Notes to Consolidated Financial Statements
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Note 12 – Investments
Joint ventures and
other investments All investments are recorded in
other assets. As of December 31, 2002 and 2001, other assets
included $124 and $274 attributable to investments in joint
ventures. This change is attributable to a joint venture
investment that was acquired and consolidated in 2002.
The Company also held other non-marketable securities of
$103 and $274 at December 31, 2002 and 2001.
The principal joint venture arrangements are United Space
Alliance; HRL Laboratories, LLC; APB Winglets Company, LLC;
BATA Leasing, LLC; and Sea Launch. The Company has 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 U.S.
Air Force. United Space Alliance also performs modifications,
testing and checkout operations that are required to ready
the Space Shuttle for launch. The Company is entitled to
33% of the earnings from HRL Laboratories, LLC, which conducts
applied research in the electronics and information sciences;
and creates new products and services for space, telecommunications,
defense and automotive applications. The Company has a 45%
ownership of APB Winglets Company, LLC, which was established
for the purposes of designing, developing, manufacturing,
installing, certifying, retrofitting, marketing, selling,
and providing after-sales support with respect to winglets
for retrofit aircraft. The Company has a 50% partnership
with American Trans Air, Inc. in BATA Leasing, LLC, which
was established to acquire aircraft and market and lease
the aircraft to a third parties.
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The Sea Launch venture, in which the Company
is a 40% partner with RSC Energia (25%) of Russia, Kvaerner
ASA (20%) of Norway, and KB Yuzhnoye/PO Yuzhmash (15%) of
Ukraine, provides ocean-based launch services to commercial
satellite customers. The venture had one successful launch
in 2002.The Company’s investment in this venture as of December
31, 2002, is reported at zero, which reflects the recognition
of losses reported by Sea Launch in prior years. The venture
incurred losses in 2002, due to the relatively low volume
of launches, reflecting a depressed satellite market. The
Company has financial exposure with respect to the venture,
which relates to guarantees by the Company provided to certain
Sea Launch creditors, performance guarantees provided by
the Company to a Sea Launch customer and financial exposure
related to accounts receivable/inventory reflected in the
consolidated financial statements. See
Note 20.
During the year ended December 31, 2002, a $100 impairment
charge was recorded to write off a cost-method investment
in Teledesic, LLC, which stopped work on its satellite
constellation and announced its intent to reduce staff.
In addition, the Company recorded a $48 impairment charge
related to its BATA Leasing, LLC, joint venture investment.
This charge was the Company’s share of the adjustment to
estimated fair market value for the joint venture’s 727
aircraft.
Investments in
debt and equity securities The following table
shows the impact of investments accounted for pursuant
to SFAS No. 115. Available-for-sale securities are recorded
in other assets at estimated fair value. Unrealized gains/losses
of available- for-sale securities are recorded in accumulated
other comprehensive income; however, losses deemed other
than temporary are recorded in net earnings. Held-to-maturity
securities are recorded at amortized cost. The unrealized
gains/losses of held-to-maturity securities are not recorded
in the consolidated financial statements and are shown
in the table below for informational purposes only.
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There were no gross unrealized gains as of December
31, 2001.
Included in held-to-maturity investments carried
at amortized cost as of December 31, 2002 and 2001,
were $455 and $128 of equipment trust certificates
(ETCs), of which $455 and $52 were enhanced equipment
trust certificates (EETCs). EETCs are secured by
aircraft on lease to commercial airlines. EETCs provide
investors with tranched rights to cash flows from
a financial instrument, as well as a collateral position
in the related asset. While the underlying classes
of equipment notes vary by maturity and/or coupon
depending upon tenor or level of subordination of
the specific equipment notes and their corresponding
claim on the aircraft, the basic function of an EETC
remains: to passively hold separate debt investments
to enhance liquidity for investors, whom in turn
pass this liquidity benefit directly to the airline
in the form of lower coupon
and/or greater debt capacity. Boeing Capital Corporation
(BCC), a corporation wholly-owned by the Company,
participates in several EETCs as an investor. The
EETC investments are related to customers the Company
believes have less than investment-grade credit.
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During the third quarter of 2002, an impairment
of $79 was recorded in income/(loss) from operating
investments related to a long-held investment in
ETCs secured by aircraft on lease to United Airlines.
This debt investment was classified as held-tomaturity
and had declined in value for a period that was
determined to be other than temporary.
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