So tomorrow’s story in The Herald will focus on what was said about the 787 during today’s second-quarter earnings call, because this is Everett and we are the New Jet’s City.
But first, let’s take a moment to ponder how Boeing CEO Jim McNerney spent more than half a billion dollars today on a very pricey ethics lesson.
As expected (see “Boeing could report loss Wednesday” below), Boeing charged the cost of settling the Justice Department probe into Lockheed Martin launch contracts against this quarter’s earnings, along with a whole lot of late payments that are going to Australia and Turkey for delays in delivering the Wedgetail. (See “Aussie official cheesed off at Boeing” below.)
What caught me by surprise was this: McNerney went out of his way to make it clear that the $571 million settlement is coming out of Boeing’s hide.
“We have been advised that the builk of the settlement is, in fact, tax deductible,” McNerney said. But Boeing isn’t going to write it off, he said.
McNerney explained:
“A few years ago, certain Boeing employees did some things that were wrong. We accepted responsibility for their actions and through the settlement, we sought to put the past behind us and move toward a new era where ethics and compliance would become a competitive advantage for Boeing,” he said.
“Without question, the short-term financial impact of the taxability issue is significant,” he continued. (I’ll say. Add the 70-cents-a-share the settlement cost back into this quarter’s revenue and Boeing turns a 49-cent-a-share profit.) “However the long-term value of Boeing’s reputation is even more significant. Accordingly, I feel strongly that the right thing for Boeing to do is not to seek tax deductibility for the settlement charges.”
This act, McNerney concluded, “should be a signal to our employees, customers, suppliers and our shareholders of our willingness to acknowledge responsibility, accept accountability and to move forward in a manner reflective of the great legacy of our company and its employees.”
So, how did the shareholders respond? Not so good. Shares fell $3.85, or 4.6 percent, to $79.90 on the New York Stock Exchange, the Associated Press noted. http://www.chron.com/disp/story.mpl/ap/fn/4074689.html
Key Quote: “Wall Street showed disappointment that the aerospace company chose not to write off any of its Justice Department settlement.”
The news from Boeing was enough to drag the whole stock market down, Reuters said. http://today.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?view=CN&storyID=2006-07-26T221954Z_01_N26224770_RTRIDST_0_MARKETS-STOCKS-UPDATE-12.XML&rpc=66
Key Quote: “Boeing was the biggest drag on the Dow after the aircraft maker and U.S. defense contractor raised its 2007 outlook. But its forecast failed to match some more optimistic expectations on Wall Street and its shares fell 4.6 percent after registering strong gains in the previous two sessions.”
One of the biggest losers, of course, was McNerney himself. According to his most-recent SEC filing, the CEO owns 357,324 shares of Boeing stock. Now granted, I’m still about a month away from taking my first accounting course at Columbia, but if my back-of-the-press-release figures are right, he personally took a $1.375 million hit on Wednesday.
Ouch. You could buy a nice two-bedroom view condo in Mukilteo with that kind of money, with money left over to install new kitchen counters.
But if McNerney was millions-foolish, he might also have been billions-wise, noted Bloomberg News. http://www.bloomberg.com/apps/news?pid=20601087&sid=a5BThNA0Go8s&refer=home Foregoing the refund may have defused future confrontations with the federal government at a time when Boeing is hoping to win contracts for the new P-8A and KC-767, and sell some more C-17s.
Key Quote: “Some Senators last month inquired with the Department of Justice, asking the agency to detail the tax implications of the settlement and saying they were concerned a deduction would lessen the punishment and penalize U.S. taxpayers. The department left it to Boeing and the Internal Revenue Service to resolve.”
McNerney said forgoing the tax deduction is a smart long-term play.
“My intent is to focus on the future and put this unfortunate part of our past behind us,” he said. “As we move forward, operating with integrity will differentiate Boeign just as much as our technology, our talented people and our attention to customers.”
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