Boeing 2005 Annual Report Download - page 66

Notes to Consolidated Financial Statements
On March 4, 2005, we completed the exchange transaction of
our investment with Delta in a D tranche Delta Enhanced
Equipment Trust Certificate EETC with a carrying value of $145
and a face value of $176 for two C tranche Delta EETCs with
face values totaling $176. The assets we received were
recorded at their fair values of $143 and we recorded an asset
impairment charge of $2. On September 14, 2005, Delta filed
for Chapter 11 bankruptcy protection. Due to the current finan-
cial difficulties of Delta, during the third quarter of 2005, we
deemed these investments to be other-than-temporarily
impaired. We reduced the carrying value of these investments
to their fair value and recorded an asset impairment charge of
$27. This asset impairment charge was offset by the value of
other collateral available to us. During the fourth quarter of
2005, based on our assessment of Delta’s financial position
and planned reorganization, we concluded that these invest-
ments continue to be impaired.
As a result of the current financial difficulties of Northwest dur-
ing the third quarter of 2005, we deemed the Northwest ETC
and EETC to be other-than-temporarily impaired. We reduced
the carrying value of these investments to their fair value and
recorded an asset impairment charge of $24. During the fourth
quarter of 2005, based on our assessment of Northwest’s
financial position and planned reorganization, we concluded
that these investments continue to be impaired.
Our available-for-sale investments include subordinated debt
investments in two other EETCs. At December 31, 2005, these
investments had estimated fair values totaling $113.
Additionally, due to the commercial aviation market downturn in
the United States these securities with unrealized losses total-
ing $15 have been in a continuous unrealized loss position for
12 months or longer. Despite the unrealized loss position of
these debt securities we concluded that they are not other-
than-temporarily impaired. This assessment was based on the
value of the underlying collateral to the securities, the term of
the securities, our ability to hold the investment until it recovers
its carrying value and both internal and third party credit
reviews and analysis of the counterparties, principally major
domestic airlines. Accordingly, we have concluded that it is
probable that we will be able to collect all amounts due
according to the contractual terms of these debt securities. For
the year ended December 31, 2005, we received all payments
contractually required for these remaining debt securities.
At December 31, 2005, our available-for-sale investments
included an investment in mandatorily redeemable preferred
stock of ATA. During the second quarter of 2004, our assess-
ment of ATA’s continued financial difficulties led us to conclude
that the unsecured preferred stock investment maturing in
2015 was other-than-temporarily impaired. Accordingly, during
2004, we recorded total pre-tax non-cash charge to asset
impairment expense of $47, resulting in a reduction of the car-
rying value to zero.
There were no other-than-temporary impairments during the
year ended December 31, 2003.
Maturities of available-for-sale debt securities at December 31,
2005, were as follows:
Amortized Estimated
Cost Fair Value
Due in 1 year or less $ 546 $ 554
Due from 1 to 5 years 1,838 1,802
Due from 5 to 10 years 162 173
Due after 10 years 777 765
$3,323 $3,294
Joint ventures and other investments
On May 2, 2005, we entered into an agreement with Lockheed
to create a 50/50 joint venture named United Launch Alliance
(ULA). ULA will combine the production, engineering, test and
launch operations associated with U.S. government launches
of Boeing Delta and Lockheed Martin Atlas rockets. It is
expected that ULA will reduce the cost of meeting the critical
national security and NASA expendable launch vehicle needs
of the United States. The closing of the ULA transaction is sub-
ject to government and regulatory approval in the United States
and internationally. On August 9, 2005, Boeing and Lockheed
received clearance regarding the formation of ULA from the
European Commission. On October 24, 2005, the Federal
Trade Commission (FTC) requested additional information from
us and Lockheed related to ULA in response to the pre-merger
notice under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (HSR) submitted by the parties. The FTC’s “second
request” extends the period that the FTC is permitted to review
the transaction under the HSR Act. As a 50/50 joint venture,
ULA would be reported as an equity method investment in our
IDS segment. We do not expect this agreement to have a
material impact to our earnings, cash flows and/or financial
position for 2006. If the conditions to closing are not satisfied
and the ULA transaction is not consummated by March 31,
2006, either we or Lockheed Martin may terminate the joint
venture agreement.
On March 31, 2005, we executed a Purchase and Sale
Agreement to sell certain investments in technology related
funds and partnerships of $63 with related capital commitment
obligations of $76 for a purchase price of $24. During the first
quarter of 2005, we recorded an asset impairment charge of
$42 as a result of this agreement, which is included in Other
income. We have closed the sale on such investments totaling
$50 with net proceeds of $15 as of December 31, 2005.
The principal joint venture arrangements as of December 31,
2005 and 2004 are United Space Alliance; HRL Laboratories,
LLC; APB Winglets Company, LLC; BATA Leasing, LLC (BATA);
and Sea Launch. We have a 50% partnership with Lockheed
Martin in United Space Alliance, which is responsible for all
ground processing of the Space Shuttle fleet and for space-
related operations with the USAF. United Space Alliance also
performs modifications, testing and checkout operations that
are required to ready the Space Shuttle for launch. We are enti-
tled to 33% of the earnings from HRL Laboratories, LLC, which
conducts applied research in the electronics and information
64 The Boeing Company and Subsidiaries