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Boeing Takes $1.2 Bn Charge In Q1

CHICAGO --- The Boeing Company announced today that it will recognize non-cash charges that will reduce first quarter 2003 pre-tax earnings from operations approximately $1.2 billion and net earnings per share approximately $1.23. Boeing will report its results for the quarter ending March 31st on April 23, 2003.
$931 million, or three-quarters of the charges, will be recognized in connection with the company's impairment of goodwill under Statement of Financial Accounting Standards (SFAS) 142. These non-cash charges do not affect company business operations and will be attributable to goodwill recorded in connection with companies acquired since 1996. They will be recorded within the Commercial Airplanes segment and Launch and Orbital Systems segment.
The company will also record non-cash charges totaling approximately $251 million to strengthen customer financing reserves and revalue certain customer financing assets. The charges will be recorded within the Boeing Capital Corporation (BCC) and other segments.
SFAS 142 requires goodwill to be tested for impairment annually and when an event occurs indicating that it is possible an impairment exists. The company has selected April 1 as its annual testing date. However, the reorganization of Boeing's space and defense businesses triggered a goodwill impairment analysis as of January 1, 2003.
The company will record $931 million of pre-tax charges in the quarter ending March 31, 2003. Approximately $671 million of these charges are not tax-deductible primarily because the related acquisitions were stock purchases. The company estimates the after-tax earnings impact will be approximately $835 million, or $1.03 per share. After this impairment, Boeing's goodwill balances will total approximately $1.8 billion.
Key factors driving the amount of the impairment charge included: a) the continuing severity of market conditions in Boeing's commercial aviation and commercial space businesses, and b) decreases in the company's stock price since the company's previous goodwill evaluation in 2002.
Boeing and its financing subsidiary, BCC, have completed their first quarter 2003 assessment of BCC's financing portfolio. As summarized on the chart below, Boeing will recognize non-cash, pre-tax charges of approximately $251 million split between BCC and Boeing's "Other" segment. The company estimates the after-tax impact will total approximately $159 million, or $0.20 per share.

Pre-Tax Charges Boeing Capital "Other"
(Millions) Corporation Segment Total
Increased Valuation Allowance $130 $30 $160
Impairment of Operating Lease
Aircraft $42 -- $42
Other Adjustments $21 $28 $49
Total $193 $58 $251

The company is recognizing these charges primarily as a result of continued declines in airline customer credit ratings, airplane collateral values and lease rates. Certain of the charges are recorded in Boeing's "Other" segment as a result of corporate guarantees that reduce BCC's exposure.
-ends- Boeing Records Non-Cash Charges Totaling $1.2 Bn