8-KOther Events

BOEING CO 8-K Report (Oct 4, 2002)

Filed October 4, 2002For Securities:BABA-PA

Summary

The Boeing Company (BA) has filed an 8-K report to disclose significant non-cash charges expected in the third quarter of 2002, totaling approximately $250 million pre-tax. These charges are primarily driven by the ongoing downturn in the commercial aviation industry, which has led to a decrease in aircraft values and deteriorating credit ratings of airlines. Boeing Capital Corporation (BCC), Boeing's financing subsidiary, is updating its portfolio assessments to reflect these market realities. The charges include an increased valuation allowance to strengthen reserves for BCC's receivables, a revaluation of certain investments in equipment trust certificates backed by aircraft leased to United Airlines, and impairments related to equipment held for lease in a joint venture. The total after-tax impact on net earnings is estimated at $158 million, or $0.20 per share. Boeing plans to report its full third-quarter results on October 16, 2002.

Key Highlights

  • 1Boeing will record approximately $250 million in pre-tax, non-cash charges for the third quarter of 2002.
  • 2The charges are a result of the continuing commercial aviation industry downturn impacting aircraft values and airline creditworthiness.
  • 3Boeing Capital Corporation (BCC) is increasing its valuation allowance for receivables by $110 million to strengthen reserves.
  • 4A $79 million charge will be recognized due to the revaluation of certain investments in equipment trust certificates related to United Airlines.
  • 5An impairment charge of $48 million is being recorded for equipment held for lease in a joint venture focused on converting Boeing 727s to cargo configuration.
  • 6The estimated after-tax impact on net earnings is $158 million, or $0.20 per share.
  • 7Full third-quarter results are scheduled to be reported on October 16, 2002.

Frequently Asked Questions

The primary reason for the charges is the continuing downturn in the commercial aviation industry. This downturn has led to significant reductions in commercial aircraft values, especially for older models, and has caused the credit ratings of many airlines to deteriorate. Boeing and its financing subsidiary, Boeing Capital Corporation (BCC), are updating their assessments to reflect these market conditions.

The company expects to record approximately $250 million in pre-tax, non-cash charges for the third quarter of 2002. The after-tax impact on net earnings is estimated to be $158 million, which translates to $0.20 per share.

The charges are broken down into three main categories: an increase in the valuation allowance for BCC's receivables ($110 million), a revaluation of certain investments in equipment trust certificates related to United Airlines ($79 million), and an impairment of equipment held for lease in a joint venture and other assets ($61 million).

BCC's financing and investment portfolio totaled $11.5 billion at the end of the third quarter, with $8.8 billion related to Boeing products and services. The charges reflect the need to strengthen reserves and revalue certain assets within this portfolio due to the challenging market environment for airlines.