Boeing 2006 Annual Report Download - page 36

Financial Position
The following table presents selected financial data for BCC:
(Dollars in millions) 2006 2005
BCC Customer Financing and
Investment Portfolio $8,034 $9,206
Valuation Allowance as a % of Total Receivables 2.4%2.0%
Debt $5,590 $6,322
Debt-to-Equity Ratio 5.0-to-1 5.0-to-1
BCC’s customer financing and investment portfolio at
December 31, 2006 decreased from December 31, 2005 due
to portfolio run-off and sale of certain portfolio assets. At
December 31, 2006 and 2005, BCC had $259 million and
$47 million of assets that were held for sale or re-lease of which
$253 million and $6 million had firm contracts to be sold or
placed on lease. Additionally, leases with a carrying value of
approximately $144 million are scheduled to terminate in the
next 12 months and the related aircraft are being remarketed
or the leases are being extended.
BCC enters into certain transactions with the Other segment in
the form of intercompany guarantees and other subsidies.
Finance Restructurings
Delta Air Lines, Inc. At December 31, 2006 and 2005, Delta Air
Lines, Inc. (Delta) accounted for $135 million and $161 million
of BCC’s total assets. At December 31, 2006, the Delta portfo-
lio consisted of an investment in an Enhanced Equipment Trust
Certificate (EETC) secured by 12 aircraft. Delta retains certain
rights by operating under Chapter 11 bankruptcy protection.
As of December 31, 2006, Delta has made the contractually
required payments relating to the remaining EETC held by
BCC. BCC does not expect that the Delta bankruptcy, including
the possible return of some or all of the aircraft financed, will
have a material effect on its future earnings, cash flows and/or
financial position.
Northwest Airlines, Inc. At December 31, 2006 and 2005,
Northwest Airlines, Inc. (Northwest) accounted for $349 million
and $494 million of BCC’s total assets. At December 31, 2006,
the Northwest portfolio consisted of notes receivable on six
aircraft and two additional notes receivable. Northwest retains
certain rights by operating under Chapter 11 bankruptcy pro-
tection. On November 8, 2006, the bankruptcy court approved
the restructured terms of certain obligations relating to the
notes receivable. At December 31, 2006, Northwest is current
on payments relating to the notes receivable held by BCC. We
do not expect the Northwest bankruptcy, including the impact
of any restructurings, to have a material effect on our future
earnings, cash flows and/or financial position.
In addition to the customers discussed above, certain other
customers have requested a restructuring of their transactions
with BCC. BCC has not reached agreement on any restruc-
turing requests that it believes would have a material adverse
effect on its earnings, cash flows and/or financial position.
Other Segment
Other segment operating losses were $738 million during
2006 as compared to losses of $363 million in 2005. Major
factors contributing to operating results of the segment are
described below.
During the third quarter of 2006, we announced that we would
exit the Connexion by Boeing high speed broadband communi-
cations business having completed a detailed business and
market analysis. Our decision resulted in a pre-tax charge of
$320 million. (See Note 9). We have not reached final settle-
ments with all customers or suppliers. We do not believe the
final settlements will have a material adverse effect on our
earnings, cash flows and/or financial position.
In 2006, the Other segment recorded valuation allowances for
customer financing losses of $24 million due to deteriorated
airline credit ratings and depressed aircraft values. In 2005,
such provisions were $98 million, which consisted of losses of
$76 million and $22 million, due to decreases in the collateral
values of the 717 and 757, respectively.
In 2006, the Other segment recorded an increase in environ-
mental expense of $68 million primarily related to a write-down
of previously capitalized environmental costs.
In 2005, the Other segment recognized earnings of $63 million
associated with the buyout of several operating lease aircraft by
a customer.
Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Year ended December 31, 2006 2005 2004
Net earnings $«2,215 $«2,572 $«1,872
Non-cash items 3,097 3,494 3,126
Changes in working capital 2,187 934 (1,494)
Net cash provided by
operating activities 7,499 7,000 3,504
Net cash (used)/provided by
investing activities (3,186)(98)(1,446)
Net cash used by financing activities (3,645)(4,657)(3,487)
Effect of exchange rate changes on
cash and cash equivalents 38 (37)
Net increase/(decrease) in cash and
cash equivalents 706 2,208 (1,429)
Cash and cash equivalents
at beginning of year 5,412 3,204 4,633
Cash and cash equivalents
at end of year $«6,118 $«5,412 $«3,204
Operating Activities Net cash provided by operating activities
increased by $499 million to $7,499 million in 2006. The
increase was primarily due to working capital improvements
which were partially offset by lower Net earnings. The working
capital improvements in 2006 compared with 2005 reflect
$1,340 million of lower pension contributions in 2006. Working
capital reductions in 2006 also reflect higher advances driven
by commercial airplane orders, decreased investment in
34 The Boeing Company and Subsidiaries
Management’s Discussion and Analysis