, notes and other receivables |
99 | 78 | ||||||
| Origination of leases, notes and other receivables |
(63 | ) | (187 | ) | ||||
| Adjustments relating to discontinued operations |
– | 87 | ||||||
| Net cash used in investing activities |
(156 | ) | (38 | ) | ||||
| FINANCING ACTIVITIES |
||||||||
| Repayment of debt |
(146 | ) | (432 | ) | ||||
| Payment of cash dividends |
(55 | ) | – | |||||
| Net cash used in financing activities |
(201 | ) | (432 | ) | ||||
| Net decrease in cash and cash equivalents |
(232 | ) | (362 | ) | ||||
| Cash and cash equivalents at beginning of year |
642 | 716 | ||||||
| Cash and cash equivalents at end of period |
$ | 410 | $ | 354 | ||||
|
NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
| Net transfer from held for sale or re-lease |
$ | (3 | ) | $ | – | |||
| Net transfer to operating leases |
$ | 511 | $ | – | ||||
| Net transfer from finance leases |
$ | (507 | ) | $ | – | |||
| Mark-to-market for fair value hedge derivatives on underlying debt |
$ | (47 | ) | $ | 48 | |||
| (1) | Includes net income of $0 and $9 from discontinued operations for the three months ended March 31, 2005 and 2004. |
See Notes to Condensed Consolidated Financial Statements.
6
Boeing Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005
(Unaudited)
(Dollars in millions, except per share data)
Note 1 – Basis of Presentation
Boeing Capital Corporation (together with its subsidiaries, referred to as “us,” “we,” “our” or the “Company”) is an indirect wholly owned subsidiary of The Boeing Company (Boeing). Boeing Capital Services Corporation (BCSC) owns 100% of our stock and is an indi