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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2001
Commission file number 1-442
THE BOEING COMPANY
100 N. Riverside
Chicago, Illinois 60606
Telephone: (312) 544-2000
State of incorporation: Delaware
IRS identification number: 91-0425694
Securities registered pursuant to Section 12(b) of the Act:
Class of Security: Registered on
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Common Stock, $5 par value New York Stock Exchange
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
A disclosure of one delinquent filer pursuant to Item 405 of Regulation S-K
will be contained in the registrant's definitive proxy statement incorporated by
reference in Part III of this Form 10-K.
As of January 31, 2002, there were 798,294,139 common shares outstanding held
by nonaffiliates of the registrant, and the aggregate market value of the common
shares (based upon the closing price of these shares on the New York Stock
Exchange) was approximately $32.7 billion.
Part I and Part II incorporate information by reference to certain portions of
the Company's 2001 Annual Report to Shareholders. Part III incorporates
information by reference to the registrant's definitive proxy statement, to be
filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year.
1 Exhibit Index on Page 28
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PART I
Item 1. Business
The Boeing Company, together with its subsidiaries (herein referred to as
the "Company"), is one of the world's major aerospace firms. The Company is
organized based on the products and services it offers. The Company operates
in the following principal areas: commercial airplanes, military aircraft and
missile systems, space and communications and customer and commercial financing.
The Commercial Airplanes segment is involved in development, production and
marketing of commercial jet aircraft and providing related support services,
principally to the commercial airline industry worldwide.
The Military Aircraft and Missile Systems segment is involved in the research,
development, production, modification and support of the following products and
related systems: military aircraft, including fighter, transport and attack
aircraft; helicopters; and missiles.
The Space and Communications segment is involved in the research, development,
production, modification and support of the following products and related
systems: space systems; missile defense systems; satellites and satellite
launching vehicles; rocket engines; and information and battle management
systems.
The Customer and Commercial Financing segment is primarily engaged in the
financing of commercial and private aircraft and commercial equipment.
In 2001, the Company adjusted the segment classification of certain business
activities. The Company established an "Other" segment classification which
principally includes the activities of Connexion by BoeingSM, a two-way data
communications service for global travelers; Air Traffic Management, a
business unit developing new approaches to a global solution to address air
traffic management issues; and Phantom Works, an advanced research and
development organization focused on innovative technologies, improved
processes and the creation of new products.
Revenues, earnings from operations and other financial data of the Company's
business segments for the three years ended December 31, 2001, are set forth
on pages 79-83 of the Company's 2001 Annual Report to Shareholders and are
incorporated herein by reference.
On July 26, 2001, the Company acquired SBS International, a developer of
airline flight operations software, for $22 million.
On October 6, 2000, the Company acquired Hughes space and communications
businesses and related operations. The acquired businesses are operated under
the name of Boeing Satellite Systems (BSS). BSS provides space-based
communications, reconnaissance, surveillance and imaging systems. BSS also
manufactures commercial communications satellites. Also included in the
acquisitions are Hughes Electron Dynamics, a supplier of electronic
components for satellites; Spectrolab, a provider of solar cells and
panels for satellites; and a share of HRL Laboratories, a research center.
On October 4, 2000, the Company acquired Jeppesen Sanderson, Inc., a provider
of flight information services. Jeppesen Sanderson, Inc. provides a full
range of print and electronic flight information services, including navigation
data, computerized flight planning, aviation software products, aviation
weather services, maintenance information, and pilot training systems and
supplies. 2
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On August 2, 2000, the Company acquired Autometric, Inc., a geospatial
information technology company, and on September 1, 2000, the Company acquired
Continental Graphics Corp., a provider of technical information to the aviation
industry. Other acquisitions in 2000 include AeroInfo Systems, Inc.; a provider
of advanced maintenance software applications for the airline industry;
SVS, Inc., which specializes in electro-optical systems; and Hawker de
Havilland, which specializes in aircraft parts fabrication.
Boeing Satellite Systems, Autometric, Inc and SVS Inc., are accounted for
as part of the Space and Communications segment. Jeppesen Sanderson, Inc.,
Continental Graphics Corp., AeroInfo Systems, Inc., Hawker de Havilland and
SBS International are accounted for as part of the Commercial Airplanes
segment.
With respect to the Commercial Airplanes segment, the Company is a leading
producer of commercial aircraft and offers a family of commercial jetliners
designed to meet a broad spectrum of passenger and cargo requirements of
domestic and foreign airlines. This family of commercial jet aircraft
currently includes the 717, 737 Next-Generation, and 757 standard-body
models and the 767, 777 and 747 wide-body models. Final deliveries of the
MD-80, MD-90 and 737 Classic aircraft occurred in 2000. Final delivery of
the MD-11 aircraft occurred in the first quarter of 2001.
The worldwide market for commercial jet aircraft is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth, both in developed and
emerging countries, and political stability. Demand for the Company's
commercial aircraft is further influenced by airline industry profitability,
world trade policies, government-to-government relations, environmental
constraints imposed upon aircraft operations, technological changes, and price
and other competitive factors.
Commercial jet aircraft are normally sold on a firm fixed-price basis with an
indexed price escalation clause. The Company's ability to deliver jet aircraft
on schedule is dependent upon a variety of factors, including execution of
internal performance plans, availability of raw materials, performance of
suppliers and subcontractors, and regulatory certification. The introduction
of new commercial aircraft programs and major derivatives involves increased
risks associated with meeting development, production and certification
schedules.
After several years of economic expansion, the major economies of the United
States and Europe began to slow in 2001. The industry downturn in the wake of
the terrorist attacks on September 11, 2001, was immediate, serious and
widespread. Air travel to, from and within the United States was halted for
a period of days. Airlines cutback their routes and frequencies to deal with
the fall off in traffic. The major U.S. airlines reported significant financial
losses in the fourth quarter and profits for European and Asian airlines
declined. Recent trends indicate that, absent an event similar to that occurring
on September 11, 2001, air travel growth and airline revenue will gradually
return to pre-September 11 levels. As this happens, airlines are expected to
slowly expand their routes and frequencies and return to profitability.
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The Company's commercial aircraft sales are subject to intense competition,
including foreign companies that are nationally owned or subsidized. To meet
competition, the Company maintains a program directed toward continually
enhancing the performance and capability of its products and has a family of
commercial aircraft to meet varied and changing airline requirements.
Additionally, extensive customer support services network for airlines
throughout the world plays a key role in maintaining high customer
satisfaction.
The Company continually evaluates opportunities to improve current models,
and assesses the marketplace to ensure that its family of commercial jet
aircraft is well positioned to meet future requirements of the airline
industry. The fundamental strategy is to maintain a broad product line
responsive to changing market conditions by maximizing commonality among
the Boeing family of commercial aircraft. Additionally, the Company is
determined to continue to lead the industry in customer satisfaction by
offering products with the highest standards of quality, safety, technical
excellence, economic performance and in-service support.
The major focus of commercial aircraft development activities over the
past three years has been the 767-400ER, the Next-Generation 737 family of
short-to-medium jetliners (737-600/700/800/900 models), the 717 program,
the 747-400ER, 777-300ER, 777-200LR and a sonic cruiser airplane. Initial
delivery of the 767-400ER, a stretched version of the 767-300ER capable of
carrying over 300 passengers in a two-class configuration, occurred in the
third quarter of 2000. The initial delivery of the 737-900, the largest
member of the Next-Generation 737 family occurred in the second quarter
of 2001. First delivery of the 717 occurred in September 1999.
Certification and first delivery of the 747-400ER is scheduled for late
2002. Certification and first delivery of the 777-300ER and 777-200LR is
scheduled for 2004 and 2005, respectively
The Company is offering a new version of the 747-400 which reduces
community noise, improves passenger comfort with 777 style interior and
increases the range for non-stop trans-Pacific operation. Entry into
service is planned for 2004.
The Company's acquisition of the defense and space units of Rockwell in
1996; the merger with McDonnell Douglas in 1997; and other acquisitions,
such as the Hughes space and communications businesses, have created a
large and diversified group of programs in information, space and defense
systems. The major trends that shape the current environment of the
Military Aircraft and Missile Systems segment and the Space and
Communications segment include significant but relatively flat U.S.
Government defense and space budgets; rapid expansion of information and
communication technologies, the need for low cost, assured access to space,
and a convergence of military, civil and commercial markets.
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The U.S. Government, principally through the Department of Defense (DoD)
and NASA, remains the primary customer in the Military Aircraft and
Missile Systems and Space and Communications business segments. From an
institutional perspective, the 2001 Quadrennial Defense Review (QDR),
released on September 12, 2001, identifies national security goals that
promote continued modernization and transformation of the nation's
military. The policy goals are assuring allies and friends; dissuading
future military competition; deterring threats to U.S. interests; and
defeating aggression if deterrence fails. These goals translate into
continuing demands for forward presence, rapid contingency response,
homeland security, peacekeeping, humanitarian and disaster relief
operations that are driving high usage of personnel and equipment that
results in operating cost affordability issues. Current acquisition
rates for aircraft, missiles and ships are well below the rates needed
to recapitalize aging equipment while the DoD is faced with rising
personnel, health care and support costs.
In light of an immediate and a durable need to maintain strong U.S.
defense capabilities covering a very broad spectrum of threats and
responses, near-term DoD budgets have increased, and longer-range
forecasts expect DoD budgets to grow faster than anticipated prior
to September 11, 2001. However, with a softening global economy and
anticipated federal budget tensions, allocations to DoD procurement
are unlikely to increase significantly. This suggests that the DoD
will continue to focus on affordability strategies emphasizing
unmanned air combat and reconnaissance vehicles, precision guided
weapons and continued privatization of logistics and support activities
as a means to improve overall effectiveness while maintaining control
over costs. The Company's capabilities and programs are well suited to
provide the military capabilities essential to meet the challenges.
The Company's Military Aircraft and Missile Systems and Space and
Communications business segments are highly sensitive to changes in
national priorities and U.S. Government defense and space budgets.
The principal contributors to 2001 Military Aircraft and Missile
Systems segment revenues included the C-17 Globemaster, F/A-18E/F
Super Hornet, AH-64 Apache, F-22 Raptor, V-22 Osprey, and CH-47
Chinook programs, along with several aerospace support programs.
The principal contributors to 2001 Space and Communications segment
revenues included classified projects for the U.S. Government, Boeing
Satellite Systems, Missile Defense, the International Space Station,
Space Shuttle Flight Operations and Maine Engine, AWACS (Airborne
Warning and Control System) and Delta space launch services.
In recent years, a significant percentage of Military Aircraft and
Missile Systems segment business has been in developmental programs
under cost-reimbursement-type contracts, which generally have lower
profit margins than fixed-price-type contracts. Current major
developmental programs include the F-22 Raptor, V-22 Osprey tiltrotor
aircraft, C-130 Avionics Modernization Program (AMP), the RAH-66
Comanche helicopter and the Unmanned Combat Air Vehicle (UCAV). Both
the V-22 and F-22 programs have transitioned to low-rate initial
production but also continue developmental activities. The C-47
Chinook is currently transitioning from development to production of
a major new upgrade program.
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Milestones for the year include deliveries of 4 Globemaster
III C-17s to the United Kingdom Royal Air Force, a decision by the
government of Japan to purchase 10 AH-64D helicopters and the Republic
of Singapore's offer and acceptance with the U.S. Government for 12
additional AH-64D Apache Longbow helicopters.
Current products in the tactical missiles segment include the Harpoon
Block II, SLAM-ER, CALCM and the Joint Direct Attack Munition (JDAM).
Future programs include the Small Diameter Bomb and the Company is
aggressively pursuing opportunities that utilize high-speed technology
for the next-generation missile.
Space and Communications segment business performed under
cost-reimbursement-type contracts currently include the International
Space Station, Ground-Based Midcourse Defense program, Space Shuttle
Flight Operations and Space Shuttle Main Engine.
The U.S. Government defense market environment is one in which continued
intense competition among defense contractors can be expected, especially
in light of U.S. Government budget constraints. Many environmental factors
affect the outlook for the launch services business. The reduced demand
projections that incorporate the results of the softened non-geostationary
satellite launch market and the resulting forecast of excess capacity in
launch vehicle supply will continue to create a highly competitive
atmosphere in the commercial market where capability, service
availability, reliability, and affordability will be critical success
factors. The DoD market remains steady with reliability and a guaranteed
second source being the critical success factors. With the Delta family
and Sea Launch commercial launch vehicles the Company is well positioned to
respond to these changing market conditions. As the launch market continues
to evolve, the Space and Communications segment is prepared to play a major
role in NASA-driven and industry-driven advanced space transportation
technology developments.
The information and communications market targets both government and
commercial customers. The market offers the largest opportunity for growth
for the Space and Communications segment. The government segment includes
airborne mission systems, space systems, satellite systems, and integrated
system-of-systems opportunities. The commercial segment includes satellite
manufacturing, network operations and application service opportunities.
Products serving these markets require strong customer-focused solutions
and seamless interfaces with multiple systems and applications. The Company
believes that its experience in large-scale systems integration projects,
along with related expertise in satellite system development and
manufacturing will provide the leverage necessary to expand in this market.
The acquisition and merger consolidations among U.S. aerospace companies
have resulted in three principal prime contractors for the DoD and NASA,
including the Company. As a result of the extensive consolidation in the
defense and space industry, the Company and its major competitors are also
partners or major suppliers to each other on various programs.
The Company and Lockheed Martin are 50-50 partners in United Space Alliance
(USA), which is responsible for all ground processing of the Space Shuttle
fleet and for space-related operations with the United States Air Force.
USA also performs the modification, testing and checkout operations required
to ready the Space Shuttle for launch. The Company's proportionate share of
joint venture earnings is recognized in income.
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The Sea Launch program in which Boeing is a 40% partner with RSC Energia (25%)
of Russia, Kvaerner Maritime (20%) of Norway, and KB Yuzhnoye/PO Yuzhmach (15%)
of Ukraine had two successful launches in 2001. The venture incurred losses in
2001 due to relatively low volume of launches, reflecting the depressed
satellite market.
The Company is entitled to 50% of the earnings of FlightSafety Boeing Training
International (FSBTI), a partnership with FlightSafety International Inc.,
which provides pilot and crew training.
The Customer and Commercial Financing segment consists primarily of the
operations of Boeing Capital Corporation (BCC), which acts as a captive finance
subsidiary for the Company. BCC provides market based lease and loan financing
primarily to airlines who purchase or lease the Company's commercial aircraft.
BCC competes for aircraft finance business with other finance companies,
commercial banks, and other financial institutions.
BCC also competes in the commercial equipment leasing market, primarily in the
United States, against a number of larger and many smaller competitors,
including other leasing companies and commercial banks. The type of equipment
leased included corporate aircraft, machine tools, ocean-going vessels, and
production facilities. Leasing accounts for approximately 30% of domestic
capital expenditures which are expected to grow at an annual rate of
approximately 8%. New business volume of BCC is funded with debt obtained in
the capital markets to which it has access as well as cash from operations and
contributions from its parent company.
Research and development expense amounted to $1.9 billion, $2.0 billion and
$1.3 billion in 2001, 2000, and 1999, respectively. The amount expensed in
2000 included $557 million attributable to in-process research and
development (IPR&D).
The Company's backlog of firm contractual orders (in billions) at December 31
follows:
2001 2000
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Commercial Airplanes $ 75.9 $ 89.8
Military Aircraft and Missile Systems 17.6 17.1
Space and Communications 13.1 13.7
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Total contractual backlog $106.6 $120.6
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Not included in contractual backlog are purchase options and announced orders
for which definitive contracts have not been executed and orders from customers
that have filed for bankruptcy protection. Additionally, U.S. Government and
foreign military firm backlog is limited to amounts obligated to contracts.
Unobligated contract funding not included in backlog at December 31, 2001,
and 2000, totaled $27.5 billion and $31.3 billion.
In evaluating the Company's contractual backlog for commercial customers,
certain risk factors should be considered. Approximately 27% of the commercial
aircraft backlog units are scheduled for delivery beyond 2004. Changes in the
economic environment and the financial condition of airlines sometimes result
in customer requests for rescheduling or cancellation of contractual orders.
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Contracts with the U.S. Government are subject to termination for default or for
convenience by the Government if deemed in its best interests. Contracts that
are terminated for convenience generally provide for payments to a contractor
for its costs and a proportionate share of profit for work accomplished
through the date of termination. Contracts that are terminated for default
generally provide that the Government pays only for the work it has accepted,
can require the contractor to pay the difference between the original contract
price and the cost to reprocure the contract items net of the value of the work
accepted from the original contractor, and can hold a contractor liable for
damages.
The Company is dependent on the availability of energy sources, such as
electricity, at affordable prices. The Company is also highly dependent on the
availability of essential materials, parts and subassemblies from its suppliers
and subcontractors. The most important raw materials required for the
Company's aerospace products are aluminum (sheet, plate, forgings and
extrusions), titanium (sheet, plate, forgings and extrusions) and composites
(including carbon and boron). Although alternative sources generally exist for
these raw materials, qualification of the sources could take a year or more.
Many major components and product equipment items are procured or
subcontracted on a sole-source basis with a number of domestic and foreign
companies. The Company is dependent upon the ability of its large number of
suppliers and subcontractors to meet performance specifications, quality
standards, and delivery schedules at anticipated costs, and their failure to
do so would adversely affect production schedules and contract profitability,
while jeopardizing the ability of the Company to fulfill commitments to its
customers. The Company maintains an extensive qualification and performance
surveillance system to control risk associated with such reliance on
third parties.
While the Company owns numerous patents and has licenses under patents owned by
others relating to its products and their manufacture, it does not believe that
its business would be materially affected by the expiration of any patents or
termination of any patent license agreements. The Company has no trademarks,
franchises or concessions that are considered to be of material importance to
the conduct of its business.
The Company is subject to federal, state and local laws and regulations designed
to protect the environment and to regulate the discharge of materials into the
environment. The Company believes its policies, practices and procedures are
properly designed to prevent unreasonable risk of environmental damage and the
consequent financial liability to the Company. Compliance with environmental
laws and regulations requires continuing management effort and expenditures by
the Company. Compliance with environmental laws and regulations has not had in
the past, and, the Company believes, will not have in the future, material
effects on the capital expenditures, earnings or competitive position of the
Company. (See Item 3, Legal Proceedings, for additional information
regarding environmental regulation.)
The Company is subject to business and cost classification regulations
associated with its U.S. Government defense and space contracts. Violations can
result in civil, criminal or administrative proceedings involving fines,
compensatory and treble damages, restitution, forfeitures, and suspension or
debarment from Government contracts.
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Sales outside the United States (principally export sales from domestic
operations) by geographic area are included on page 80 of the Company's 2001
Annual Report to Shareholders and incorporated herein by reference.
Approximately 1% of total sales were derived from non-U.S. operations of the
Company for each of the three years in the period ended December 31, 2001.
Approximately 46% of the Company's contractual backlog value at December 31,
2001, was with non-U.S. customers. Sales outside the United States are
influenced by U.S. Government foreign policy, international relationships, and
trade policies of governments worldwide. Relative profitability is not
significantly different from that experienced in the domestic market.
Approximately 18% of combined accounts receivable and customer and commercial
financing consisted of amounts due from customers outside the United States.
Substantially all of these amounts are payable in U.S. dollars, and, in
management's opinion, related risks are adequately covered by allowance for
losses. The Company has not experienced materially adverse financial
consequences as a result of sales and financing activities outside the United
States.
The Company incurred and is expected to incur employment reductions resulting
from the decrease in aircraft demand, which directly related to the attacks of
September 11, 2001. The Company's workforce level at December 31, 2001, was
approximately 188,000, including approximately 2,600 in Canada and 900 in
Australia.
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Item 2. Properties
The locations and covered areas of the Company's principal operating
properties on January 1, 2002, are indicated in the following table.
Floor Area
(Thousands of square feet)
Company-
Owned Leased
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United States
Puget Sound, Washington 41,528 2,761
Southern California 14,762 4,184
Wichita, Kansas 12,255 921
Greater St. Louis, Missouri 6,987 2,479
Pennsylvania 3,376 1
Alabama 2,175 307
Arizona 1,930 137
Greater Portland, Oregon 1,020 11
Florida 929 744
Texas 697 2,057
Eastern Washington 635 48
Georgia 544 245
Oakridge, Tennessee 492
Greater Denver, Colorado 235 107
Greater Salt Lake City, Utah 232 67
Eastern Colorado 183 303
Greater Tulsa, Oklahoma 165 1,536
Glasgow, Montana 147
Melbourne, Arkansas 106
Greater Washington, D.C. 847
Ohio 745
Greater Chicago, Illinois 280
Oklahoma 233
Delaware 102
Mississippi 94
Albuquerque, New Mexico 59
Maine 21
Maryland 15
Central California 10
Australia
Victoria 710 221
New South Wales 52 549
Queensland 27
Canada
Toronto, Ontario 1,845 63
Winnipeg, Manitoba 520 96
England 126
Germany 90
China 7
Malaysia 5
United Arab Emirates 4
Hong Kong 3
Tokyo, Japan 2
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Most runways and taxiways used by the Company are located on airport properties
owned by others and are used by the Company jointly with others. The Company's
rights to use such facilities are provided for under long-term leases with
municipal, county or other government authorities. In addition, the U.S.
Government furnishes the Company certain office space, installations and
equipment at Government bases for use in connection with various contract
activities. Facilities at the major locations support all principal industry
segments. Work related to a given program may be assigned to various locations,
based upon periodic review of shop loads and production capability.
Because of the acquisition of the aerospace and defense units of Rockwell, of
Hughes Satellite, and of McDonnell Douglas, the Company is in the process of
re-evaluating facilities to consolidate redundant activities. Properties and
land that do not meet long-term business requirements will be leased out
or sold.
The Company's principal properties are well maintained and in good operating
condition. All other existing facilities are sufficient to meet the Company's
near-term operating requirements.
Item 3. Legal Proceedings
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
legal proceedings are related to matters covered by insurance. Major
contingencies are discussed below.
The Company is subject to federal and state requirements for protection of
the environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations since the
1980s.
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation
of contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures
related to environmental remediation sites based on estimates of investigation,
cleanup and monitoring costs to be incurred.
The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact
to the Company's financial position. With respect to results of operations,
related charges have averaged less than 2% of annual net earnings. Such
accruals as of December 31, 2001, without consideration for the related
contingent recoveries from insurance carriers, are less than 2% of total
liabilities.
Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for identified
contaminated sites.
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However, based on all known facts and expert analyses, the Company believes it
is not reasonably likely that identified environmental contingencies will
result in additional costs that would have a material adverse impact to the
Company's financial position or operating results and cash flow trends.
The Company is subject to U.S. Government investigations from which civil,
criminal or administrative proceedings could result. Such proceedings could
involve claims by the Government for fines, penalties, compensatory and treble
damages, restitution and/or forfeitures. Under government regulations, a
company, or one or more of its operating divisions or subdivisions, can also be
suspended or debarred from government contracts, or lose its export privileges,
based on the results of investigations. The Company believes, based upon all
available information, that the outcome of any such government disputes and
investigations will not have a material adverse effect on its financial position
or continuing operations.
In 1991, the U.S. Navy notified McDonnell Douglas (now a subsidiary of the
Company) and General Dynamics Corporation (the "Team") that it was terminating
for default the Team's contract for development and initial production of the
A-12 aircraft. The Team filed a legal action to contest the Navy's default
termination, to assert its rights to convert the termination to one for "the
convenience of the Government," and to obtain payment for work done and costs
incurred on the A-12 contract but not paid to date. As of December 31, 2001,
inventories included approximately $583 million of recorded costs on the A-12
contract, against which the Company has established a loss provision of $350
million. The amount of the provision, which was established in 1990, was based
on McDonnell Douglas's belief, supported by an opinion of outside counsel, that
the termination for default would be converted to a termination for convenience,
and that the upper range of possible loss on termination for convenience was
$350 million.
On August 31, 2001, the U.S. Court of Federal Claims issued a decision after
trial upholding the Government's default termination of the A-12 contract on the
ground that the Team could not meet the revised contract schedule unilaterally
imposed by the Government after the Government had waived the original schedule.
The court did not, however, enter a judgment for the Government on its claim
that the Team be required, as a consequence of the alleged default, to repay
progress payments that had not been formally liquidated by deliveries at the
time of termination. These unliquidated progress payments total $1,350 million.
On October 4, 2001, the court confirmed that it would not be entering judgment
in favor of the Government in the amount of these unliquidated progress
payments. This is the latest decision relating to long-running litigation
resulting from the A-12 contract termination in 1991, and follows an earlier
trial court decision in favor of the contractors and reversal of that initial
decision on appeal.
The Company believes, supported by an opinion of outside counsel, that the trial
court's rulings with respect to the enforceability of the unilateral schedule
and the termination for default are contrary to law and fact. The Company
believes the decision raises valid issues for appeal and is pursuing its appeal.
If, contrary to the Company's belief, the decision of the trial court on
termination were sustained on appeal, the Company would incur an additional
loss of approximately $275 million, consisting principally of remaining
inventory costs and adjustments.
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And if, contrary to the Company's belief, the appeals court further held that
a money judgment should be entered against the Team in the amount of the
unliquidated progress payments, the Team would be required to pay the Government
$1,350 million plus statutory interest from February 1991 (currently totaling
approximately $970 million). Under this outcome, the Company would be obligated
to pay one half of these amounts. The additional loss to the Company would total
approximately $1,430 million in pretax charges, consisting principally of the
repayment obligations and the remaining inventory costs and adjustments.
The Company believes that the loss provision established by McDonnell Douglas
in 1990 continues to provide adequately for the reasonably possible reduction
in value of A-12 net contracts in process as of December 31, 2001. Final
resolution of the A-12 litigation will depend upon the outcome of further
proceedings or possible negotiations with the Government.
On October 31, 1997, a federal securities lawsuit was filed against the Company
in the U.S. District Court for the Western District of Washington, in Seattle.
The lawsuit names as defendants the Company and three of its then executive
officers. Additional lawsuits of a similar nature have been filed in the same
court. These lawsuits were consolidated on February 24, 1998. The lawsuits
generally allege that the defendants desired to keep the Company's share price
as high as possible in order to ensure that the McDonnell Douglas shareholders
would approve the merger and, in the case of the individual defendants, to
benefit directly from the sale of Boeing stock during the period from
April 7, 1997 through October 22, 1997. By order dated May 1, 2000, the Court
certified two subclasses of plaintiffs in the action: a. all persons or entities
who purchased Boeing stock or call options or who sold put options during the
period from July 21, 1997 through October 22, 1997, and b. all persons or
entities who purchased McDonnell Douglas stock on or after April 7, 1997, and
who held such stock until it converted to Boeing stock pursuant to the merger.
The plaintiffs sought compensatory damages and treble damages. On
September 17, 2001, the Company reached agreement with class counsel to settle
the lawsuit for $92.5 million. The settlement will have no effect on the
Company's earnings, cash flow or financial position, as it is within insurance
limits. The settlement is conditioned on notice to the class members and Court
approval, which is expected to occur in 2002.
On February 25, 2000, a purported class action lawsuit alleging gender
discrimination and harassment was filed against The Boeing Company, Boeing
North American, Inc., and McDonnell Douglas Corporation. The complaint, filed
with the United States District Court in Seattle, alleges that the Company has
engaged in a pattern and practice of unlawful discrimination, harassment and
retaliation against females over the course of many years. The complaint, Beck
v. Boeing, names 28 women who have worked for Boeing in the Puget Sound area;
Wichita, Kansas; St. Louis, Missouri; and Tulsa, Oklahoma. On March 15, 2000,
an amended complaint was filed naming an additional 10 plaintiffs, including
the first from California. The lawsuit attempts to represent all women who
currently work for the Company, or who have worked for the Company in the past
several years.
The Company has denied the allegation that it has engaged in any unlawful
"pattern and practice." Plaintiffs' motion for class certification was filed
in May 2001. The class they sought included salaried employees in Puget Sound,
Wichita, St. Louis, and Long Beach, and hourly employees in Puget Sound,
Wichita, and St. Louis.
13
14
On October 19, 2001, the court granted class certification to a segment of the
population sought by the plaintiffs. The court ruled that the action could
proceed on the basis of two limited subclasses: a. all non-executive salaried
women (including engineers) in the Puget Sound area, and b. all hourly women
covered by the Machinists' Bargaining Agreement in the Puget Sound area. The
claims to be litigated are alleged gender discrimination in compensation and
promotion. The court also held that the plaintiffs could not seek back pay.
Rather, should liability be found, the potential remedies include some form of
injunctive relief as well as punitive damages. The U.S. Ninth Circuit Court of
Appeals has accepted the Company's interlocutory appeal of the class
certification decision, particularly the ruling that leaves open the
possibility of punitive damages. The Company intends to continue its
aggressive defense of these cases. It is not possible to predict what impact,
if any, these cases could have on the financial statements.
14
15
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information required by this item is included on page 90 and the inside back
cover of the Company's 2001 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. Selected Financial Data
Information required by this item is included on page 85 of the Company's 2001
Annual Report to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Information required by this item is included on pages 39-58 of the
Company's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has financial instruments that are subject to interest rate risk,
principally short-term investments, fixed-rate notes receivable attributable
to customer financing, and debt obligations issued at a fixed rate.
Historically, the Company has not experienced material gains or losses due
to interest rate changes when selling short-term investments or fixed-rate
notes receivable. Additionally, the Company uses interest rate swaps to
manage exposure to interest rate changes. Based on the current holdings
of short-term investments and fixed-rate notes, as well as underlying
swaps, the exposure to interest rate risk is not material. Fixed-rate
debt obligations issued by the Company are generally not callable until
maturity.
The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies.
As a general policy, the Company substantially hedges foreign currency
commitments of future payments and receipts by purchasing foreign currency
forward contracts. Less than two percent of receipts and expenditures are
contracted in foreign currencies, and the market risk exposure relating to
currency exchange is not material.
For further information on quantitative and qualitative disclosures about
market risk, refer to Note 1 on pages 59 - 61 and Notes 23 - 26 on pages
75 - 77 of the Company's 2001 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and supplementary data,
included in the Company's 2001 Annual Report to Shareholders on the pages
indicated, are incorporated herein by reference:
15
16
Consolidated Statements of Operations - years ended December 31, 2001, 2000
and 1999: Page 35.
Consolidated Statements of Financial Position - December 31, 2001 and 2000:
Page 36.
Consolidated Statements of Cash Flows - years ended December 31, 2001, 2000
and 1999: Page 37.
Consolidated Statements of Shareholders' Equity - December 31, 2001, 2000 and
1999: Page 38.
Notes to Consolidated Financial Statements: Pages 59-83.
Supplementary data regarding quarterly results of operations: Page 83.
Independent Auditors' Report: Page 84.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
16
17
PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers
No family relationships exist among any of the executive officers, directors
or director nominees. The executive officers of the Company as of February 28,
2001, are as follows:
Name Age Positions and offices held and business experience
================================================================================
Philip M. Condit 60 Chairman of the Board since February 1997.
Chief Executive Officer since April 1996.
Director since August 1992. President from
August 1992 through January 1997.
Harry C. Stonecipher 65 Vice Chairman of the Board since May 2001.
Prior thereto, President and Chief
Operating Officer of the Company and Director
since August 1997. Prior thereto, President
and Chief Executive Officer of McDonnell
Douglas Corporation from September 1994.
James F. Albaugh 51 Senior Vice President of the Company and
President, Space and Communications Group
since September 1998 (named CEO of Space
and Communications Group in March 2001).
Prior thereto, President of Boeing Space
Transportation from April 1998. Prior thereto,
President of Rocketdyne Propulsion and Power,
now a business of Space and Communications
Group, from March 1997. Prior thereto,
Vice President - Operations, Rocketdyne
Propulsion and Power from 1994.
Douglas G. Bain 52 Senior Vice President and General Counsel
since August 2000. Prior thereto, Vice
President and General Counsel from November
1999. Prior thereto, Vice President of Legal,
Contracts, Ethics and Government Relations for
Boeing Commercial Airplanes Group from 1996.
Scott Carson 55 Senior Vice President of the Company and
President, Connexion by Boeing since November
2000. Prior thereto, Executive Vice President
and Chief Financial Officer of Boeing
Commercial Airplanes Group, from September
1998. Prior thereto, Executive Vice President
of Business Resources for Boeing Information,
Space and Defense Systems from November 1997.
Prior thereto, Executive Vice President of
Boeing Commercial Space Company.
James B. Dagnon 62 Senior Vice President - People since May 1997.
Prior thereto, Senior Vice President -
Employee Relations, Burlington Northern Santa Fe
from 1995.
17
18
Name Age Positions and offices held and business experience
================================================================================
Gerald E. Daniels 56 Senior Vice President of the Company and
President, Military Aircraft and Missile
Systems Group since May 2000 (named CEO of
Aircraft and Military Systems Group in March
2001). Prior thereto, Vice President and
General Manager of U.S. Navy and Marine Corps
Programs for the Military Aircraft and Missile
Systems Group, from February 1997. From October
1998 to May 2000, he also served as St. Louis
site manager. From January 1994 until February
1997, Vice President and General Manager of
the F/A-18 program for McDonnell Douglas
Corporation.
Rudy de Leon 49 Senior Vice President - Government Relations
since July 2001. Prior thereto, Deputy
Secretary of Defense (2000-2001).
Prior thereto, Under Secretary of Defense
(Personnel and Readiness) 1997-2000. Prior
thereto, Under Secretary of the Air Force
(1994-1997). Prior thereto, Assistant to
Secretary of Defense (1993-1994).
John B. Hayhurst 54 Senior Vice President of the Company and
President, Air Traffic Management since
November 2000. Prior thereto, Vice President
of Business Development for the Commercial
Aviation Services unit of Boeing Commercial
Airplanes Group from June 2000. Prior thereto,
Vice President and General Manager of 737
Programs and General Manager of the Renton, WA
production site from October 1998. Prior
thereto, Vice President and General Manager of
North and South America Sales from February
1997. Prior thereto, Vice President and
General Manager of the 747X Program from June
1996. Prior thereto, Vice President of Boeing
Commercial Airplane Group Product Development
from December 1994.
Laurette T. Koellner 47 Senior Vice President of the Company and
President, Shared Services Group since
November 2000. Prior thereto, Vice President
and Corporate Controller from March 1999.
Prior thereto, Vice President and General
Auditor from August 1997. Prior thereto, Vice
President of Auditing at McDonnell Douglas
Corporation from May 1996. Prior thereto,
Division Director of Human Resources at
McDonnell Douglas Aerospace Company from May
1994.
18
19
Name Age Positions and offices held and business experience
================================================================================
Alan R. Mulally 56 Senior Vice President of the Company since
February 1997 and President of Boeing
Commercial Airplanes Group since September
1998 (named CEO of Boeing Commercial Airplanes
Group in March 2001). Prior thereto, President
of Boeing Information, Space & Defense Systems
from August 1997 through August 1998. Prior
thereto, President of Boeing Defense & Space
Group from January 1997. Prior thereto, Senior
Vice President of Airplane Development and
Definition, Boeing Commercial Airplane Group
from 1994.
James F. Palmer 52 Senior Vice President of the Company and
President, Boeing Capital Corporation since
November 2000. Prior thereto, Senior Vice
President of the Company and President of
Shared Services Group since August 1997. Prior
thereto, Senior Vice President and Chief
Financial Officer of McDonnell Douglas
Corporation from July 1995.
Thomas R. Pickering 70 Senior Vice President, International Relations
since January 2001. Prior thereto, U.S.
Undersecretary of State for Political Affairs
from May 1997. Prior thereto, President of the
Eurasia Foundation, which makes grants and
loans in the states of the former Soviet
Union, from December 1996 through April 1997.
Prior thereto, U.S. Ambassador to the Russian
Federation from May 1993 through November 1996.
Michael M. Sears 54 Senior Vice President and Chief Financial
Officer of the Company since May 2000. Prior
thereto, Senior Vice President of the Company
and President, Military Aircraft and Missiles
Systems Group from September 1998. Prior
thereto, Executive Vice President of Boeing
Information, Space & Defense Systems, and
President of McDonnell Aircraft and Missile
Systems from August 1997. Prior thereto,
President of McDonnell Douglas Aerospace from
February 1997. Prior thereto, President of
Douglas Aircraft Company from April 1996.
David O. Swain 59 Senior Vice President of Engineering &
Technology of the Company since September 1999
and Chief Technology Officer of the Company
since June 2001. Prior thereto, President,
Phantom Works from September 1999. Prior
thereto, Vice President of Engineering of
the Company and Executive Vice President of
Phantom Works from 1997. Prior thereto, Vice
President and General Manager of Advanced
Systems and Technology-Phantom Works,
McDonnell Douglas Corporation from 1994.
19
20
Name Age Positions and offices held and business experience
================================================================================
John D. Warner 62 Senior Vice President and Chief Administrative
Officer of the Company since August 1997.
Prior thereto, Senior Vice President from
February 1997. Prior thereto, President of
Boeing Information and Support Services from 1995.
Other information required by Item 10 involving the identification and
election of directors is incorporated herein by reference to the registrant's
definitive proxy statement, which will be filed with the Commission within 120
days after the close of the fiscal year.
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and Management *
Item 13. Certain Relationships and Related Transactions *
* Information required by Items 11, 12, and 13 is incorporated herein by
reference to the registrant's definitive proxy statement, which will be
filed with the Commission within 120 days after the close of the fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. Financial Statements
All consolidated financial statements of the Company as set forth under
Item 8 of this report on Form l0-K.
2. Financial Statement Schedules
Schedule Description Page
-------- --------------------------------- ----
II Valuation and Qualifying Accounts 26
The auditors' report with respect to the above-listed financial statement
schedule appears on page 25 of this report. All other financial
statements and schedules not listed are omitted either because they are
not applicable, not required, or the required information is included in
the consolidated financial statements.
3. Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
(i) Agreement and Plan of Merger dated as of July 31, 1996, among
Rockwell International Corporation, The Boeing Company and
Boeing NA, Inc. (Exhibit 2.1 to the Company's Registration
Statement on Form S-4 (File No. 333-15001) filed October
29, 1996 (herein referred to as "Form S-4").)
20
21
(ii) Agreement and Plan of Merger, dated as of December 14, 1996,
among The Boeing Company, West Acquisition Corp. and
McDonnell Douglas Corporation. (Exhibit (2)(ii) to the
Company's Annual Report on Form 10-K (File No. 1-442) for
the year ended December 31, 1996, (herein referred to as
"1996 Form 10-K").)
(3) Articles of Incorporation and By-Laws.
(i) Restated Certificate of Incorporation, filed with the
Secretary of State of Delaware on August 14, 1997. (Exhibit
(3)(iii) to the Company's Form 10-Q for the quarter ended
June 30, 1997.)
(ii) By-Laws, as amended and restated on June 25, 2001.
(Exhibit (3)(i) to the Company's Form 10-Q for the quarter
ended June 30, 2001.)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
(i) Indenture, dated as of August 15, 1991, between the Company
and The Chase Manhattan Bank (National Association),
Trustee. (Exhibit (4) to the Company's Current Report on
Form 8-K (File No. 1-442) dated August 27, 1991.)
(10) Material Contracts.
The Boeing Company Bank Credit Agreements.
(i) U.S. $3 Billion 364-Day Credit Agreement dated as of
November 23, 2001, among The Boeing Company, as Borrower,
the Lenders party thereto, Salomon Smith Barney Inc. and
J.P. Morgan Securities, Inc., as Joint Lead Arrangers and
Joint Book Managers, The J.P. Morgan Chase Bank, as
Syndication Agent, and Citibank, N.A., as Administrative
Agent for the Lenders. Filed herewith.
(ii) U.S. $700 Million Five-Year Credit Agreement dated as of
September 27, 2000, among The Boeing Company, as Borrower,
the Lenders party thereto, Salomon Smith Barney Inc. and
Chase Securities, Inc., as Joint Lead Arrangers and Joint
Book Managers, The Chase Manhattan Bank, as Syndication
Agent, and Citibank, N.A., as Administrative Agent for
the Lenders. (Exhibit (10) (ii) (Bank Credit Agreements)
to the Company's Form 10-Q for the quarter ended September
30, 2000.)
(iii) U.S. $ One Billion Five Hundred Million (reduced to $ Eight
Hundred Million) 7-Year Bank Credit Agreement among The
Boeing Company, as Borrower, the Banks party thereto,
Citibank, N.A., as Administrative Agent, and The Chase
Manhattan Bank, as Syndication Agent, dated as of
December 8, 1997. (Exhibit (10)(i) to the Company's Annual
Report on Form 10-K (File No. 1-442) for the year ended
December 31, 1997 (herein referred to as "1997 Form 10-K").)
Management Contracts and Compensatory Plans
(iv) 1988 Stock Option Plan.
(a) Plan, as amended on December 14, 1992. (Exhibit
(10)(vii)(a) of the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 (herein referred to
as "1992 Form 10-K").)
(b) Form of Notice of Terms of Stock Option Grant. (Exhibit
(10)(vii)(b) of the 1992 Form 10-K.)
21
22
(v) 1992 Stock Option Plan for Nonemployee Directors.
(a) Plan. (Exhibit (19) of the Company's Form 10-Q for
the quarter ended March 31, 1992.)
(b) Form of Stock Option Agreement. (Exhibit (10)(viii)(b) of
the 1992 Form 10-K.)
(vi) Supplemental Benefit Plan for Employees of The Boeing
Company, as amended on February 22, 1998. (Exhibit (10)(i)
of the Company's Form 10-Q for the quarter ended March 31,
1998 (herein referred to as "1st Quarter 1998 Form 10-Q").)
(vii) Supplemental Retirement Plan for Executives of The Boeing
Company. (Exhibit (10)(ii) of the Company's Form 10-Q for
the quarter ended September 30, 1997.)
(viii) Deferred Compensation Plan for Employees of The Boeing
Company, as amended on February 23, 1998. (Exhibit (10)(ii)
to the 1st Quarter 1998 Form 10-Q.)
(ix) Deferred Compensation Plan for Directors of The Boeing
Company, as amended on August 29, 2000. (Exhibit (10)(i)
(Management Contracts) to the Company's Form 10-Q for the
quarter ended September 30, 2000.)
(x) 1993 Incentive Stock Plan for Employees.
(a) Plan, as amended on December 13, 1993. (Exhibit
(10)(ix)(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 (herein referred
to as "1993 Form 10-K").)
(b) Form of Notice of Stock Option Grant.
(i) Regular Annual Grant. (Exhibit (10)(ix)(b)(i) to the
1993 Form 10-K.)
(ii) Supplemental Grant. (Exhibit (10)(ix)(b)(ii) to the
1993 Form 10-K.)
(xi) Incentive Compensation Plan for Officers and Employees of the
Company and Subsidiaries, as amended on April 28, 1997.
(Exhibit (10)(i) to the Company's Form 10-Q for the quarter
ended March 31, 1997.)
(xii) 1997 Incentive Stock Plan, as amended on May 1, 2000.
(Exhibit 99.1 of the Company's Registration Statement on Form
S-8 (File No. 333-41920), filed July 21, 2000.)
(xiii) Employment Agreement with Harry C. Stonecipher dated August
1, 1997. (Exhibit (10)(i) to the Company's Form 10-Q for the
quarter ended June 30, 1997.)
(a) Amendment No. 1, dated as of June 26, 2000, to Employment
Agreement with Harry C. Stonecipher dated August 1, 1997.
(Exhibit (10)(i) to the Company's Form 10-Q for the
quarter ended June 30, 2000.)
(xiv) Boeing Company Executive Layoff Benefits Plan, as amended on
June 28, 1999. (Exhibit (10) to the Company's Form 10-Q for
the quarter ended June 30, 1999.)
(xv) The McDonnell Douglas 1994 Performance and Equity Incentive
Plan. (Exhibit 99.1 of Registration Statement No. 333-32567
on Form S-8 filed on July 31, 1997.)
(xvi) The Boeing Company ShareValue Program, as amended on December
20, 1996. (Exhibit (10)(xiii) to the 1996 Form 10-K.)
(xvii) Stock Purchase and Restriction Agreement dated as of July 1,
1996, between The Boeing Company and Wachovia Bank of North
Carolina, N.A. as Trustee, under the ShareValue Trust
Agreement dated as of July 1, 1996. (Exhibit 10.20 to the
Form S-4.)
22
23
(xviii) 1999 Bonus and Retention Award Plan, as adopted on April 26,
1999. (Exhibit (10)(ii) to the Company's Form 10-Q for the
quarter ended June 30, 2000.)
(xix) Supplemental Pension Agreement with Michael M. Sears, dated
February 16, 2000. (Exhibit (10)(xxiii) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999.)
(xx) Restricted Stock Unit Grant Agreement with James F. Albaugh,
dated December 7, 1999. (Exhibit (10)(xix) to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000.)
(xxi) Restricted Stock Unit Grant Agreement with Alan R. Mulally,
dated June 30, 1998. (Exhibit (10)(xx) to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000.)
(xxii) Restricted Stock Unit Grant Agreement with Michael M. Sears,
effective as of October 18, 1999. (Exhibit (10)(xxi) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000.)
(xxiii) The Boeing Company Executive Layoff Benefits Plan as amended
and restated effective April 1, 2001. (Exhibit (10)(i) to
the Company's form 10-Q for the quarter ended June 30, 2001.)
(12) Computation of Ratio of Earnings to Fixed Charges. Page 27.
(13) Portions of the 2001 Annual Report to Shareholders incorporated by
reference herein. Filed herewith.
(21) List of Company Subsidiaries. Pages 182-187.
(23) Independent Auditors' Consent and Report on Financial Statement
Schedule for use in connection with filings of Form S-8 under the
Securities Act of 1933. Page 25.
(99) Additional Exhibits
(i) Commercial Program Method of Accounting. (Exhibit (99)(i) to
the 1997 Form 10-K.)
(ii) Post-Merger Combined Statements of Operations and Financial
Position. (Exhibit (99)(i) to the Company's Form 10-Q for
the quarter ended June 30, 1997.)
(b) Reports on Form 8-K filed during quarter ended December 31, 2001:
No reports on Form 8-K were filed during the quarter covered by this
report.
23
24
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the date indicated.
THE BOEING COMPANY
(Registrant)
By: /s/ Philip M. Condit By: /s/ Harry C. Stonecipher
---------------------------------- ---------------------------------
Philip M. Condit - Chairman of the Harry C. Stonecipher - Vice
Board, Chief Executive Officer Chairman and Director
and Director
By: /s/ Michael M. Sears By: /s/ James A. Bell
----------------------------------- --------------------------------
Michael M. Sears - Senior Vice James A. Bell - Vice President
President and Chief Financial Officer Finance and Corporate Controller
Date: February 26, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ John H. Biggs /s/ John F. McDonnell
------------------------ ----------------------------
John H. Biggs - Director John F. McDonnell - Director
/s/ John E. Bryson
------------------------- ----------------------------
John E. Bryson - Director W. James McNerney, Jr. - Director
/s/ Kenneth M. Duberstein /s/ Lewis E. Platt
-------------------------------- --------------------------
Kenneth M. Duberstein - Director Lewis E. Platt - Director
/s/ John B. Fery /s/ Rozanne L. Ridgeway
----------------------- -----------------------------
John B. Fery - Director Rozanne L. Ridgway - Director
/s/ Paul E. Gray /s/ John M. Shalikashvili
----------------------- -------------------------------
Paul E. Gray - Director John M. Shalikashvili- Director
Date: February 26, 2002
24
25
INDEPENDENT AUDITORS' CONSENT
AND REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
The Boeing Company
Chicago, Illinois
We consent to the incorporation by reference in Registration Statement Nos.
2-48576, 33-25332, 33-31434, 33-43854, 33-58798, 33-52773, 333-03191,
333-16363, 333-26867, 333-32461, 333-32491, 333-32499, 333-32567, 333-35324,
333-41920, 333-47450, 333-54234, and 333-73252 of The Boeing Company on Form
S-8 of our report dated January 28, 2002, appearing in and incorporated by
reference in the Annual Report on Form 10-K of The Boeing Company for the year
ended December 31, 2001.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of The Boeing Company, listed in
Item 14(a) 2 in this Annual Report on Form 10-K for the year ended December 31,
2001. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
March 5, 2002
25
26
SCHEDULE II - Valuation and Qualifying Accounts
The Boeing Company and Subsidiaries
Allowance for Doubtful Accounts and Customer Financing
(Deducted from assets to which they apply)
(Dollars in millions)
2001 2000 1999
==============================================================================
Balance at January 1 $ 220 $322 $289
Charged to costs and expenses 77 49 102
Transfer from accrued liabilities 24
Deductions from reserves (accounts charged off) (91) (151) (93)
----- ---- ----
Balance at December 31 $ 206 $220 $322
===== ==== ====
26
27
EXHIBIT (12) - Computation of Ratio of Earnings to Fixed Charges
The Boeing Company and Subsidiaries
(Dollars in millions)
Year ended December 31,
-----------------------------------------------------------------------------
2001 2000 1999 1998 1997
==== ==== ==== ==== ====
Earnings before
federal taxes on income $3,564 $2,999 $3,324 $1,397 $(341)
Fixed charges excluding
capitalized interest 698 481 483 507 552
Amortization of previously
capitalized interest 65 71 80 75 97
Net adjustment for
earnings of affiliates 11 (44) (8) (18) 4
------ ------ ------ ----- ------
Earnings available for
fixed charges $4,338 $3,507 $3,879 $1,961 $ 312
====== ====== ====== ====== =====
Fixed charges:
Interest expense $650 $445 $431 $453 $513
Interest capitalized during
the period 80 82 81 65 61
Rentals deemed
representative of an
interest factor 48 36 52 54 39
---- ---- ---- ---- ----
Total fixed charges $778 $563 $564 $572 $613
==== ==== ==== ==== ====
Ratio of earnings to fixed
charges 5.6 6.2 6.9 3.4 .5
=== === === === ==
27
28
EXHIBITS FILED WITH THIS REPORT ON FORM 10-K
Commission File Number 1-442
THE BOEING COMPANY
Exhibit Index
Annual
Report
to
Share- Form
holders 10-K
Exhibit Description Page Page
-------------------------------------------------------------------------------
(10) (i) U.S. $ 3 Billion 364-Day Credit Agreement
dated as of November 23, 2001. 118
(12) Computation of Ratio of Earnings to Fixed
Charges 27
(13) Portions of the 2001 Annual Report to
Shareholders incorporated by reference
in Part I and Part II 29
Market for registrant's Common Equity and
related Stockholder Matters 90 115
Management's Discussion and Analysis of
Financial Position and Results of Operations 39 36
Consolidated Statements of Operations 35 29
Consolidated Statements of Financial Position 36 30
Consolidated Statements of Cash Flows 37 31
Consolidated Statements of Shareholders' Equity 38 32
Notes to Consolidated Financial Statements 59 70
Independent Auditor's Report 84 112
Supplementary Data Regarding Quarterly
Financial Data 83 111
Selected Financial Data
Five-Year Summary 85 113
(21) List of Subsidiaries 118
(23) Independent Auditors; Consent and Report on
Financial Statement Schedule for use in
connection with filings of Form S-8 under
the Securites Act of 1933. 25
Appendix of graphic and image material
pursuant to Rule 304(a) of regulation S-T 188
28
29
Exhibit (13)
Portions of the 2001 Annual Report to Shareholders
Incorporated by Reference in Part I and Part II
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions except per share data)
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------
Sales and other operating revenues $58,198 $51,321 $57,993
Cost of products and services 48,778 43,712 51,320
-------------------------------------------------------------------------------
9,420 7,609 6,673
Equity in income from joint ventures 93 64 4
General and administrative expense 2,389 2,335 2,044
Research and development expense 1,936 1,441 1,341
In-process research and development expense 557
Gain on dispositions, net 21 34 87
Share-based plans expense 378 316 209
Special charges due to events of
September 11, 2001 935
-------------------------------------------------------------------------------
Earnings from operations 3,896 3,058 3,170
Other income, principally interest 318 386 585
Interest and debt expense (650) (445) (431)
-------------------------------------------------------------------------------
Earnings before income taxes 3,564 2,999 3,324
Income taxes 738 871 1,015
-------------------------------------------------------------------------------
Net earnings before cumulative effect
of accounting change 2,826 2,128 2,309
-------------------------------------------------------------------------------
Cumulative effect of accounting change, net 1
-------------------------------------------------------------------------------
Net earnings $ 2,827 $ 2,128 $ 2,309
===============================================================================
Basic earnings per share $3.46 $2.48 $2.52
===============================================================================
Diluted earnings per share $3.41 $2.44 $2.49
===============================================================================
Cash dividends paid per share $0.68 $0.56 $0.56
===============================================================================
See notes to consolidated financial statements.
29
30
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions except per share data)
December 31, 2001 2000
------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 633 $ 1,010
Accounts receivable 5,156 5,519
Current portion of customer and commercial financing 1,053 995
Deferred income taxes 2,444 2,137
Inventories, net of advances and progress billings 6,920 6,852
------------------------------------------------------------------------------
Total current assets 16,206 16,513
Customer and commercial financing 9,345 5,964
Property, plant and equipment, net 8,459 8,814
Goodwill and acquired intangibles, net 6,443 5,214
Prepaid pension expense 5,838 4,845
Deferred income taxes 60
Other assets 2,052 1,267
------------------------------------------------------------------------------
$48,343 $42,677
==============================================================================
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $13,872 $12,312
Advances in excess of related costs 4,306 3,517
Income taxes payable 909 1,866
Short-term debt and current portion of long-term debt 1,399 1,232
------------------------------------------------------------------------------
Total current liabilities 20,486 18,927
Deferred income taxes 177
Accrued retiree health care 5,367 5,163
Deferred lease income 622
Long-term debt 10,866 7,567
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 1,011,870,159 and 1,011,870,159 5,059 5,059
Additional paid-in capital 1,975 2,693
Treasury shares, at cost - 174,289,720 and 136,385,222 (8,509) (6,221)
Retained earnings 14,340 12,090
Accumulated other comprehensive income (loss) (485) (2)
Unearned compensation (3) (7)
ShareValue Trust shares - 39,691,015 and 39,156,280 (1,552) (2,592)
------------------------------------------------------------------------------
Total shareholders' equity 10,825 11,020
------------------------------------------------------------------------------
$48,343 $42,677
==============================================================================
See notes to consolidated financial statements.
30
31 THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions) December 31, 2001 2000 1999
------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 2,827 $ 2,128 $ 2,309
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Cumulative effect of accounting change, net (1)
Share-based plans 378 316 209
Depreciation 1,448 1,317 1,538
Amortization of goodwill and intangibles 302 162 107
In-process research and development 557
Customer and commercial financing
valuation provision 42 13 72
Gain on dispositions, net (21) (34) (87)
Changes in assets and liabilities -
Short-term investments 100 179
Accounts receivable 342 (1,359) (225)
Inventories, net of advances and
progress billings (19) 1,039 2,030
Accounts payable and other liabilities 490 22 217
Advances in excess of related costs 789 1,387 (36)
Income taxes payable and deferred (762) 726 462
Deferred lease income 622
Prepaid pension expense (993) (374) (332)
Goodwill and other acquired intangibles (1,490)
Accrued retiree health care 227 280 46
Other (367) (338) (265)
------------------------------------------------------------------------------
Net cash provided by operating activities 3,814 5,942 6,224
------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and
properties on lease, additions (5,073) (2,571) (2,398)
Customer financing and
properties on lease, reductions 1,297 1,433 1,842
Property, plant and equipment, net additions (1,068) (932) (1,236)
Acquisitions, net of cash acquired (22) (5,727)
Proceeds from dispositions 152 169 359
------------------------------------------------------------------------------
Net cash used by investing activities (4,714) (7,628) (1,433)
------------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 4,567 2,687 437
Debt repayments (1,124) (620) (676)
Common shares purchased (2,417) (2,357) (2,937)
Stock options exercised, other 79 136 93
Dividends paid (582) (504) (537)
------------------------------------------------------------------------------
Net cash provided (used) by
financing activities 523 (658) (3,620)
------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (377) (2,344) 1,171
Cash and cash equivalents at beginning of year 1,010 3,354 2,183
------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 633 $ 1,010 $ 3,354
==============================================================================
See notes to consolidated financial statements. 31
32
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Share
Paid-In Treasury Value
(Dollars in millions) Capital Stock Trust
==============================================================================
Balance January 1, 1999 $1,147 $(1,321) $(1,235)
------------------------------------------------------------------------------
Share-based compensation 209
Tax benefit related to
share-based plans 9
ShareValue Trust market
value adjustment 366 (366)
Treasury shares acquired (2,937)
Treasury shares issued for
share-based plans, net (47) 97
Net earnings
Cash dividends declared
Minimum pension liability
adjustment, net of tax
of $(14)
Currency translation
adjustment
------------------------------------------------------------------------------
Balance December 31, 1999 $1,684 $(4,161) $(1,601)
------------------------------------------------------------------------------
Share-based compensation 316
Tax benefit related to
share-based plans 160
ShareValue Trust market
value adjustment 991 (991)
Treasury shares acquired (2,357)
Treasury shares issued for
share-based plans, net (264) 297
Performance shares converted
to deferred stock units (194)
Net earnings
Cash dividends declared
Minimum pension liability
adjustment, net of tax of $3
Unrealized holding loss,
net of tax of $7
Currency translation adjustment
------------------------------------------------------------------------------
Balance December 31, 2000 $2,693 $(6,221) $(2,592)
==============================================================================
32
33
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)
Additional Share
Paid-In Treasury Value
(Dollars in millions) Capital Stock Trust
==============================================================================
Share-based compensation 378
Tax benefit related to
share-based plans 16
ShareValue Trust market
value adjustment (1,040) 1,040
Treasury shares acquired (2,417)
Treasury shares issued for
share-based plans, net (72) 129
Net earnings
Cash dividends declared
Minimum pension liability
adjustment, net of tax
of $204
Unrealized holding loss,
net of tax of $9
Loss on derivative
instruments, net of
tax of $61
Currency translation
adjustment
------------------------------------------------------------------------------
Balance December 31, 2001 $ 1,975 $(8,509) $(1,552)
==============================================================================
33
34
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)
Accumulated |
Other |
Comprehensive Retained | Comprehensive
(Dollars in millions) Income(Loss) Earnings | Income
==============================================================|===============
Balance January 1, 1999 $ (23) $ 8,706 |
--------------------------------------------------------------|---------------
Share-based compensation |
Tax benefit related to |
share-based plans |
ShareValue Trust market |
value adjustment |
Treasury shares acquired |
Treasury shares issued for |
share-based plans, net |
Net earnings 2,309 | $ 2,309
Cash dividends declared (528) |
Minimum pension liability |
adjustment, net of tax |
of $(14) 22 | 22
Currency translation |
adjustment 7 | 7
--------------------------------------------------------------|---------------
Balance December 31, 1999 $ 6 $10,487 | $ 2,338
--------------------------------------------------------------|---------------
Share-based compensation |
Tax benefit related to |
share-based plans |
ShareValue Trust market |
value adjustment |
Treasury shares acquired |
Treasury shares issued for |
share-based plans, net |
Performance shares converted |
to deferred stock units |
Net earnings 2,128 | $ 2,128
Cash dividends declared (525) |
Minimum pension liability |
adjustment, net of tax of $3 (4) | (4)
Unrealized holding loss, |
net of tax of $7 (12) | (12)
Currency translation adjustment 8 | 8
--------------------------------------------------------------|---------------
Balance December 31, 2000 $ (2) $12,090 | $ 2,120
==============================================================|===============
34
35
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, (CONTINUED)
Accumulated |
Other |
Comprehensive Retained | Comprehensive
(Dollars in millions) Income(Loss) Earnings | Income
==============================================================|===============
Share-based compensation |
Tax benefit related to |
share-based plans |
ShareValue Trust market |
value adjustment |
Treasury shares acquired |
Treasury shares issued for |
share-based plans, net |
Net earnings 2,827 | $ 2,827
Cash dividends declared (577) |
Minimum pension liability |
adjustment, net of tax |
of $204 (344) | (344)
Unrealized holding loss, |
net of tax of $9 (16) | (16)
Loss on derivative |
instruments, net of |
tax of $61 (102) | (102)
Currency translation |
adjustment (21) | (21)
--------------------------------------------------------------|---------------
Balance December 31, 2001 $(485) $14,340 | $ 2,344
==============================================================|===============
See notes to consolidated financial statements.
The Company's common shares were 1,011,870,159 as of December 31, 2001, 2000
and 1999. The par value of these shares was $5,059 for the same periods.
Treasury shares as of December 31, 2001, 2000 and 1999 were 174,289,720;
136,385,222; and 102,356,897. Treasury shares acquired for the years ended
December 31, 2001, 2000 and 1999 were 40,734,500; 41,782,234; and 68,923,000.
Treasury shares issued for share-based plans for the same periods were
2,830,002; 7,753,909; and 2,411,834. ShareValue Trust shares as of
December 31, 2001, 2000 and 1999 were 39,691,015; 39,156,280; and 38,696,289.
ShareValue Trust shares acquired from dividend reinvestment were 534,734;
459,991; and 529,688 for the same periods. Unearned compensation was $(3), $(7)
and $(12) as of December 31, 2001, 2000 and 1999. The changes in unearned
compensation for the same periods were $4, $5, and $5, attributable to
amortization and forfeitures.
35
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------------------------------------
| Forward-Looking Information is Subject to Risk and Uncertainty |
| |
| Certain statements in this release contain "forward-looking" information |
| that involves risk and uncertainty, including projections for new products, |
| deliveries, realization of technical and market benefits from acquisitions, |
| revenues, operating margins, free cash flow, taxes, research and |
| development expenses, prospects for delivery stream recovery in commercial |
| aircraft, and other trend projections. This forward-looking information |
| is based upon a number of assumptions including assumptions regarding |
| global economic, passenger and freight growth; current and future markets |
| for the Company's products and services; demand for the Company's products |
| and services; performance of internal plans, including, without limitation, |
| plans for productivity gains, reductions in cycle time and improvements |
| in design processes, production processes and asset utilization; product |
| performance; customer financing; customer, supplier and subcontractor |
| performance; customer model selections; favorable outcomes of certain |
| pending sales campaigns and U.S. and foreign government procurement actions;|
| including the timing of procurement of tankers, supplier contract |
| negotiations, price escalation; government policies and actions; successful |
| negotiation of contracts with the Company's labor unions; regulatory |
| approvals; and successful execution of acquisition and divestiture plans; |
| and the assessment of the impact of the attacks of September 11, 2001. |
| Actual results and future trends may differ materially depending on a |
| variety of factors, including the Company's successful execution of internal|
| performance plans, including continued research and development, production |
| rate increases and decreases, production system initiatives, timing of |
| product deliveries and launches, supplier contract negotiations, asset |
| management plans, acquisition and divestiture plans, procurement plans, |
| credit rating agency assessments, and other cost-reduction efforts; the |
| actual outcomes of certain pending sales campaigns and U.S. and foreign |
| government procurement activities; including the timing of procurement of |
| tankers, acceptance of new products and services; product performance risks;|
| the cyclical nature of some of the Company's businesses; volatility of the |
| market for certain products and services; domestic and international |
| competition in the defense, space and commercial areas; continued |
| integration of acquired businesses; uncertainties associated with regulatory|
| certifications of the Company's commercial aircraft by the U.S. Government |
| and foreign governments; other regulatory uncertainties; collective |
| bargaining labor disputes; performance issues with key suppliers, |
| subcontractors and customers; governmental export and import policies; |
| factors that result in significant and prolonged disruption to air travel |
| worldwide; any additional impacts from the attacks of September 11, 2001; |
| global trade policies; worldwide political stability; domestic and |
| international economic conditions; price escalation trends; the outcome |
| of political and legal processes, including uncertainty regarding |
| government funding of certain programs; changing priorities or reductions |
| in the U.S. Government or foreign government defense and space budgets; |
| termination of government contracts due to unilateral government action or |
| failure to perform; legal, financial and governmental risks related to |
| international transactions; legal proceedings; and other economic, political|
| and technological risks and uncertainties. Additional information regarding |
| these factors is contained in the Company's SEC filings, including, without |
| limitation, the Company's Annual Report on Form 10-K for the year ended 2000|
| and the Form 10-Q's for the quarters ended 31 March 2001, 30 June 2001 and |
| 30 September 2001. |
-------------------------------------------------------------------------------
36
37
CRITICAL ACCOUNTING POLICIES AND STANDARDS ISSUED AND NOT YET IMPLEMENTED
Critical Accounting Policies
The following is a summary of accounting policies the Company believes are
most critical to help put in context a discussion concerning the results of
operations.
Sales and other operating revenues
Commercial aircraft sales are recorded as deliveries are made unless transfer
of risk and rewards of ownership is not sufficient.
Sales under fixed-price-type contracts are generally recognized as deliveries
are made or at the completion of scheduled performance milestones. For certain
fixed-price contracts that require substantial performance over an extended
period before deliveries begin, sales are recorded based upon attainment of
either internally identified or external performance milestones. Sales under
cost-reimbursement contracts are recorded as costs are incurred. Certain
contracts contain profit incentives based upon performance relative to
predetermined targets that may occur during or subsequent to delivery of the
product. Incentives, of which amounts can be reasonably estimated, are
recorded over the performance period of the contract. Incentives and fee
awards, of which amounts cannot be reasonably estimated, are recorded when
awarded. Certain contracts contain provisions for the redetermination of price
based upon future economic conditions.
Income associated with customer financing activities is included in sales and
other operating revenues.
Contract and program accounting
In the Military Aircraft and Missile Systems segment and Space and
Communications segment, operations principally consist of performing work under
contract, predominantly for the U.S. Government and foreign governments. Cost
of sales for such contracts is determined based on the estimated average total
contract cost and revenue. Estimates of each contract's revenue and cost are
reviewed and reassessed quarterly. Changes in estimates result in cumulative
revisions to the contract profit recognized. Commercial aircraft programs are
planned, committed and facilitized based on long-term delivery forecasts,
normally for quantities in excess of contractually firm orders. Cost of sales
for the 717, 737, 747, 757, 767 and 777 commercial aircraft programs is
determined under the program method of accounting based on estimated average
total cost and revenue for the current program quantity. The program method of
accounting effectively averages tooling and special equipment costs, as well
as unit production costs, over the program quantity. Because of the higher unit
production costs experienced at the beginning of a new program and the
substantial investment required for initial tooling and special equipment, new
commercial jet aircraft programs normally have lower operating profit margins
than established programs. In 2001, the initial program quantity for the 717
program was revised from 200 to 135 units. The estimated program average costs
and revenues are reviewed and reassessed quarterly, and changes in estimates
are recognized over current and future deliveries constituting the
program quantity.
37
38
To the extent that inventoriable costs are expected to exceed the total
estimated sales price, charges are made to current earnings to reduce
inventoried costs to estimated net realizable value.
Share-based plans
The Company has adopted the expense recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company values stock options issued based upon an
option-pricing model and recognizes this value as an expense over the period
in which the options vest. Potential distribution from the ShareValue Trust
have been valued based upon an option-pricing model, with the related expense
recognized over the life of the trust. Share-based expense associated with
Performance Shares is determined based on the market value of the Company's
stock at the time of the award applied to the maximum number of shares
contingently issuable based on stock price and is amortized over a
five-year period.
Aircraft valuation
Aircraft deemed available for sale, which are included in inventory,
are stated at the lower of cost or fair value. The Company reviews its used
aircraft purchase commitments relative to the aircraft's anticipated fair
value, and records any deficiency as a charge to earnings. Fair value is
determined by using both internal and external aircraft valuations, including
information developed from the sale of similar aircraft in the secondary market.
Aircraft on operating lease or held for operating lease are classified with
customer and commercial financing assets. The Company reviews these operating
lease assets for impairment annually or when events or circumstances indicate
that the carrying amount of these assets may not be recoverable. An asset is
considered impaired when the expected undiscounted cash flow, based on market
assessment of lease rates, over the remaining useful life is less than the net
book value. When impairment is indicated for an asset, the amount of
impairment loss is the excess of net book value over fair value.
Postemployment benefits
The Company accounts for postemployment benefits under SFAS No. 112,
"Employer's Accounting for Postemployment Benefits." A liability for
postemployment benefits is recorded when termination is probable and the amount
is estimable.
Standards Issued and Not Yet Implemented
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." The Company is required to adopt SFAS No. 141 for all
business combinations completed after June 30, 2001. This standard requires
that business combinations initiated after June 30, 2001, be accounted for
under the purchase method. Goodwill and other intangible assets that resulted
from business combinations before July 1, 2001, must be reclassified to
conform to the requirements of SFAS No. 142, as of the statement adoption date.
38
39
The Company will adopt SFAS No. 142 at the beginning of 2002 for all goodwill
and other intangible assets recognized in the Company's statement of financial
position as of January 1, 2002. This standard changes the accounting for
goodwill from an amortization method to an impairment-only approach, and
introduces a new model for determining impairment charges.
The new impairment model requires performance of a two-step test for operations
that have goodwill assigned to them. First, it requires a comparison of the book
value of net assets to the fair value of the related operations. Fair values are
estimated using discounted cash flows, subject to adjustment based on the
Company's market capitalization at the date of evaluation. If fair value is
determined to be less than book value, a second step is performed to compute the
amount of impairment. In this process, the fair value of goodwill is estimated,
and is compared to its book value. Any shortfall of the book value below fair
value represents the amount of goodwill impairment.
Upon transition to the new impairment model as of January 1, 2002, the Company
projects that it will recognize a reduction of goodwill and a pretax charge in
the range of $2,100 million to $2,600 million, identified as a cumulative effect
of an accounting change. This charge results from the change from the prior
impairment method, whose first step was based on undiscounted cash flows, to the
new one that is based on fair value. The fair value measurement will reflect the
estimates and expectations of the marketplace participants as of
January 1, 2002, the date of adoption.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," and in August 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." The Company does not believe
that the implementation of these standards will have a significant impact on the
financial statements.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
REVENUES
Operating revenues for 2001 were $58.2 billion compared with $51.3 billion in
2000 and $58.0 billion in 1999. The higher revenues in 2001 principally reflect
increased deliveries in the Commercial Airplanes segment, but also reflect an
increase in Space and Communications segment revenues of $2.4 billion to $10.4
billion. The lower revenues in 2000 relative to 1999 principally reflected
decreased deliveries in the Commercial Airplanes segment, partially offset by
an increase in Space and Communications segment revenues of $1.2 billion to
$8.0 billion in 2000.
Consolidated revenues:
[Graphic and image material item Number 1
See appendix on page 188 for description]
Commercial Airplanes
Commercial Airplanes segment revenues were $35.1 billion in 2001, $31.2
billion in 2000 and $38.5 billion in 1999. These revenues account for 60%,
61% and 66% of total operating revenues for the years 2001, 2000 and 1999,
respectively. Commercial Airplanes revenues are generated principally by jet
aircraft deliveries.
39
40
Commercial Airplanes (continued)
Total commercial jet aircraft deliveries by model, including deliveries under
operating lease, which are identified by the number in parentheses, were
as follows:
2001 2000 1999
---------------------------------------------------
717 49(10) 32(23) 12(2)
737 Classic - 2 42
737 NG 299(5) 279 278
747 31(1) 25 47
757 45 45 67
767 40 44 44(1)
777 61 55 83
MD-80 - - 26(21)
MD-90 - 3 13
MD-11 2 4 8
---------------------------------------------------
Total 527 489 620
===================================================
Deliveries in 2001 include intercompany deliveries of two 737 NG aircraft,
and in 2000 include intercompany deliveries of four 737 NG aircraft and one
Airborne Laser 747. 737 NG deliveries in 2001 include one delivery to
Boeing NetJets for which revenue is recognized as fractional shares are sold.
Final deliveries of the MD-80 aircraft program occurred in 1999, final
deliveries of the 737 Classic and MD-90 aircraft programs occurred in 2000,
and final deliveries of the MD-11 aircraft program occurred in 2001. The
first 717 delivery occurred in the third quarter of 1999.
Total commercial aircraft deliveries for 2002 are currently projected to
total approximately 380. Total commercial aircraft deliveries for 2003 are
currently projected to be between 275 and 300. Commercial aircraft
transportation trends are discussed in the Commercial Airplanes Business
Environment and Trends section on pages 59-62.
Commercial Airplanes segment revenues for 2002 are projected to be in the
range of $28 billion.
Military Aircraft and Missile Systems
Military Aircraft and Missile Systems segment revenues were $12.5 billion
in 2001, $11.9 billion in 2000 and $11.9 billion in 1999. The principal
contributors to 2001 Military Aircraft and Missile Systems segment revenues
included the C-17 Globemaster, F/A-18E/F Super Hornet, AH-64 Apache,
F-22 Raptor, V-22 Osprey, and CH-47 Chinook programs, along with several
aerospace support programs. The Military Aircraft and Missile Systems
business segment is broadly diversified, and no program other than the
C-17 transport program and the F/A-18E/F Super Hornet program accounted
for more than 7% of total 2001 segment revenues. Revenues include amounts
attributable to production programs and amounts recognized on a
cost-reimbursement basis for developmental programs such as the F-22 Raptor,
V-22 Osprey, and the RAH-66 Comanche.
40
41
Deliveries of selected production units, including deliveries under
operating lease, which are identified by the number in parentheses,
were as follows:
2001 2000 1999
---------------------------------------------------
C-17 14(4) 13 11
F/A-18E/F 36 26 13
F/A-18C/D - 16 25
AH-64 Apache 7 8 11
T-45 15 16 12
CH-47 Chinook 11 7 14
737 C-40A 4 - -
F-15 - 5 35
Military Aircraft and Missile Systems segment revenues for 2002 are
projected to be in the $13 billion range. Segment business trends are
discussed in the Military Aircraft and Missile Systems Business
Environment and Trends section on pages 62-65.
Space and Communications
Space and Communications segment revenues were $10.4 billion in 2001,
compared with $8.0 billion in 2000 and $6.8 billion in 1999. The segment
remains broadly diversified. The principal contributors to 2001 Space and
Communications segment revenues included Integrated Defense Systems at
approximately 24% of revenues, Boeing Satellite Systems at 19%, Missile
Defense at 17% and the International Space Station at approximately 11%.
Other significant contributors included Space Shuttle Flight Operations
and Main Engine, AWACS (Airborne Warning and Control System), and Delta
space launch services.
Deliveries of selected production units were as follows:
2001 2000 1999
---------------------------------------------------
Delta II 12 10 11
Delta III - - 1
BSS Satellites 7 5 -
767 AWACS - - 2
Space and Communications segment revenues for 2002 are projected to be
in the $11 billion range. The greatest growth is expected in the Missile
Defense sector, with Boeing being named lead for overall Missile Defense
System Integration. Growth is also expected to continue in the Integrated
Defense System sector, and the 737 Airborne Early Warning & Control (AEW&C)
program. Segment business trends are discussed in the Space and
Communications Business Environment and Trends section on pages 65-66.
41
42
Customer and Commercial Financing
Financing Operating revenues in the Customer and Commercial Financing
segment, which consists primarily of the wholly owned subsidiary Boeing
Capital Corporation, were $863 million in 2001, compared with $728 million
in 2000 and $686 million in 1999. The major revenue components include
commercial aircraft financing and commercial equipment leasing. The
increase in 2001 relates principally to the higher volume of commercial
aircraft financing.
. . . . . .
Based on current schedules and plans, the Company projects total 2002
revenues to be approximately $54 billion.
EARNINGS
Net earnings of $2,827 million for 2001 were $699 million higher than
2000 earnings. The increase in net earnings principally reflected
increased operating earnings associated with the increase in revenue
for 2001. Net earnings in 2001 were significantly impacted by $935 million
pretax special charges ($633 million after tax) related to the events of
September 11, 2001, which are discussed in the operating earnings section.
The increase in net earnings for 2001 over 2000 also reflects the in-process
research and development expense of $557 million ($348 million after tax)
that was recognized in 2000, of which $500 million was associated with the
acquisition of the Hughes space and communications businesses which were
renamed Boeing Satellite Systems.
Earnings before income taxes were $3,564 million for 2001, compared with
$2,999 million in 2000. In addition to the change in operating earnings
discussed below, other income decreased $68 million in 2001, to $318 million
in 2001 from $386 million in 2000. The decrease in other income in 2001
principally reflects lower interest income from cash, but was partially
offset by higher interest income associated with federal income tax audit
settlements ($210 million in 2001, compared with $73 million in 2000). Other
income in 2000 also included a $42 million gain on sale of a long-held equity
investment. Interest and debt expense increased $205 million in 2001, to
$650 million in 2001 from $445 million in 2000. The increased interest expense
resulted from increased debt, primarily associated with the increased customer
and commercial financing activities of Boeing Capital Corporation. Interest
expense is expected to increase concurrent with increasing future financing
activity.
Net earnings of $2,128 million for 2000 were $181 million lower than 1999
earnings. Net earnings for 2000 were significantly impacted by $557 million
expensed as in-process research and development. Net earnings also reflected
significant improvement in Commercial Airplanes segment margins resulting from
continued production efficiencies. Other income decreased $199 million in 2000
to $386 million. This decrease principally reflects lower interest income
resulting from lower cash levels, but was partially offset by the $73 million
of interest income attributable to federal income tax audit settlements and
the $42 million gain from the sale of a long-held equity investment. Interest
and debt expense for 2000 and 1999 was relatively stable.
42
43
As indicated in Note 20, the Company has generated significant net periodic
benefit income related to pensions: $920 million in 2001, $428 million in
2000 and $125 million in 1999. Not all net periodic pension benefit income
or expense is recognized in net earnings in the year incurred since they are
principally allocated to production as product costs, and a portion remains
in inventory at the end of a reporting period. Accordingly, the operating
earnings for 2001 and 2000 included $785 million and $403 million of income
due to pensions. The significantly unfavorable returns experienced by pension
assets during 2001 are the principal cause of the shift in unrecognized net
actuarial gains and losses, from unrecognized actuarial gains of $10.7 billion
at the end of 2000 to unrecognized actuarial losses of $2.9 billion at the end
of 2001. The Company projects that net periodic benefit income related to
pensions will decrease significantly during 2002 and beyond and projects 2002
net periodic benefit income will be approximately $400 million less than in
2001.
Operating results trends are not significantly influenced by the effect
of changing prices since most of the Company's business is performed under
contract.
OPERATING EARNINGS
Commercial Airplanes
The 2001 Commercial Airplanes segment earnings of $2,632 million
(based on the cost of specific airplane units delivered - see discussion
under Segment Information on page 107) included $908 million of non-recurring
charges associated with the September 11, 2001, terrorist attacks. The segment
operating margin for 2001 including the impact of non-recurring charges was
7.5%. Earnings from operations in 2001 excluding non-recurring charges totaled
$3,540 million resulting in an earnings from operations margin of 10.1%.
The 2000 Commercial Airplanes segment earnings of $2,736 million resulted in
an earnings from operations margin of 8.8%. The 1999 Commercial Airplanes
segment earnings of $2,082 million resulted in an earnings from operations
margin of 5.4%. The increased earnings and margins excluding non-recurring
charges for 2001 were principally due to continued improvement in the
production process.
Segment operating earnings included $68 million for 2001 and $22 million for
2000 of amortization expense associated with goodwill and acquired intangibles.
Commercial Airplanes segment earnings, as determined under generally accepted
accounting principles (GAAP), reflect the program method of accounting and
incorporate a portion of the 'Accounting differences/eliminations' caption as
discussed in Note 28. Excluding the non-recurring charge associated with the
events of September 11, 2001, Commercial Airplanes segment earnings under GAAP,
and including intercompany transactions, were $2,819 million for 2001, $2,099
million for 2000 and $1,778 million for 1999, and comparable margins were 8.0%,
6.7% and 4.6%, respectively.
The improving GAAP margins over this period reflect improved unit costs over
the accounting quantity, along with the impact of additional units within the
accounting quantity for the Next-Generation 737 and the 777. Because of the
higher unit production costs experienced at the beginning of a new program and
the substantial investment required for initial tooling and special equipment,
new commercial jet aircraft programs normally have lower operating profit
margins than established programs. The increase of the accounting quantity for
a new program generally results in improved margins.
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44
Commercial Airplanes (continued)
The Next-Generation 737 program accounting quantity was 800 units at the
beginning of 1999, 1,200 units at the end of 1999, 1,650 units at the end of
2000 and 1,800 units at the end of 2001. The 777 accounting quantity was 500
at the end of 1999 and 600 at the end of 2000 and 2001. Improved margins from
1999 through 2001 also reflect an increase in estimated revenue for airplanes
within the program accounting quantities.
In 1999, the Company delivered the initial units of the 717 program, and 93
units have cumulatively been delivered as of year-end 2001. The 717 program
is accounted for under the program method of accounting described in the
Critical Accounting Policies discussed on pages 37-38. The Company established
the initial program accounting quantity at 200 units. Because of a lack of
firm demand for the 717 aircraft subsequent to September 11, 2001, the
program accounting quantity was reduced to 135 aircraft. This change in
estimate created a $250 million pretax loss and was treated as a special
charge due to events of September 11, 2001. The Company will record 717
deliveries on a break-even basis until program reviews indicate positive
gross profit within the program accounting quantity. Such program reviews
could include revised assumptions of revenues and costs. The Company has
potentially material exposures related to the 717 program, principally
attributable to vendor termination costs that could result from a lack of
longer-term market acceptance. Additionally, the Company has potential
exposure relating to the valuation of 717 customer financing assets. As
discussed in Note 12 to the consolidated financial statements, as of
December 31, 2001, the Company has $1,499 million of customer financing
assets relating to the 717 program, of which $692 million are accounted
for as operating lease assets.
The Commercial Airplanes segment is projecting lower deliveries in the
near term, and the resulting downsizing that began in 2001 and is
projected to continue during 2002 will add to the complexity of achieving
estimated cost targets. The Company believes that these complexities have
been adequately considered in projecting cost estimates that are inherent
in margins determined under the program method of accounting; however, such
cost estimates remain subject to potential adverse future adjustments.
The Company offers aircraft fleet support for all its aircraft models. These
costs include flight and maintenance training, field service support costs,
engineering services and technical data and documents. These costs are
expensed as incurred and do not vary significantly with current production
rates. The costs incurred to sustain this support averaged less than 1.5%
of total costs of products and services for the periods disclosed.
The Company projects significant market opportunities for the commercial
aviation support market over the next two decades. Factors contributing to
the need for aviation support include deregulation, privatization and
globalization, which have increased competition and forced airlines to
operate more efficiently. The Company will focus on total life-cycle
opportunities, which include airplane servicing and maintenance, and
airport and route infrastructure services.
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Military Aircraft and Missile Systems
Military Aircraft and Missile Systems segment operating earnings for
2001, 2000 and 1999 were $1,346 million, $1,245 million and $1,161 million,
respectively. The segment operating margins for 2001, 2000 and 1999 were
10.8%, 10.4% and 9.8%, respectively. The 2001 operating results reflect
strong profits on major production programs. These programs include the
C-17 Globemaster, F/A-18E/F Super Hornet, T-45 Goshawk, AV-8B Harrier,
and the Harpoon missile. The segment operating earnings for 2001 include
the recognition of $48 million of charges relating to asset reductions
attributable to reduced work volume at the Philadelphia site, and $46
million of charges associated with the Joint Strike Fighter program and
idle manufacturing assets. The 2001 operating earnings also included a
favorable adjustment of $57 million attributable to F-15 program charges
recognized in 1999. Exclusive of these items, the segment operating margins
for 2001 were 11.1%. Included in the 1999 operating results were a favorable
contract settlement amounting to $55 million and pretax charges of $270
million associated with the F-15 program. Exclusive of these items, segment
operating margins for 1999 were 11.6%.
A significant percentage of Military Aircraft and Missile Systems segment
business has been in developmental programs under cost-reimbursement-type
contracts, which generally have lower profit margins than fixed-price-type
contracts. Current major developmental programs include the F-22 Raptor,
V-22 Osprey tiltrotor aircraft, C-130 AMP and the RAH-66 Comanche helicopter.
Both the V-22 and F-22 programs have transitioned to low-rate initial
production, but also continue developmental activities.
Space and Communications
Space and Communications segment operating earnings, prior to non-recurring
items, for 2001 were $619 million, $340 million in 2000 and $320 million in
1999, and the related operating margins were 6.0%, 4.2% and 4.7% for 2001,
2000 and 1999, respectively. The 2000 operating results included a non-
recurring pretax charge of $505 million associated with the in-process
research and development from the acquisition of the Hughes space and
communications businesses (renamed Boeing Satellite Systems) and Autometric
businesses, along with $78 million in costs associated with a Delta III
demonstration launch in August 2000. The 1999 operating results included
a pretax gain of $95 million related to the sale of Boeing Information
Systems to Science Applications International Corporation.
The 2001 segment operating margins improved over 2000 due to excellent
International Space Station on-orbit performance, and improved Integrated
Defense Systems and Ground-Based Midcourse Defense program performance.
These margins were reduced by company investments in the development of new
products, in particular, the Delta IV launch vehicle and the 737 Airborne
Early Warning & Control System (AEW&C) program. Additionally, earnings were
impacted by $131 million for the amortization of goodwill and acquired
intangibles principally associated with the acquisition of Boeing Satellite
Systems. The Company projects that 2002 operating earnings will continue to
be impacted by new product development expenses but to a lesser degree than
in prior years, primarily due to the transition of the Delta IV launch
vehicle into production. Program margins for the Space and Communications
segment, excluding non-recurring items and research and development, were
11.0% in 2001 and 10.8% in 2000.
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46
Significant risk remains related to work in process inventory and supplier
commitments for the Delta III program. In order to mitigate some of this risk,
four Delta IIIs were converted to Delta IIs in 2001. These risk assessments
remain closely monitored, and additional opportunities for conversions are
under review.
Certain Space and Communications segment launch and satellite contracts
include provisions for replacement launch services or hardware if specified
performance criteria are not met. The Company has historically purchased
insurance to cover these obligations when allowed under the terms of the
contract. Due to recent events, the current insurance market reflects
unusually high premium rates and also suffers from a lack of capacity to
handle all insurance requirements. The Company may therefore elect to forgo
the procurement of third-party insurance and, instead, retain such risks
internally. Management believes the contract cost estimates have sufficient
provisions to cover the expected value for these risks.
Various satellite contracts contain technical performance criteria that
require ongoing execution to achieve. The Company believes that costs and
performance estimates used to record program profit are appropriate; however,
failure to achieve technical specifications in a timely manner could put
certain contracts at risk, including risk of cost overruns and risk of
contract default.
The Sea Launch venture in which Boeing is a 40% partner with RSC Energia
(25%) of Russia, Kvaerner Maritime (20%) of Norway, and KB Yuzhnoye/PO
Yuzhmach (15%) of Ukraine had two successful launches in 2001. Boeing's
investment in this venture as of December 31, 2001, is reported at zero,
which reflects the prior recognition of losses reported by Sea Launch.
The venture incurred losses in 2001, due to the relatively low volume of
launches, reflecting a depressed satellite market. Boeing 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. Net of liabilities established, the Company's maximum
exposure to credit-related losses associated with credit guarantees amounts
to $357 million, which is included in the disclosure in Note 24 to the
consolidated financial statements. Financial exposure related to
performance guarantees and accounts receivable/inventory amounted to
$200 million at December 31, 2001.
The Company and Lockheed Martin are 50-50 partners 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. United
Space Alliance operations are performed under cost-plus-type contracts. The
Company's proportionate share of joint venture earnings is recognized as
income. The segment's operating earnings include earnings of $72 million,
$60 million and $48 million for 2001, 2000 and 1999, respectively,
attributable to United Space Alliance.
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Customer and Commercial Financing
Operating earnings for the Customer and Commercial Financing
segment were $596 million for 2001, $516 million for 2000 and $454 million
for 1999, exclusive of interest expense. The increased operating earnings
in 2001 reflect the impact of the increased segment revenues resulting from
the increase in financing assets attributable to the Customer and Commercial
Financing segment.
Beginning in 2000 and continuing through 2001, Customer and Commercial
Financing segment assets were transferred to Boeing Capital Corporation
(BCC), and as of year-end 2001, significantly all of the segment's assets
reside within BCC. Beginning in 2002, the Company intends to use BCC as
the basis of Customer and Commercial Financing segment reporting. In 2001,
$324 million of the Company's total interest and debt expense of $650
million was attributable to BCC. Beginning in 2002, the Customer and
Commercial Financing segment will reflect the operations of BCC.
Other
Other segment earnings were a loss of $388 million in 2001, a loss of
$76 million in 2000 and $4 million in 1999. The significant contributor
to losses during this period has been research and development activity
relating to Connexion by BoeingSM and, to a lesser extent, Air Traffic
Management. Research and development expense attributable to the Other
segment was $294 million in 2001, $84 million in 2000 and $5 million in
1999. Also included in the Other segment for 2001 are losses relating to
intercompany guarantee payments made to BCC amounting to $49 million and
operating earnings of $23 million attributable to financing assets not
intended to be transferred to BCC. As of 2001, these financing assets
consisted of four C-17 transport aircraft leased to the United Kingdom
Royal Air Force.
EVENTS OF SEPTEMBER 11, 2001
On September 11, 2001, the United States was the target of severe terrorist
attacks that involved the use of U.S. commercial aircraft manufactured by
the Company. These attacks resulted in a significant loss of life and
property and caused major disruptions in business activities and in the U.S.
economy overall.
To address the widespread financial impact of the attacks, the Emerging
Issues Task Force (EITF) released Issue No. 01-10, "Accounting for the
Impact of Terrorist Attacks of September 11, 2001." This issue specifically
prohibits treating costs and losses resulting from the events of
September 11, 2001, as extraordinary items; however,it observes that any
portion of these costs and losses deemed to be unusual or infrequently
occurring should be presented as a separate line item in income from
continuing operations.
For the year ended December 31, 2001, the Company recorded a charge of
$935 million in the caption 'Special charges due to events of
September 11, 2001.' This charge related to the categories listed
below. Of this charge, $908 million is related to the Commercial Airplanes
segment and $27 million is related to the Other segment.
Employee severance
The Company incurred and is expected to incur employment reductions
resulting from the decrease in aircraft demand, which directly related to
the attacks of September 11, 2001. For the year ended December 31, 2001,
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48
the Company recorded a charge of $287 million attributable to the associated
employee severance obligations.
717 forward loss
In the fourth quarter of 2001, the accounting quantity of the 717 program
was revised to 135 units from 200 units. This revision resulted from a lack
of firm demand for the 717 aircraft subsequent to September 11, 2001, and the
uncertainty in estimating future revenues and costs for 200 units based upon
the revised projected delivery schedule. The forward loss of $250 million
represents the amount by which, as of December 31, 2001, the inventory balance
plus estimated future inventory costs exceeds the estimated revenue for the
undelivered aircraft within the revised accounting quantity. As of
December 31, 2001, the Company cumulatively delivered 93 717 program aircraft.
The estimates for the revised accounting quantity assume that the 717 will
remain an ongoing program. Although there are no plans to do so, if the
program were to be terminated after the delivery of 135 units, the Company
would be exposed to potentially material termination costs.
Used aircraft valuation
The events of September 11, 2001, resulted in a significant decrease in the
market value of used aircraft. The Company recorded a charge of $185 million
relating to the decrease in market value for aircraft held for resale as well
as asset purchase obligations relating to trade-in of used aircraft.
Inventory valuation
The Company recorded a charge of $96 million relating to excess and obsolete
commercial airplane spares inventory. Subsequent to September 11, 2001,
commercial airline customers worldwide removed a substantial number of aircraft
from service. The ultimate realization of future sales for specific spare parts
held in inventory is highly dependent on the active aircraft fleet in which that
spare part supports. The revised projections for future demand of certain spare
parts indicate that current inventory quantities are in excess of total expected
future demand.
Vendor penalties
The decrease in production rates on certain commercial airplane models and
related products triggered contractual penalty clauses with various vendors
and subcontractors, and the Company recorded a charge of $68 million for these
penalties. The decrease in production rates resulted directly from the change
in aircraft demand after the events of September 11, 2001.
Guarantee commitments
The Company has extended certain guarantees and commitments such as asset value
guarantees discussed in Note 24. Based upon the impact of the events of
September 11, 2001, on aircraft market prices and aircraft demand of customers
who are counterparties in these guarantees, the Company recorded a charge of $49
million associated with an adverse exposure under these guarantees.
Ongoing assessments
The Company will continue to assess other potential losses and costs it might
incur in relation to the attacks. These future costs are not yet accruable;
however, the Company expects that such costs may be incurred throughout 2002.
Liabilities totalling $542 million were established as of December 31, 2001,
associated with these charges and are expected to be settled by the end of
2002. Any costs or adjustments in estimates will continue to be recognized as
a separate component of earnings from operations entitled 'Special charges
due to events of September 11, 2001.'
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RESEARCH AND DEVELOPMENT
Research and development expenditures charged directly to earnings include
design, development and related test activities for new and derivative
commercial jet aircraft, other company-sponsored product development, and
basic research and development, including amounts allocable as overhead costs
on U.S. Government contracts.
Total research and development expense in 2001 was $1,936 million, compared
with $1,998 million in 2000 and $1,341 million in 1999. Excluding the
$557 million of in-process research and development (IPR&D) expense in 2000,
research and development expense increased $495 million in 2001, principally
reflecting increases in the Commercial Airplanes segment and the Other segment,
which includes activities relating to Connexion by BoeingSM. Excluding IPR&D,
research and development expense increased $100 million in 2000, principally
due to increases from the Space and Communications segment.
Research and development (excluding IPR&D):
[Graphic and image material item Number 2
See appendix on page 188 for description]
Commercial Airplanes
Commercial Airplanes research and development expense was $858 million in
2001, $574 million in 2000 and $585 million in 1999. The increase in 2001
over 2000 reflects increased spending attributable to the development of two
longer-range 777 models (777-300ER and 777-200LR), a longer-range 747-400
(747-400ER) and a sonic cruiser airplane.
In addition to the 777-300ER, 777-200LR and the 747-400ER, the principal
commercial aircraft developmental programs during the 1999-2001 period were
the 767-400ER, and the 737-900. In 2001, the Company announced the 777-200LR
program had been rephased approximately 18 months.
The initial delivery of the 737-900, the largest member of the
Next-Generation 737 family occurred in the second quarter of 2001. The
initial delivery of the 767-400ER, a stretched version of 767-300ER,
occurred in the third quarter of 2000. The initial delivery of the 757-300,
a stretched derivative of the 757-200, occurred in March 1999.
Military Aircraft and Missile Systems
The Military Aircraft and Missile Systems segment continues to pursue
business opportunities where it can use its customer knowledge, technical
strength and large-scale integration capabilities. The segment's level of
research and development expenditures is consistent with this approach,
and reflects the recent business environment, which has presented few major
new-start opportunities. Current research and development activities focus
on near and long-term customer needs. Research and development activities
are providing system upgrade and technology insertions to enhance the
capability and competitiveness of existing product lines including Apache,
C-17, F-15E, F/A-18E/F, and the Joint Direct Attack Munition (JDAM).
Research and development initiatives to bring new capabilities and products
to the market include the Canard Rotor Wing (CRW), RAH-66 Comanche, Advanced
Tactical Transport (ATT), Multimission Maritime Aircraft (MMA), the E/A-18
Electronic Attack Aircraft, the Small Diameter Bomb (SDB) and the
767 Tanker program. Military Aircraft & Missile Systems is conducting
extensive research and development on the unmanned systems including the U.S.
Air Force's Unmanned Combat Air Vehicle (UCAV) and its Naval counterpart
(UCAV-N). 49
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Space and Communications
Space and Communications research and development expense, excluding in-process
research and development, was $526 million in 2001 and 2000, and $492 million
in 1999. Significant investment in development programs at the Space and
Communications segment continued during 2001. Company-sponsored research and
development expenditures supported the development of the Delta IV launch
vehicle and the 737-based Airborne Early Warning & Control aircraft. Delta IV
development expense has been reduced by the U.S. Government's participation in
developing the Evolved Expendable Launch Vehicle (EELV). Company-sponsored
research and development levels are expected to decline in 2002 due to the
transition of the Delta IV launch vehicle into production.
IN-PROCESS RESEARCH AND DEVELOPMENT RECOGNIZED IN 2000
The fair value amount of $500 million of in-process research and
development (IPR&D) attributed to the Hughes acquisition in 2000
discussed below was determined by an independent valuation using the
income approach.
Thirteen projects were included in the valuation, of which the principal
projects were based on the following: technologies associated with
high-efficiency solar cells and satellite battery technology ($189 million),
phased array and digital processing technology to provide high-speed
broadband service ($89 million), and xenon-ion systems for satellite engine
propulsion ($82 million). The fair value of identifiable intangibles was also
determined by an independent valuation primarily using the income approach.
The following risk-adjusted discount rates were used to discount the project
cash flows: solar cells and satellite battery technology, 17%; phased array
and digital processing technology to provide high-speed broadband service,
18%; xenon-ion systems for satellite engine propulsion, 18%; all other
projects, 18.2% weighted average. Operating margins were assumed to be
similar to historical margins of similar products. The size of the applicable
market was verified for reasonableness with outside research sources. The
projects were in various stages of completion ranging from approximately
31% to 92% complete as of the valuation date. As of December 31, 2001, the
percentages complete by project were as follows: solar cells and satellite
battery technology, 80%; phased array and digital processing technology,
95%; xenon-ion systems for satellite engine propulsion, 90%. The stage of
completion for each project was estimated by evaluating the cost to
complete, complexity of the technology and time to market. The projects are
anticipated to be completed between 2002 and 2004. The estimated cost to
complete the projects is $50 million.
The discount rates stated previously are higher than the Company's weighted
average cost of capital due to the inherent uncertainties in the estimates
described previously, including the uncertainty surrounding the successful
completion of the purchased in-process technology, the useful life of such
technology, the profitability levels of such technology and the uncertainty
of the timing of the related product introduction and then-existing competing
products. If these projects are not successfully developed, the future revenue
and profitability of Boeing Satellite Systems may be adversely affected.
Additionally, the value of the other intangible assets acquired may become
impaired.
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The fair value amount of $45 million of IPR&D attributed to the acquisition
of Jeppesen Sanderson, Inc., was determined by an independent valuation. The
acquired IPR&D technology consists primarily of three software projects that
will work together to store information and extract it for use in various
products sold by Jeppesen. The technology will allow the production of end
user aeronautical information with forward and backward date effectivity,
and will allow the extraction of the information on a near real time basis.
Furthermore, the technology will allow the creation of packages of
aeronautical information, which can be tailored to individual customers
worldwide. These acquired IPR&D projects were completed during 2001, with
the full range and production of the technology anticipated in the first
quarter of 2002. The completed technology can only be used for its specific
and intended purpose and as such no alternative future uses exist. The
valuation methodology was determined using the income approach, and a
risk-adjusted discount rate of 15% was used to discount the project cash
flow. During the year ended December 31, 2001, Jeppesen had completed all
IPR&D projects for a total cost of $18 million.
Other acquisitions resulting in the recognition of IPR&D during 2000
using a similar income approach included Continental Graphics Corp.
($7 million IPR&D) and Autometric, Inc. ($5 million IPR&D).
INCOME TAXES
The 2001 effective income tax rate of 20.7% includes a one-time benefit
of $343 million reflecting a settlement with the Internal Revenue Service
relating to research credit claims on McDonnell Douglas Corporation
fixed-price government contracts applicable to the 1986-1992 federal
income tax returns. Absent this settlement, the effective tax rate for
2001 would be 30.3%, which varies from the federal statutory tax rate of
35%, principally due to Foreign Sales Corporation (FSC) and
Extraterritorial Income (ETI) exclusion tax benefits of $222 million.
Offsetting this benefit are state income taxes and the non-deductibility
of certain goodwill, principally the goodwill acquired by the acquisition
of the aerospace and defense units from Rockwell International Corporation
in 1996.
The effective income tax rates of 29.0% for 2000 and 30.5% for 1999 also
vary from the federal statutory tax rate principally due to FSC benefits
of $291 million in 2000 and $230 million in 1999.
In February 2000, the World Trade Organization (WTO) Appellate Body upheld
a panel decision that U.S. FSC tax provisions constituted a prohibited export
subsidy. In response, in November 2000, the United States enacted legislation
to repeal the FSC tax provisions, subject to transition rules, and enacted
replacement legislation (the Extraterritorial Income Exclusion Act of 2000).
The European Union objected to this ETI exclusion, and in November 2001 asked
the WTO to authorize trade sanctions on a list of goods, including aircraft,
produced in the United States. In January 2002, the Appellate Body of the WTO
upheld a ruling that the United States had failed to withdraw the prohibited
FSC export subsidy. The U.S. Government is currently reviewing its options in
response to this decision. It is not possible to predict what impact, if any,
this issue will have on future earnings pending final resolution of the
challenge.
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ACQUISITIONS IN 2000
On October 6, 2000, the Company acquired the Hughes Electronics Corporation
(Hughes) space and communications and related businesses. The acquisition was
accounted for under the purchase method, by which the purchase price was
allocated to the net assets acquired based on preliminary estimates of their
fair values. The original purchase price was $3,849 million, initial goodwill
was valued at $740 million and the other intangible assets were valued at
$631 million. During the period from acquisition to the third quarter of 2001,
the Company completed its assessment of the net assets acquired and goodwill
was increased to a balance of $2,166 million. Included in goodwill are certain
claims submitted to Hughes for resolution as contractual purchase price
contingencies. The Company anticipates finalizing the Hughes purchase price
allocation during late 2002 or early 2003, at the conclusion of arbitration
procedures related to these contingencies. Other adjustments were recorded to
reflect finalization of fair value assessments for the net assets acquired and
the impact of the Company's accounting policies on acquired balances.
Other acquisitions in 2000 included Jeppesen Sanderson, Inc. for $1,524 million
in cash, Continental Graphics Corp. for $183 million in cash, and
Autometric, Inc. for $119 million in cash.
LABOR NEGOTIATIONS AND WORKFORCE LEVELS
As of December 31, 2001, the Company's principal collective bargaining
agreements were with the International Association of Machinists and Aerospace
Workers (IAM), representing 24% of employees (current agreements expiring
September and October 2002, and May 2004); the Society of Professional
Engineering Employees in Aerospace (SPEEA), representing 14% of employees
(current agreements expiring in December 2002 and February 2004); the United
Automobile, Aerospace and Agricultural Implement Workers of America (UAW),
representing 4% of employees (current agreements expiring September 2002,
May 2003, and April 2004); and Southern California Professional Engineering
Association (SCPEA), representing 2% of employees (current agreement
expiring March 2005).
The Company's workforce level was 188,000 at December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The primary factors that affect the Company's investment requirements and
liquidity position, other than operating results associated with current sales
activity, include the following: timing of new and derivative programs requiring
both high developmental expenditures and initial inventory buildup; cyclical
factors, including growth and expansion requirements and requirements associated
with reducing sales levels; customer financing assistance; the timing of federal
income tax payments; the Company's stock repurchase plan; and potential
acquisitions.
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CASH FLOW SUMMARY
Following is a summary of Company cash flows based on changes in cash and
short-term investments. This cash flow summary is not intended to replace the
Consolidated Statements of Cash Flows on page 31 that are prepared in accordance
with generally accepted accounting principles, but is intended to highlight and
facilitate understanding of the principal cash flow elements. Free cash flow is
defined as cash flow from operations less change in short-term investments,
reduced by facilities and equipment expenditures.
(Dollars in billions) 2001 2000 1999
--------------------------------------------------------------
Net earnings $ 2.8 $ 2.1 $ 2.3
Non-cash charges to earnings (a) 2.4 2.6 1.8
Change in gross inventory (b) 1.0 1.6 5.6
Change in customer advances (c) (1.0) (0.5) (3.6)
Net changes in receivables, liabilities,
deferred income taxes and other (d) (0.4) 0.4 0.2
Facilities and equipment expenditures (1.1) (0.9) (1.2)
Pension income variance to funding (1.0) (0.4) (0.3)
--------------------------------------------------------------
Free cash flow 2.7 4.9 4.8
Proceeds from dispositions (e) 0.2 0.2 0.4
Change in customer and
commercial financing (f) (3.8) (1.1) (0.6)
Change in debt (g) 3.4 2.0 (0.2)
Acquisitions, net of cash acquired (5.7)
Net shares acquired, other (h) (2.3) (2.3) (2.9)
Cash dividends (0.6) (0.5) (0.5)
--------------------------------------------------------------
Increase (decrease) in cash
and short-term investments $(0.4) $(2.5) $ 1.0
==============================================================
Cash and short-term
investments at end of year $ 0.6 $ 1.0 $ 3.5
==============================================================
(a) Non-cash charges to earnings as presented here consist of depreciation,
in-process research and development, amortization, retiree health care
accruals, customer and commercial financing valuation provision and
share-based plans expense. The Company has not funded retiree health
care accruals and, at this time, has no plan to fund these accruals in
the future. The share-based plans do not impact current or future cash
flow, except for the associated positive cash flow tax implications.
Share-based plans expense is projected to increase in the near term
as additional annual Performance Share grants are made. See Note 22 to
the consolidated financial statements.
(b) The decrease in inventory also resulted from improved inventory turns
in 2000 and 2001 and decreased production rates in 2000.
(c) The changes in commercial customer advances during 1999, 2000 and 2001
were broadly distributed among the commercial jet programs, and generally
correspond to orders and production rate levels.
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(d) The total change in receivables, liabilities, income taxes payable and
deferred, and other resulted in a net asset decrease of $0.2 billion for
the three-year period presented. The most significant element of this
change related to income taxes payable and deferred, where the decrease
in cash for 2001 attributable to these accounts amounted to $0.5 billion.
The substantial tax payments in 2001 ($1.5 billion, compared with $0.4
billion in 2000 and $0.6 billion in 1999) resulted principally from
payments due to the completion of contracts executed under prior tax
regulations. Future tax payments are not anticipated to deviate
significantly from future tax provisions.
(e) Proceeds from dispositions include receipts from the sale of subsidiaries
and the sale of real property. Included in the proceeds for 1999 are
receipts of approximately $162 million related to the sale of Boeing
Information Systems.
(f) Over the three-year period 1999-2001, the Company generated $4.6 billion
of cash from principal receipts and by selling customer financing
receivables and operating lease assets. Over the same period, additions
to customer financing amounted to $10.0 billion. These net increases in
customer financing have been principally funded by debt. As of
December 31, 2001, the Company had outstanding commitments of approximately
$7.5 billion to arrange or provide financing related to aircraft on order
or under option for deliveries scheduled through the year 2010. Not all
these commitments are likely to be used; however, a significant portion of
these commitments are with parties with relatively low credit ratings. See
Note 25 to the consolidated financial statements concerning concentration
of credit risk. Outstanding loans and commitments are primarily secured by
the underlying aircraft or equipment.
(g) Debt maturities during this three-year period included $538 million in 2001,
$480 million in 2000 and $650 million in 1999. Additionally, Boeing Capital
Corporation (BCC), a corporation wholly owned by the Company, issued $3.9
billion of debt in 2001, $2.0 billion in 2000 and $400 million in 1999. The
significant BCC debt issuance in 2000 and 2001 was performed in conjunction
with the transfer of a significant portion of the Company's customer
financing assets to BCC as well as growth in the customer financing
portfolio.
(h) In the third quarter of 1998, the Company announced a share repurchase
program to buy up to 15% of the Company's outstanding shares of common
stock. The Company repurchased 35.2 million shares of stock for $1.3
billion in 1998, 68.9 million shares for $2.9 billion in 1999, and 41.8
million shares for $2.4 billion in 2000, which completed the share
repurchase program. In the fourth quarter of 2000, the Company authorized
an additional share repurchase program for up to 85 million additional
shares. As of December 31, 2001, the Company had repurchased 40.7 million
shares for $2.4 billion.
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DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table and narrative gives additional guidance related to
contractual obligations and commercial commitments.
Contractual Obligations Less than 1-3 4-5 After
(Dollars in millions) Total 1 year years years 5 years
------------------------------------------------------------------------------
Long-term debt $11,805 $1,337 $1,554 $2,742 $6,172
Capital lease obligations 460 62 212 114 72
Operating leases 1,827 376 497 344 610
==============================================================================
Total contractual obligations $14,092 $1,775 $2,263 $3,200 $6,854
==============================================================================
UNCONDITIONAL PURCHASE OBLIGATIONS
The Company has entered into significant long-term purchase obligations with a
large network of suppliers. The need for such arrangements with suppliers and
vendors arises due to the extended production planning horizon for many of its
products, including commercial aircraft, military aircraft and other products
where the delivery to the customer is over an extended period of time. A
significant portion of these purchase obligations are either supported by a
firm contract from a customer or have historically resulted in settlement
through either termination payments or contract adjustments, when necessary,
should the customer base not materialize to support delivery from the supplier.
Total
Other Commercial Commitments Amounts Less than 1-3 4-5 After
(Dollars in millions) Committed 1 year years years 5 years
------------------------------------------------------------------------------
Standby letters of credit
and surety bonds $ 1,127 $ 918 $ 65 $ 93 $ 51
Guarantees 1,283 524 203 73 483
Other commercial commitments 9,192 5,122 2,645 691 734
==============================================================================
Total other commercial
commitments $11,602 $6,564 $2,913 $857 $1,268
==============================================================================
Other commercial commitments in the table above include irrevocable financing
commitments related to aircraft on order, commercial equipment financing, and
commitments to purchase used aircraft. These are discussed in Note 24 to the
consolidated financial statements.
CAPITAL RESOURCES
The Company has the following Standard & Poor's credit ratings: short-term,
A-1; senior debt, A+. BCC has the following Standard & Poor's credit ratings:
short-term, A-1; senior debt, A+. The Company has the following Moody's credit
ratings: short-term, P-1; senior debt, A2. BCC has the following Moody's
credit ratings: short-term, P-2; senior debt, A3.
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The events of September 11, 2001, negatively impacted the liquidity and capital
resources of the Company. Subsequent to September 11, 2001, the Company utilized
the commercial paper program for the first time, providing additional short-term
liquidity. Commercial paper remains a significant liquidity source, and the
Company plans to increase the authorized commercial paper program size.
On February 22, 2002, BCC filed with the Securities and Exchange Commission a
Form S-3 Registration Statement for a public shelf registration of $5.0 billion
of debt securities.
The Company has long-term debt obligations of $11.8 billion, which are
unsecured. Approximately $1.3 billion mature in 2002, and the balance has an
average maturity of 11.8 years. Excluding BCC, total long-term debt is at 32%
of total shareholders' equity plus debt. The consolidated long-term debt,
including BCC, is at 53% of total shareholders' equity plus debt.
The Company has substantial additional long-term borrowing capability.
Revolving credit line agreements with a group of major banks, totaling $4.5
billion, remain available but unused. The Company believes its internally
generated liquidity, together with access to external capital resources, will
be sufficient to satisfy existing commitments and plans, and also to provide
adequate financial flexibility to take advantage of potential strategic
business opportunities should they arise within the next year.
CONTINGENT ITEMS
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
legal proceedings are related to matters covered by insurance. Major
contingencies are discussed below.
The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations since the
1980s.
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation
of contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures
related to environmental remediation sites based on estimates of
investigation, cleanup and monitoring costs to be incurred.
The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to the
Company's financial position. With respect to results of operations, related
charges have averaged less than 2% of annual net earnings. Such accruals as of
December 31, 2001, without consideration for the related contingent recoveries
from insurance carriers, are less than 2% of total liabilities.
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Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for
identified contaminated sites. However, based on all known facts and expert
analyses, the Company believes it is not reasonably likely that identified
environmental contingencies will result in additional costs that would have a
material adverse impact to the Company's financial position or operating
results and cash flow trends.
The Company is subject to U.S. Government investigations from which civil,
criminal or administrative proceedings could result. Such proceedings could
involve claims by the Government for fines, penalties, compensatory and
treble damages, restitution and/or forfeitures. Under government regulations,
a company, or one or more of its operating divisions or subdivisions, can
also be suspended or debarred from government contracts, or lose its export
privileges, based on the results of investigations. The Company believes,
based upon all available information, that the outcome of any such government
disputes and investigations will not have a material adverse effect on its
financial position or continuing operations.
In 1991, the U.S. Navy notified McDonnell Douglas (now a subsidiary of the
Company) and General Dynamics Corporation (the "Team") that it was terminating
for default the Team's contract for development and initial production of the
A-12 aircraft. The Team filed a legal action to contest the Navy's default
termination, to assert its rights to convert the termination to one for "the
convenience of the Government," and to obtain payment for work done and costs
incurred on the A-12 contract but not paid to date. As of December 31, 2001,
inventories included approximately $583 million of recorded costs on the A-12
contract, against which the Company has established a loss provision of $350
million. The amount of the provision, which was established in 1990, was based
on McDonnell Douglas's belief, supported by an opinion of outside counsel,
that the termination for default would be converted to a termination for
convenience, and that the upper range of possible loss on termination for
convenience was $350 million.
On August 31, 2001, the U.S. Court of Federal Claims issued a decision after
trial upholding the Government's default termination of the A-12 contract on
the ground that the Team could not meet the revised contract schedule
unilaterally imposed by the Government after the Government had waived the
original schedule. The court did not, however, enter a judgment for the
Government on its claim that the Team be required, as a consequence of the
alleged default, to repay progress payments that had not been formally
liquidated by deliveries at the time of termination. These unliquidated
progress payments total $1,350 million. On October 4, 2001, the court
confirmed that it would not be entering judgment in favor of the Government in
the amount of these unliquidated progress payments. This is the latest
decision relating to long-running litigation resulting from the A-12 contract
termination in 1991, and follows an earlier trial court decision in favor of
the contractors and reversal of that initial decision on appeal.
The Company believes, supported by an opinion of outside counsel, that the trial
court's rulings with respect to the enforceability of the unilateral schedule
and the termination for default are contrary to law and fact. The Company
believes the decision raises valid issues for appeal and is pursuing its appeal.
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If, contrary to the Company's belief, the decision of the trial court on
termination were sustained on appeal, the Company would incur an additional
loss of approximately $275 million, consisting principally of remaining
inventory costs and adjustments. And if, contrary to the Company's belief, the
appeals court further held that a money judgment should be entered against the
Team in the amount of the unliquidated progress payments, the Team would be
required to pay the Government $1,350 million plus statutory interest from
February 1991 (currently totaling approximately $970 million). Under this
outcome, the Company would be obligated to pay one half of these amounts. The
additional loss to the Company would total approximately $1,430 million in
pretax charges, consisting principally of the repayment obligations and the
remaining inventory costs and adjustments.
The Company believes that the loss provision established by McDonnell Douglas
in 1990 continues to provide adequately for the reasonably possible reduction
in value of A-12 net contracts in process as of December 31, 2001. Final
resolution of the A-12 litigation will depend upon the outcome of further
proceedings or possible negotiations with the Government.
On October 31, 1997, a federal securities lawsuit was filed against the Company
in the U.S. District Court for the Western District of Washington, in Seattle.
The lawsuit names as defendants the Company and three of its then executive
officers. Additional lawsuits of a similar nature have been filed in the same
court. These lawsuits were consolidated on February 24, 1998. The lawsuits
generally allege that the defendants desired to keep the Company's share price
as high as possible in order to ensure that the McDonnell Douglas shareholders
would approve the merger and, in the case of the individual defendants, to
benefit directly from the sale of Boeing stock during the period from
April 7, 1997 through October 22, 1997. By order dated May 1, 2000, the Court
certified two subclasses of plaintiffs in the action: a. all persons or entities
who purchased Boeing stock or call options or who sold put options during the
period from July 21, 1997 through October 22, 1997, and b. all persons or
entities who purchased McDonnell Douglas stock on or after April 7, 1997, and
who held such stock until it converted to Boeing stock pursuant to the merger.
The plaintiffs sought compensatory damages and treble damages. On
September 17, 2001, the Company reached agreement with class counsel to settle
the lawsuit for $92.5 million. The settlement will have no effect on the
Company's earnings, cash flow or financial position, as it is within insurance
limits. The settlement is conditioned on notice to the class members and Court
approval, which is expected to occur in 2002.
On February 25, 2000, a purported class action lawsuit alleging gender
discrimination and harassment was filed against The Boeing Company, Boeing
North American, Inc., and McDonnell Douglas Corporation. The complaint, filed
with the United States District Court in Seattle, alleges that the Company has
engaged in a pattern and practice of unlawful discrimination, harassment and
retaliation against females over the course of many years. The complaint, Beck
v. Boeing, names 28 women who have worked for Boeing in the Puget Sound area;
Wichita, Kansas; St. Louis, Missouri; and Tulsa, Oklahoma. On March 15, 2000,
an amended complaint was filed naming an additional 10 plaintiffs, including
the first from California. The lawsuit attempts to represent all women who
currently work for the Company, or who have worked for the Company in the past
several years.
The Company has denied the allegation that it has engaged in any unlawful
"pattern and practice." Plaintiffs' motion for class certification was filed
in May 2001. The class they sought included salaried employees in Puget Sound,
Wichita, St. Louis, and Long Beach, and hourly employees in Puget Sound,
Wichita, and St. Louis. 58
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On October 19, 2001, the court granted class certification to a segment of the
population sought by the plaintiffs. The court ruled that the action could
proceed on the basis of two limited subclasses: a. all non-executive salaried
women (including engineers) in the Puget Sound area, and b. all hourly women
covered by the Machinists' Bargaining Agreement in the Puget Sound area. The
claims to be litigated are alleged gender discrimination in compensation and
promotion. The court also held that the plaintiffs could not seek back pay.
Rather, should liability be found, the potential remedies include some form of
injunctive relief as well as punitive damages. The U.S. Ninth Circuit Court of
Appeals has accepted the Company's interlocutory appeal of the class
certification decision, particularly the ruling that leaves open the possibility
of punitive damages. The Company intends to continue its aggressive defense of
these cases. It is not possible to predict what impact, if any, these cases
could have on the financial statements.
BUSINESS ENVIRONMENT AND TRENDS
-------------------------------
COMMERCIAL AIRPLANES BUSINESS ENVIRONMENT AND TRENDS
The worldwide market for commercial jet airplanes continues to be predominantly
driven by long-term trends in airline passenger traffic. The principal factors
underlying long-term traffic growth are sustained economic growth, both in
developed and emerging countries, and political stability. Demand for the
Company's commercial airplanes is further influenced by airline industry
profitability, world trade policies, government-to-government relations,
environmental constraints imposed upon airplane operations, technological
changes, and price and other competitive factors.
AIRLINE INDUSTRY ENVIRONMENT
After several years of economic expansion, the major economies of the United
States and Europe began to slow in 2001. Air travel growth slowed in parallel.
World air travel grew at more than 7% for the year ending December 2000. By
August of 2001, air travel growth had dropped 3% over the previous 12 months.
The industry downturn in the wake of the terrorist attacks on September 11, 2001
was immediate, serious and widespread. Air travel to, from and within the
United States was halted for a period of days. Air travel in September declined
by almost 20% in the U.S. and by approximately 12% in both Europe and Asia.
Airlines cut back their routes and frequencies to deal with the fall off in
traffic. The major U.S. airlines reported significant financial losses in the
fourth quarter and profits for European and Asian airlines declined. Recent
trends indicate that, absent an event similar to that occurring on
September 11, 2001, air travel growth and airline revenue will gradually
return to pre-September 11 levels. As this happens, airlines are expected to
slowly expand their routes and frequencies and return to profitability.
The Company's 20-year forecast of the average long-term growth rate in passenger
traffic is 4.7% annually, based on projected average worldwide annual economic
real growth of 3.0%.
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AIRLINE INDUSTRY ENVIRONMENT (continued)
Based on global economic growth projections over the long term, and taking
into consideration an increasingly competitive environment, increasing
utilization levels of the worldwide airplane fleet and requirements to
replace older airplanes, the Company projected almost a $5 trillion market
for new airplanes and services over the next 20 years. This is a long-term
forecast; historically, the effect of events such as the Gulf War have been
relatively short term and, while they have had significant impact over the
span of several years, they have not dramatically affected the longer term
trends in the world economy and, therefore, the Company's market outlook.
AIRLINE DEREGULATION
Worldwide, the airline industry has experienced progressive deregulation of
domestic markets and increasing liberalization of international markets.
Twenty-five years ago virtually all air travel took place within a framework of
domestic and international regulatory oversight. Since then, an increasing
number of countries, most notably the United States, Australia, Japan and the
countries in Western Europe, have eliminated restrictive regulations for
domestic airline markets and promoted a more open-market climate for
international services. Other countries such as Japan have deregulated their
domestic markets. Currently, approximately one-half of all air travel takes
place within an open-market environment. These trends are expected to continue,
but at varying rates in different parts of the world. By 2010, an estimated
two-thirds of air travel will be in open markets. Liberalization of government
regulations, together with increased airplane range capabilities, gives airlines
greater freedom to pursue optimal fleet-mix strategies. This increased
flexibility allows the airlines to accommodate traffic growth by selecting the
best mix of flight frequencies and airplane size and capabilities for their
route systems. In intercontinental markets, more liberal bilateral air service
agreements provide an important stimulus to opening new city-pair markets, which
favor increased flight frequency over capacity growth. In parallel with
regulatory liberalization, developments in improving airplane range performance
will continue to allow airlines to expand the number of direct city-to-city
routes, thus reducing the reliance on indirect routes through central hubs
that require larger capacity airplanes.
MANDATED NOISE LEVEL COMPLIANCE
A mandate went into effect January 1, 2000, requiring that all operations
into and out of U.S. airports must be made with Stage 3 noise level compliant
airplanes. A similar mandate will become effective in most European airports
in April 2002. Compliance with these policies continues to be a factor for new
airplane deliveries. During 2001, the International Civil Aviation Organization
(ICAO) formulated new noise level standards for the world airplane fleet. The
ICAO standard, referred to as Chapter 4, applies only to new aircraft types.
Since there are no ICAO standards that apply to the existing world fleet, the
European Union may enact more stringent requirements in order to force the
retirement of the noisiest Chapter 3 airplanes currently operating in Europe.
The Company supports the mission of ICAO and endorses the continuing development
of international noise standards. The Company believes that adoption of common
standards worldwide will promote both meaningful control of noise pollution and
a healthy economic environment around the world.
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INDUSTRY COMPETITIVENESS
Over the past ten years, the Company has maintained, on average, approximately
a two-thirds share of the available commercial jet airplane market. The Company
currently faces aggressive international competitors that are seeking to
increase market share. This competitive factor was demonstrated by the decision
of Airbus to introduce the A380, a proposed aircraft with passenger seating
greater than the 747, to increase market share at the upper end of the large
airplane market. This market environment has resulted in intense pressures on
pricing and other competitive factors. The Company's focus on improving
processes and other cost reduction efforts is intended to enhance its ability
to pursue pricing strategies that enable the Company to maintain leadership at
satisfactory margins. Additionally, the Company's extensive customer support
services network for airlines throughout the world plays a key role in
maintaining high customer satisfaction. As an example, on-line access is
available to all airline customers for engineering drawings, parts lists,
service bulletins and maintenance manuals.
The commercial jet aircraft market and the airline industry remain extremely
competitive. Competitive pressures and increased lower-fare personal travel
have combined to cause a long-term downward trend in passenger revenue yields
worldwide (measured in real terms). Market liberalization within Europe has
enabled low-cost airlines to enter the market. These airlines increase the
downward pressure on airfares, similar to the competitive environment in the
United States. Airfares between Asia and the United States are among the
lowest yield (airfare divided by revenue passenger miles) of any in the
world. These factors result in continued price pressure on the Company's
products. Major productivity gains are essential to ensure a favorable market
position at acceptable profit margins.
In July 2000, three major European aerospace companies (Aerospatiale Matra
of France, DaimlerChrysler Aerospace of Germany and Construcciones Aeronautica
of Spain) combined to form the European Aeronautic Defence and Space Company
(EADS). As a result of the formation, EADS became an 80% owner of Airbus
Industrie (AI) and led the effort for the formation of the Airbus Integrated
Company (AIC) in early 2001. The creation of the AIC effectively changes the
Airbus role, from that of a marketer/distributor of large commercial airplanes
to one including complete manufacturing responsibility. The AIC is
incorporated under French law as a privately held corporation owned 80% by
EADS and 20% by BAE Systems.
Over the past five years, sales outside the United States have accounted for
approximately 51% of the Company's total Commercial Airplanes segment sales;
approximately 46% of the Commercial Airplanes segment contractual backlog at
year-end 2001 was with customers based outside the United States. Continued
access to global markets remains vital to the Company's ability to fully
realize its sales potential and projected long-term investment returns.
THE IMPACT OF WORLD TRADE POLICIES
In 1992, the United States and the European Union entered into a bilateral
agreement disciplining government subsidies to Airbus Industrie. Among other
things, the agreement limited the amount of the subsidy to no more than 33%
of the total development costs for each airplane program. It also calls for
a "progressive reduction" in that level of support. However, in 1994, more
than 130 countries, including all the states of the European Union, signed
the Subsidies and Countervailing Measures (SCM) Agreement at the World Trade
Organization (WTO) in Geneva. 61
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The 1994 SCM Agreement prohibits government subsidies to virtually all
industries, including the aerospace industry. The Company welcomed the
restructuring of Airbus into a "Single Corporate Entity" assuming that Airbus
complies with the 1994 SCM and results in more transparent financial reporting.
The WTO promotes open and non-discriminatory trade among its members. Among
other things, it administers an improved SCM Agreement, applicable to all
members, that provides important protections against injurious subsidies by
governments. It also uses improved dispute settlement procedures to resolve
disagreements among nations - a provision not found in the 1992 bilateral
agreement. The 1992 bilateral United States-European Union agreement and the
later-in-time WTO SCM constitute the basic limits on government supports
of development costs. The Company takes the position that the 1994 WTO SCM
is the controlling agreement.
See the discussion on page 51 concerning the European Union challenge that
has been filed with the WTO related to U.S. Foreign Sales Corporation and
Extraterritorial Income Exclusion tax provisions.
Governments and companies in Asia and the former Soviet Union are seeking
to develop or expand airplane design and manufacturing capabilities through
teaming arrangements with each other or current manufacturers. The Company
continues to explore ways to expand its global presence in this environment.
SUMMARY
Although near-term market uncertainties remain, particularly with respect to
the recovery post September 11, 2001, the long-term market outlook appears
favorable. The Company is well positioned in all segments of the commercial
jet airplane market, and intends to remain the airline industry's preferred
supplier through emphasis on product offerings and customer service that
provide the best overall value in the industry.
MILITARY AIRCRAFT AND MISSILE SYSTEMS BUSINESS ENVIRONMENT AND TRENDS
The Company is the world's largest producer of military aircraft and the
second largest supplier to the U.S. Department of Defense. The Company's
Military Aircraft and Missile Systems segment portfolios are well
balanced among research and development, major development programs,
current production and upgrade activities, and post-production aerospace
support activities. The Company continues to explore a wide array of
options and opportunities for growth around the globe.
Militaries worldwide are transforming their forces and changing their
approach to acquisition. The transformation in forces is evidenced by a
trend toward smaller, but more capable and more technologically advanced,
force structures. The transformation in acquisition is evidenced by an
increasing trend toward cooperative international development programs
and a demonstrated willingness to explore new forms of acquisition and
ownership including the lease of military support aircraft. The Company
is uniquely positioned to integrate the customer knowledge, large-scale
systems integration and lean enterprise competencies of its Commercial
Airplanes, Military Aircraft and Missile Systems, and other operating
segments into value creating solutions for its military customers.
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GENERAL ENVIRONMENT
The U.S. Department of Defense (DoD), with over 40% of the world's
defense budget, remains the principal customer of the Company's Military
Aircraft and Missile Systems business unit. Several trends are emerging
that are shaping customer behavior in this business segment. U.S. force
structure is shrinking and aging while the tempo of engagements worldwide
remains high. The latest military activity by the United States in
Afghanistan demonstrates the value of systems that can communicate with
each other, can operate over longer ranges, are unmanned and provide the
asymmetrical advantages of precision, persistence and selective engagement.
The ways in which institutions and events shape the defense industrial
environment were illustrated almost simultaneously in 2001. From an
institutional perspective, the 2001 Quadrennial Defense Review (QDR),
released on September 12, 2001, identifies national security goals that
promote continued modernization and transformation of the nation's
military. The policy goals are assuring allies and friends; dissuading
future military competition; deterring threats to U.S. interests; and
defeating aggression if deterrence fails. These goals translate into
continuing demands for forward presence, rapid contingency response,
homeland security, peacekeeping, humanitarian and disaster relief
operations that are driving high usage of personnel and equipment that
results in operating cost affordability issues. Current acquisition
rates for aircraft, missiles and ships are well below the rates needed
to recapitalize aging equipment while the DoD is faced with rising
personnel, health care and support costs.
In light of an immediate and a durable need to maintain strong U.S.
defense capabilities covering a very broad spectrum of threats and
responses, near-term DoD budgets have increased, and longer-range
forecasts expect DoD budgets to grow faster than anticipated prior to
September 11, 2001. However, with a softening global economy and
anticipated federal budget tensions, allocations to DoD procurement
are unlikely to increase significantly. This suggests that the DoD
will continue to focus on affordability strategies emphasizing unmanned
air combat and reconnaissance vehicles, precision guided weapons and
continued privatization of logistics and support activities as a means to
improve overall effectiveness while maintaining control over costs. The
Company's capabilities and programs are well suited to provide the
military capabilities essential to meet the challenges.
The global competitive environment is changing rapidly and it is best
characterized by a trend toward consolidation, especially in Europe. The
Company faces strong competition in all market segments at home and abroad.
Industry consolidation in the United States has resulted in four principal
prime contractors for defense aerospace systems and electronics: Boeing,
Lockheed Martin, Raytheon and Northrop Grumman. Given the relatively small
number of prime contractors, these companies often partner and serve as
major suppliers to each other on a various number of major programs.
Although there may be niche acquisitions and product portfolio exchanges
at the prime contractor level, continued consolidation is likely among
subcontractors.
On a global level, the Company faces strong competition from major European
corporations. BAE Systems, with its acquisitions of certain U.S. defense
electronics companies, has positioned itself as an incumbent competitor
in the United Kingdom and in the U.S. markets.
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The European Aeronautics Defense & Space Corporation (EADS) is one of the
largest aircraft and defense companies in the world and stands to benefit
directly as Europe continues to move toward a common defense identity and
industrial policy. The emergence of Matra BAe Dynamics Alenia (MBDA) into a
single European weapons provider creates a formidable competitor from what
was once a fragmented European industry. Agusta-Westland and Eurocopter
remain the primary European rotorcraft systems providers for both defense
and commercial aerospace. In response to emerging opportunities and
competitive pressures internationally, the Company is actively pursuing a
globalization strategy aimed at improving its competitive position in markets
of interest around the world.
PRODUCT LINES
The Company's Military Aircraft and Missile Systems segment produces
tactical fighters, trainers, rotorcraft, military transports, tankers,
tactical missiles, and special purpose airplanes for the United States and
foreign governments, as well as aerospace support products and services.
In the transport market, this segment is producing 120 C-17 Globemaster
transports under a multiyear contract with the U.S. Government. The U.S.
Air Force has indicated a need for a total of 222 C-17s and is actively
engaged in negotiating a second multiyear contract. Other products in this
market are the C-32 and C-40 commercial derivative aircraft.
The primary products in the tactical aircraft market include the F/A-18E/F
Super Hornet, the F-22 Raptor, the F-15 Strike Eagle, and the AV-8B Harrier.
The F/A-18E/F is the U.S. Navy's primary strike fighter. It is currently
being procured under a multiyear contract that extends deliveries through
late 2006. The Company and the U.S. Navy are also looking at this aircraft
as a potential replacement for the EA-6B aircraft. The F-22 continues to
experience strong support from the customer and was just awarded Lot 2
production. The Company continues to look for new markets for the F-15
Strike Eagle aircraft and is actively engaged in the Korean F-X fighter
competition. The Military Aircraft and Missiles segment is also currently
in the development phase on the Unmanned Combat Air Vehicle (UCAV) program
for the U.S. Air Force and Navy. The Air Force variant is expected to begin
flight test later this year. It is expected that the UCAV programs will play
a defining role in the future air combat environment.
The Company believes it is uniquely positioned in the rotorcraft marketplace.
The AH-64 Apache is the U.S. Government's primary attack helicopter and is
considered to be the preeminent attack helicopter in the world. The segment
is currently finishing the first domestic multiyear upgrade contract on the
Apache and is transitioning to the second multiyear contract. In addition,
the Apache has a strong backlog of international customers. The CH-47 Chinook
is currently transitioning from development to production of a major new
upgrade program. This will insure the long-term viability of this product
line. While the V-22 Osprey has been grounded due to technical concerns, the
program continues to have great customer support. Flight test is scheduled to
resume in April. The Company is working with the customer to define additional
testing and the production line is being optimized during this transitional
period. Looking to the future, the Company is teamed with Sikorsky Helicopters
in the development of the next armed reconnaissance helicopter, the
RAH-66 Comanche.
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Current products in the tactical missiles segment include the Harpoon Block II,
SLAM-ER, Brimstone, CALCM and the Joint Direct Attack Munition (JDAM). The
highly successful deployment of JDAM during recent actions in Afghanistan has
resulted in a significant increase in backlog. Future programs include the Small
Diameter Bomb, for which Boeing recently won a competitive concept development
contract. The Company also is aggressively pursuing opportunities that utilize
high-speed technology for the next-generation missile.
The 767 Tanker program demonstrates the strength and capability of the Company,
when leveraged across its business segments. The program has been initiated with
the recent Italian and Japanese selections. The Company is currently in
competition to meet the tanking requirements of the United States and Great
Britain. The Company also continues to market the 767 Tanker to other potential
international customers. This program provides a large opportunity into the next
decade for the Company.
The Company's product offerings in the Aerospace Support market includes a full
line of Life Cycle Customer Support (LCCS) such as spares, maintenance,
modifications, logistics and training. The segment continues to perform
successfully on LCCS programs, including the C-17 Flexible Sustainment Contract
and the F/A-18 FIRST contract. Recent contract awards, including the C-130
Avionics Modernization Program, have solidly positioned the segment in
this market.
In summary, the Military Aircraft and Missile Systems segment has a strong
ongoing production base encompassing both domestic and international customers
on programs such as C-17, F/A-18E/F, AH-64 and JDAM. The sector also has several
major programs transitioning to low-rate initial production such as the F-22 and
V-22 programs and is well positioned for the future with development programs
such as the RAH-64, 767 Tanker, Aerospace Support, and UCAV.
SPACE AND COMMUNICATIONS BUSINESS ENVIRONMENT AND TRENDS
There are four major markets for the Space and Communications segment: launch
services, information and communications, human space flight and exploration,
and missile defense.
Many environmental factors affect the outlook for the launch services business.
The reduced demand projections that incorporate the results of the softened
non-geostationary satellite launch market and the resulting forecast of excess
capacity in launch vehicle supply will continue to create a highly competitive
atmosphere in the commercial market where capability, service availability,
reliability, and affordability will be critical success factors. The DoD market
remains steady with reliability and a guaranteed second source being the
critical success factors. With the Delta family and Sea Launch commercial
launch vehicles, the Company is well positioned to respond to these changing
market conditions. As the launch market continues to evolve, the Space and
Communications segment is prepared to play a major role in NASA-driven and
industry-driven advanced space transportation technology developments.
The information and communications market targets both government and commercial
customers. This market offers the largest opportunity for growth for the Space
and Communications segment. The government segment includes airborne mission
systems, space systems, satellite systems, and integrated system-of-systems
opportunities. The commercial segment includes satellite manufacturing, network
operations, and application service opportunities.
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SPACE AND COMMUNICATIONS BUSINESS ENVIRONMENT AND TRENDS (continued)
Products serving these markets require strong customer-focused solutions and
seamless interfaces with multiple systems and applications. The Company
believes that its experience in large-scale systems integration projects,
along with related expertise in satellite system development and manufacturing
will provide the leverage necessary to expand in this market.
The human space flight and exploration market is forecasted to be relatively
flat over the next ten years. This forecast is based on budget projections for
NASA, the primary customer in this market. As NASA's new administration
focuses on resolving the near-term budget issues, developing a strategic
vision, and setting goals for the agency, the Company is well positioned as
NASA's single largest contractor. Significant progress was made in the
assembly of the International Space Station (ISS) over the past year as it
reached a milestone of one full year of continuous human presence. NASA's
near-term focus will remain on ISS, for which the Company is the prime
contractor. NASA awarded a contract to Boeing to support continuing operations
and utilization of ISS in December 2001. The Space Shuttle continues to be the
only U.S. vehicle to support human space access, and the Company plays a key
role in Shuttle operations and maintenance through United Space Alliance, the
Company's joint venture arrangement with Lockheed Martin. NASA is expected to
pursue future funding for long-term space exploration once the ISS has been
assembled.
Funding for the missile defense market is primarily driven by U.S. Government
development and procurement budgets. Market components include national missile
defense and theater missile defense weapons and system-of-systems solutions.
The Company's prime contractor role on the Ground-Based Midcourse Defense
program will continue to demonstrate the Company's ability to provide a
system-of-systems solution for national defense. In addition, the Company has
been named the leader for overall Missile Defense System Integration.
Accomplishments on the PAC-3 (Patriot Advanced Capability missile) program,
and the Theater High Altitude Area Defense program have established the Space
and Communications segment as a major participant in the missile defense market.
CUSTOMER AND COMMERCIAL FINANCING BUSINESS ENVIRONMENT AND TRENDS
Customer and Commercial Financing segment consists primarily of the operations
of Boeing Capital Corporation (BCC), which acts as a captive finance subsidiary
for the Company. BCC provides market based lease and loan financing primarily
to airlines who purchase or lease the Company's commercial aircraft. BCC
competes for aircraft finance business with other finance companies, commercial
banks, and other financial institutions.
BCC also competes in the commercial equipment leasing and finance markets,
primarily in the United States, against a number of larger and many smaller
competitors, including other leasing companies and financing institutions.
Approximately 30% of BCC's business comes from this market. The type of
equipment leased includes corporate aircraft, machine tools, ocean-going
vessels, and production facilities. Leasing accounts for approximately 30% of
domestic capital expenditures which are expected to grow consistently at an
annual rate of approximately 8%. New business volume of BCC is funded with
debt obtained in the capital markets to which it has access as well as cash
from operations and contributions from its parent company.
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VALUE CREATION
--------------
NEW PRODUCT DEVELOPMENT
The Company continually evaluates opportunities to improve current aircraft
models, and assesses the marketplace to ensure that its family of commercial
jet aircraft is well positioned to meet future requirements of the airline
industry. The fundamental strategy is to maintain a broad product line that is
responsive to changing market conditions by maximizing commonality among the
Boeing family of commercial aircraft. Additionally, the Company is determined
to continue to lead the industry in customer satisfaction by offering products
with the highest standards of quality, safety, technical excellence, economic
performance and in-service support.
The Company continues to invest in the development of the Delta IV expendable
launch vehicle. The Sea Launch joint venture offers automated commercial
satellite launches from a seagoing launch platform. These products give
the Space and Communications segment greater access to a portion of the launch
market that was previously unavailable with the Delta II rocket alone. The
Company also continues to invest in the development of the Airborne Early
Warning & Control systems platform. These investments will also provide
leverage in the development of other information, communication and battle
management applications.
The Company is also investing in the development of the 767 Tanker program.
This program represents a large opportunity to provide state of the art
tanking capabilities to our potential domestic and international customers.
It demonstrates the synergistic value of the diversified Boeing portfolio in
providing best value solutions to our customers.
MAJOR PROCESS IMPROVEMENTS
The Company remains strongly committed to becoming a world-class leader in
all aspects of its business and to maintaining a strong focus on customer
needs, including product capabilities, technology, in-service economics and
product support. Major long-term productivity gains are being aggressively
pursued, with resources invested in education and training, restructuring of
processes, new technology, and organizational realignment. Recent commercial
and government developmental programs, such as the 767-400ER, 737-900 and
Joint Strike Fighter, included early commitment of resources for integrated
product teams, design interface with customer representatives, use of
advanced three-dimensional digital product definition and digital
pre-assembly computer applications, and increased use of automated
manufacturing processes. Although these measures have required significant
current investments, substantial long-term benefits are anticipated from
reductions in design changes and rework and improved quality of internally
manufactured and supplier parts. Significant initiatives to improve
production systems and processes are underway. Efforts to streamline
configuration, ordering and shop floor systems continue. Many of the lean
manufacturing concepts are being implemented across the enterprise. Efforts
are underway on part number reduction, cycle time reduction and maximizing
the value of airplane change. Additionally, the Company has made significant
strides in continuing the implementation of moving production lines by
implementing the practice in the 737 and 747 final assembly.
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The initiatives will enhance the Company's ability to ensure standardization
where it benefits customers, provide "just in time" feature selection, and
allow for more predictable, stable and shorter production flows. These
initiatives will improve operational efficiencies and provide better customer
product selection.
The Military Aircraft and Missile Systems segment and the Space and
Communications segment continue to aggressively pursue important process
improvements through integrated product teams that provide cost-effective
solutions and maintain technological superiority. Phantom Works, the
advanced research and development organization of Boeing, focuses on
improving the Company's competitive position through innovative technologies,
improved processes and the creation of new products. The Company is
continuing to assess potential opportunities for improved use and
consolidation of facilities across all parts of the Company and to focus on
those capabilities and processes that contribute to core competencies
resulting in a competitive advantage. Future decisions regarding facilities
conversions or consolidations will be based on long-term business objectives.
Within the Military Aircraft and Missile Systems and Space and Communications
segments, major restructuring actions will be contingent on demonstration of
cost savings for U.S. Government programs and the Company.
The Company is pursuing the means to significantly reduce new product
development cost and flow time. Initiatives that have come out of this
effort include the formation of the Creation Center, which is tied closely
with Phantom Works, and other comparable efforts. Another initiative is the
migration to platforms and platform teams modeled after premier benchmarked
companies. Other initiatives include design tool automation integrated
with manufacturing, improved loads models, and decision support methodologies.
The Company uses Enterprise Process Councils as the structure for realizing
synergies company-wide. These Councils are made up of the leaders of key
processes from each of the operating groups, as well as Phantom Works, and
rapidly shares best practices and combines efforts to meet needs across the
Company. Enterprise Process Councils have been established for Define,
Manufacturing, Finance, Quality and Procurement processes.
SHAREHOLDER VALUE AS A CORPORATE PERFORMANCE MEASURE
----------------------------------------------------
Management performance measures are designed to provide a good balance
between short-term and long-term measures and financial and non-financial
measures to align all decision processes and operating objectives to
increase shareholder value over the long term.
In 1999, the Company initiated a Managing for Value program designed to
develop a company-wide culture to continuously improve financial performance
and growth. Consistent with these objectives, the Company has set performance
targets based on economic profit goals. Economic profit, which is calculated
by subtracting a capital charge from the Company's net operating profit after
taxes, is the metric used to measure overall financial performance. Awards to
executives under the Company's Incentive Compensation Plan are based on the
achievement of economic profit targets. Effective for 2000, the Company
initiated an incentive plan that provides annual cash rewards to non-union,
non-executive employees upon achieving annual financial performance
objectives based on economic profit.
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The Company has implemented an executive compensation program whereby rights
to receive stock, referred to as Performance Shares, have been issued to plan
participants. An increasing portion of the Performance Shares awarded will be
convertible to shares of common stock as the stock price reaches and maintains
certain threshold levels. These threshold stock price levels represent
predetermined compound five-year growth rates relative to the stock price at
the time the Performance Shares are granted. During 2000, portions of the
Performance Shares granted in 1999 and 2000 were converted to common stock.
Any Performance Shares not converted to common stock after five years from date
of grant will expire. This plan is intended to increase executive management's
focus on improving shareholder value.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001, 2000 and 1999
(Dollars in millions except per share data)
Note 1
Summary of Significant Accounting Policies
------------------------------------------
Principles of consolidation
The consolidated financial statements of The Boeing Company, together with
its subsidiaries (herein referred to as the "Company") include the accounts
of all majority-owned subsidiaries. Investments in joint ventures for which
the Company does not have control, but has the ability to exercise significant
influence over the operating and financial policies, are accounted for under
the equity method. Accordingly, the Company's share of net earnings and losses
from these ventures is included in the Consolidated Statements of Operations.
Intercompany profits, transactions and balances have been eliminated in
consolidation. Certain reclassifications have been made to prior periods
to conform with current reporting.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions and
estimates that directly affect the amounts reported in the consolidated
financial statements. Significant estimates for which changes in the near
term are considered reasonably possible and that may have a material impact
on the financial statements are addressed in these notes to the consolidated
financial statements.
Sales and other operating revenues
Commercial aircraft sales are recorded as deliveries are made unless
transfer of risk and rewards of ownership is not sufficient.
Sales under fixed-price-type contracts are generally recognized as
deliveries are made or at the completion of scheduled performance milestones.
For certain fixed-price contracts that require substantial performance over
an extended period before deliveries begin, sales are recorded based upon
attainment of either internally identified or external performance milestones.
Sales under cost-reimbursement contracts are recorded as costs are
incurred. Certain contracts contain profit incentives based upon performance
relative to predetermined targets that may occur during or subsequent to
delivery of the product. Incentives, of which amounts can be reasonably
estimated, are recorded over the performance period of the contract.
Incentives and fee awards, of which amounts cannot be reasonably estimated,
are recorded when awarded. Certain contracts contain provisions for
the redetermination of price based upon future economic conditions.
Income associated with customer financing activities is included in sales
and other operating revenues.
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Contract and program accounting
In the Military Aircraft and Missile Systems segment and Space and
Communications segment, operations principally consist of performing work
under contract, predominantly for the U.S. Government and foreign
governments. Cost of sales for such contracts is determined based on the
estimated average total contract cost and revenue. Estimates of each
contract's revenue and cost are reviewed and reassessed quarterly. Changes
in estimates result in cumulative revisions to the contract profit
recognized.
Commercial aircraft programs are planned, committed and facilitized based
on long-term delivery forecasts, normally for quantities in excess of
contractually firm orders. Cost of sales for the 717, 737, 747, 757, 767
and 777 commercial aircraft programs is determined under the program method
of accounting based on estimated average total cost and revenue for the
current program quantity. The program method of accounting effectively
averages tooling and special equipment costs, as well as unit production
costs, over the program quantity. Because of the higher unit production
costs experienced at the beginning of a new program and the substantial
investment required for initial tooling and special equipment, new
commercial jet aircraft programs normally have lower operating profit
margins than established programs. In 2001, the initial program quantity
for the 717 program was revised from 200 to 135 units. The estimated
program average costs and revenues are reviewed and reassessed quarterly,
and changes in estimates are recognized over current and future deliveries
constituting the program quantity.
To the extent that inventoriable costs are expected to exceed the total
estimated sales price, charges are made to current earnings to reduce
inventoried costs to estimated net realizable value.
Inventories
Inventoried costs on commercial aircraft programs and long-term contracts
include direct engineering, production and tooling costs, and applicable
overhead, not in excess of estimated net realizable value. In accordance
with industry practice, inventoried costs include amounts relating to
programs and contracts with long production cycles, a portion of which
is not expected to be realized within one year. Commercial spare parts and
general stock materials are stated at average cost not in excess of net
realizable value.
Share-based plans
The Company has adopted the expense recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company values stock options issued based upon an
option-pricing model and recognizes this value as an expense over the period
in which the options vest. Potential distribution from the ShareValue Trust
described in Note 22 have been valued based upon an option-pricing model,
with the related expense recognized over the life of the trust. Share-based
expense associated with Performance Shares described in Note 22 is determined
based on the market value of the Company's stock at the time of the award
applied to the maximum number of shares contingently issuable based on stock
price and is amortized over a five-year period.
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Interest expense
Interest and debt expense is presented net of amounts capitalized. Interest
expense is subject to capitalization as a construction-period cost of property,
plant and equipment and of commercial program tooling.
Income taxes
Federal, state and foreign income taxes are computed at current tax rates,
less tax credits. Taxes are adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from
those previously used to determine deferred tax assets or liabilities. Tax
provisions include amounts that are currently payable, plus changes in
deferred tax assets and liabilities that arise because of temporary
differences between the time when items of income and expense are recognized
for financial reporting and income tax purposes.
Postretirement benefits
The Company's funding policy for pension plans is to contribute, at a minimum,
the statutorily required amount to an irrevocable trust. Benefits under the
plans are generally based on age at retirement, the employee's annual earnings
indexed at the U.S. Treasury 30-year bond rate, and years of service. The
actuarial cost method used in determining the net periodic pension cost is the
projected unit credit method.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments, such as
certificates of deposit, time deposits, treasury notes and other money market
instruments, which generally have maturities of less than three months.
Available-for-sale securities
The Company holds certain investments that are treated as "available-for-sale"
securities under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." These investments are classified as 'Other assets' on the
Consolidated Statements of Financial Position, at their quoted market values.
Unrealized gains and losses are reported as part of 'Accumulated other
comprehensive income' on the Consolidated Statements of Financial Position.
Realized gains and losses are included in the Consolidated Statements of
Operations, in the line item 'Other income, principally interest.'
Held-to-maturity securities
Held-to-maturity securities, classified as 'Other assets' on the Consolidated
Statements of Financial Position, include bond notes, enhanced equipment trust
certificates and debentures for which the Company has the positive intent and
ability to hold to maturity are reported at amortized cost.
Property, plant and equipment
Property, plant and equipment are recorded at cost, including applicable
construction-period interest, and depreciated principally over the following
estimated useful lives: new buildings and land improvements, from 20 to 45
years; and machinery and equipment, from 3 to 13 years.
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The principal methods of depreciation are as follows: buildings and land
improvements, 150% declining balance; and machinery and equipment,
sum-of-the-years' digits. The Company periodically evaluates the
appropriateness of remaining depreciable lives assigned to long-lived assets
subject to a management plan for disposition.
Long-lived assets deemed available for sale are stated at the lower of cost
or fair value. Long-lived assets held for use are subject to an impairment
adjustment down to fair value if the carrying value is no longer recoverable
based upon the undiscounted future cash flows.
Goodwill and acquired intangibles
Goodwill, representing the excess of acquisition costs over the fair value
of net assets of businesses purchased, is amortized on a straight-line method
over 20 to 30 years. Recoverability of the unamortized goodwill and acquired
intangibles balance is primarily based upon assessment of related operational
cash flows. See Note 5 for a discussion on the adoption of SFAS No.142,
"Goodwill and Other Intangible Assets."
Acquired intangibles and their associated lives, amortized on a straight-line
method, include the following: developed technologies, 5 to 20 years; tradename,
20 years; data repositories, 15 to 20 years; assembled workforce, 5 to 15 years;
product know-how, 15 to 20 years; and customer lists, 5 to 15 years.
Derivatives
The Company accounts for derivatives pursuant to SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. This standard
requires that all derivative instruments be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative instruments are either
recognized periodically in income or shareholders' equity (as a component of
accumulated other comprehensive income), depending on their use and designation
The adoption of SFAS No. 133 in 2001 resulted in a transition gain of $1 on the
Consolidated Statements of Operations shown under the caption 'Cumulative
effect of accounting change, net,' and a net loss of $18 ($11 net of tax)
recorded to accumulated other comprehensive income.
Aircraft valuation
Aircraft deemed available for sale, which are included in inventory, are
stated at the lower of cost or fair value. The Company reviews its used
aircraft purchase commitments relative to the aircraft's anticipated
fair value, and records any deficiency as a charge to earnings. Fair value
is determined by using both internal and external aircraft valuations,
including information developed from the sale of similar aircraft in the
secondary market. Aircraft on operating lease or held for operating lease
are classified with customer and commercial financing assets. The Company
reviews these operating lease assets for impairment annually or when events
or circumstances indicate that the carrying amount of these assets may not
be recoverable. An asset is considered impaired when the expected undiscounted
cash flow, based on market assessment of lease rates, over the remaining
useful life is less than the net book value. When impairment is indicated for
an asset, the amount of impairment loss is the excess of net book value over
fair value.
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Postemployment benefits
The Company accounts for postemployment benefits under SFAS No. 112,
"Employer's Accounting for Postemployment Benefits." A liability for
postemployment benefits is recorded when termination is probable and the
amount is estimable.
Note 2
Revenues and Costs Attributable to Financing Activities
-------------------------------------------------------
The years 2001, 2000 and 1999 include sales and other operating revenues of
$1,036, $803 and $686 and cost of products and services of $395, $259 and $218,
respectively, attributable to financing activities primarily accounted for in
the Customer and Commercial Financing segment. Financing activities primarily
relate to the financing of commercial and private aircraft and commercial
equipment. Revenues include interest on notes receivable and sales-type leases
and lease income from operating leases. Costs of products and services includes
depreciation on leased aircraft and equipment and valuation adjustments of
customer and commercial financing assets.
Note 3
Gain on Dispositions, Net
-------------------------
Gains and losses resulting from the sale of businesses, along with gains and
losses resulting from the disposition of real property, are reported on a net
basis in the caption 'Gain on dispositions, net' on the Consolidated
Statements of Operations. Net gains of $19, $17 and $118 were recorded for
sales of businesses in 2001, 2000 and 1999, respectively.
Note 4
Accounting for the Impact of the September 11, 2001 Terrorist Attacks
---------------------------------------------------------------------
On September 11, 2001, the United States was the target of severe terrorist
attacks that involved the use of U.S. commercial aircraft manufactured by the
Company. These attacks resulted in a significant loss of life and property and
caused major disruptions in business activities and in the U.S. economy overall.
To address the widespread financial impact of the attacks, the Emerging Issues
Task Force (EITF) released Issue No. 01-10, "Accounting for the Impact of
Terrorist Attacks of September 11, 2001." This issue specifically prohibits
treating costs and losses resulting from the events of September 11, 2001, as
extraordinary items; however, it observes that any portion of these costs and
losses deemed to be unusual or infrequently occurring should be presented as a
separate line item in income from continuing operations.
For the year ended December 31, 2001, the Company recorded a charge of $935 in
the caption 'Special charges due to events of September 11, 2001.' This charge
related to the categories listed below. Of this charge, $908 is related to the
Commercial Airplanes segment and $27 is related to the Other segment.
Employee severance
The Company incurred and is expected to incur employment reductions resulting
from the decrease in aircraft demand, which directly related to the attacks of
September 11, 2001. For the year ended December 31, 2001, the Company recorded
a charge of $287 attributable to the associated employee severance obligations.
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717 forward loss
In the fourth quarter of 2001, the accounting quantity of the 717 program was
revised to 135 units from 200 units. This revision resulted from a lack of firm
demand for the 717 aircraft subsequent to September 11, 2001, and the
uncertainty in estimating future revenues and costs for 200 units based upon the
revised projected delivery schedule. The forward loss of $250 represents the
amount by which, as of December 31, 2001, the inventory balance plus estimated
future inventory costs exceeds the estimated revenue for the undelivered
aircraft within the revised accounting quantity. As of December 31, 2001, the
Company cumulatively delivered 93 717 program aircraft. The estimates for the
revised accounting quantity assume that the 717 will remain an ongoing program.
Although there are no plans to do so, if the program were to be terminated
after the delivery of 135 units, the Company would be exposed to potentially
material termination costs.
Used aircraft valuation
The events of September 11, 2001, resulted in a significant decrease in the
market value of used aircraft. The Company recorded a charge of $185 relating to
the decrease in market value for aircraft held for resale as well as asset
purchase obligations relating to trade-in of used aircraft.
Inventory valuation
The Company recorded a charge of $96 relating to excess and obsolete commercial
airplane spares inventory. Subsequent to September 11, 2001, commercial airline
customers worldwide removed a substantial number of aircraft from service. The
ultimate realization of future sales for specific spare parts held in inventory
is highly dependent on the active aircraft fleet in which that spare part
supports. The revised projections for future demand of certain spare parts
indicate that current inventory quantities are in excess of total expected
future demand.
Vendor penalties
The decrease in production rates on certain commercial airplane models and
related products triggered contractual penalty clauses with various vendors and
subcontractors, and the Company recorded a charge of $68 for these penalties.
The decrease in production rates resulted directly from the change in aircraft
demand after the events of September 11, 2001.
Guarantee commitments
The Company has extended certain guarantees and commitments such as asset value
guarantees discussed in Note 24. Based upon the impact of the events of
September 11, 2001, on aircraft market prices and aircraft demand of customers
who are counterparties in these guarantees, the Company recorded a charge of $49
associated with an adverse exposure under these guarantees.
Ongoing assessment
The Company will continue to assess other potential losses and costs it might
incur in relation to the attacks. These future costs are not yet accruable;
however, the Company expects that such costs may be incurred throughout 2002.
Liabilities totaling $542 were established as of December 31, 2001, associated
with these charges and are expected to be settled by the end of 2002. Any costs
or adjustments in estimates will continue to be recognized as a separate
component of earnings from operations entitled 'Special charges due to events
of September 11, 2001.'
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Note 5
Standards Issued and Not Yet Implemented
----------------------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." The Company is required
to adopt SFAS No. 141 for all business combinations completed after
June 30, 2001. This standard requires that business combinations initiated after
June 30, 2001, be accounted for under the purchase method. Goodwill and other
intangible assets that resulted from business combinations before July 1, 2001,
must be reclassified to conform to the requirements of SFAS No. 142, as of the
statement adoption date.
The Company will adopt SFAS No. 142 at the beginning of 2002 for all goodwill
and other intangible assets recognized in the Company's statement of financial
position as of January 1, 2002. This standard changes the accounting for
goodwill from an amortization method to an impairment-only approach, and
introduces a new model for determining impairment charges.
The new impairment model requires performance of a two-step test for operations
that have goodwill assigned to them. First, it requires a comparison of the book
value of net assets to the fair value of the related operations. Fair values are
estimated using discounted cash flows, subject to adjustment based on the
Company's market capitalization at the date of evaluation. If fair value is
determined to be less than book value, a second step is performed to compute the
amount of impairment. In this process, the fair value of goodwill is estimated,
and is compared to its book value. Any shortfall of the book value below fair
value represents the amount of goodwill impairment.
Upon transition to the new impairment model as of January 1, 2002, the Company
projects that it will recognize a reduction of goodwill and a pretax charge in
the range of $2,100 to $2,600, identified as a cumulative effect of an
accounting change. This charge results from the change from the prior
impairment method, whose first step was based on undiscounted cash flows, to the
new one that is based on fair value. The fair value measurement will reflect the
estimates and expectations of the marketplace participants as of
January 1, 2002, the date of adoption.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," and in August 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." The Company does not believe
that the implementation of these standards will have a significant impact on the
financial statements.
Note 6
Acquisitions
------------
On October 6, 2000, the Company acquired the Hughes Electronics Corporation
(Hughes) space and communications and related businesses. The acquisition was
accounted for under the purchase method, by which the purchase price was
allocated to the net assets acquired based on preliminary estimates of their
fair values. The original purchase price was $3,849, initial goodwill was valued
at $740 and the other intangible assets were valued at $631. During the period
from acquisition to the third quarter of 2001, the Company completed its
assessment of the net assets acquired and goodwill was increased to a balance of
$2,166.
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Included in goodwill are certain claims submitted to Hughes for resolution as
contractual purchase price contingencies. The Company anticipates finalizing
the Hughes purchase price allocation during late 2002 or early 2003, at the
conclusion of arbitration procedures related to these contingencies. Other
adjustments were recorded to reflect finalization of fair value assessments
for the net assets acquired and the impact of the Company's accounting
policies on acquired balances.
Other acquisitions in 2000 included Jeppesen Sanderson, Inc. on October 4, 2000,
for $1,524 in cash, Continental Graphics Corp. on September 1, 2000, for $183 in
cash, and Autometric, Inc. on August 2, 2000, for $119 in cash.
The following is a summary of the Company's significant acquisitions in 2000
along with the purchase price and the allocation of the purchase price to
IPR&D and intangible assets:
Other
Purchase Intangible
Price IPR&D Goodwill Assets
------------------------------------------------------------------------
Hughes space and
communications businesses $3,849 $500 $2,166 $647
Jeppesen Sanderson, Inc. 1,524 45 782 663
Continental Graphics Corp. 183 7 68 80
Autometric, Inc. 119 5 76 41
The fair value amount of $500 of in-process research and development (IPR&D)
attributed to the Hughes acquisition in 2000 discussed below was determined by
an independent valuation using the income approach.
Thirteen projects were included in the valuation, of which the principal
projects were based on the following: technologies associated with
high-efficiency solar cells and satellite battery technology ($189), phased
array and digital processing technology to provide high-speed broadband service
($89), and xenon-ion systems for satellite engine propulsion ($82). The fair
value of identifiable intangibles was also determined by an independent
valuation primarily using the income approach. The following risk-adjusted
discount rates were used to discount the project cash flows: solar cells and
satellite battery technology, 17%; phased array and digital processing
technology to provide high-speed broadband service, 18%; xenon-ion systems
for satellite engine propulsion, 18%; all other projects, 18.2% weighted
average. Operating margins were assumed to be similar to historical margins
of similar products. The size of the applicable market was verified for
reasonableness with outside research sources. The projects were in various
stages of completion ranging from approximately 31% to 92% complete as of the
valuation date. As of December 31, 2001, the percentages complete by project
were as follows: solar cells and satellite battery technology, 80%; phased
array and digital processing technology, 95%; xenon-ion systems for satellite
engine propulsion, 90%. The stage of completion for each project was estimated
by evaluating the cost to complete, complexity of the technology and time to
market. The projects are anticipated to be completed between 2002 and 2004.
The estimated cost to complete the projects is $50.
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The discount rates stated previously are higher than the Company's weighted
average cost of capital due to the inherent uncertainties in the estimates
described previously, including the uncertainty surrounding the successful
completion of the purchased in-process technology, the useful life of such
technology, the profitability levels of such technology and the uncertainty of
the timing of the related product introduction and then-existing competing
products. If these projects are not successfully developed, the future revenue
and profitability of Boeing Satellite Systems may be adversely affected.
Additionally, the value of the other intangible assets acquired may become
impaired.
The fair value amount of $45 of IPR&D attributed to the acquisition of Jeppesen
Sanderson, Inc., was determined by an independent valuation. The acquired IPR&D
technology consists primarily of three software projects that will work together
to store information and extract it for use in various products sold by
Jeppesen. The technology will allow the production of end user aeronautical
information with forward and backward date effectivity, and will allow the
extraction of the information on a near real time basis. Furthermore, the
technology will allow the creation of packages of aeronautical information,
which can be tailored to individual customers worldwide. These acquired IPR&D
projects were completed during 2001, with the full range and production of the
technology anticipated in the first quarter of 2002. The completed technology
can only be used for its specific and intended purpose and as such no
alternative future uses exist. The valuation methodology was determined using
the income approach, and a risk-adjusted discount rate of 15% was used to
discount the project cash flow. During the year ended December 31, 2001,
Jeppesen had completed all IPR&D projects for a total cost of $18.
Other acquisitions resulting in the recognition of IPR&D during 2000 using a
similar income approach included Continental Graphics Corp. ($7 IPR&D) and
Autometric, Inc. ($5 IPR&D).
Note 7
Equity Income from Joint Ventures
-------------------------------------------
Equity in income from joint ventures represents the Company's share of income
or losses from joint venture arrangements accounted for under the equity method.
The principal joint venture arrangements are United Space Alliance, FlightSafety
Boeing Training International (FSBTI), 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. Income from the United Space Alliance joint
venture was $72, $60 and $48 for the years ended December 31, 2001, 2000 and
1999, respectively. The Company is entitled to 50% of the earnings of FSBTI, a
partnership with FlightSafety International Inc., which provides pilot and crew
training. Income from the FSBTI joint venture was $12, $43 and $21 for the years
ended December 31, 2001, 2000 and 1999, respectively.
The Sea Launch venture in which Boeing is a 40% partner with RSC Energia (25%)
of Russia, Kvaerner Maritime (20%) of Norway, and KB Yuzhnoye/PO Yuzhmach (15%)
of Ukraine had two successful launches in 2001. Boeing's investment in this
venture as of December 31, 2001, is reported at zero, which reflects the prior
recognition of losses reported by Sea Launch. The venture incurred losses in
2001, due to the relatively low volume of launches, reflecting a depressed
satellite market.
78
79
Boeing 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. Net of liabilities established, the
Company's maximum exposure to credit-related losses associated with credit
guarantees amounts to $357, which is included in the disclosure in Note 24 to
the consolidated financial statements. Financial exposure related to
performance guarantees and accounts receivable/inventory amounted to $200 at
December 31, 2001.
As of December 31, 2001 and 2000, other assets included $274 and $260
attributable to investments in joint ventures.
Note 8
General and Administrative Expense
----------------------------------
The Company issued 7,651,298 stock units as of December 31, 2001, that are
convertible to either stock or a cash equivalent, of which 6,943,846 are vested,
and the remainder vest with employee service. These stock units principally
represent a method of deferring employee compensation by which a liability is
established based upon the current stock price. An expense or reduction in
expense is recognized associated with the change in that liability balance and
is recorded against general and administrative expense. General and
administrative expense related to deferred stock compensation was $(163), $75
and $12 in 2001, 2000 and 1999, respectively.
Note 9
Earnings per Share
------------------
The weighted average number of shares outstanding (in millions) used to compute
earnings per share for the years ended December 31, 2001, 2000 and 1999, are as
follows:
2001 2000 1999
-------------------------------------------------------------------------------
Basic shares 816.2 859.5 917.1
Diluted shares 829.3 871.3 925.9
===============================================================================
Basic earnings per share are calculated based on the weighted average number of
shares outstanding, excluding treasury shares and the outstanding shares held by
the ShareValue Trust. Diluted earnings per share are calculated based on that
same number of shares plus additional dilutive shares representing stock
distributable under stock option and stock unit plans computed using the
treasury stock method, plus contingently issuable shares from other share-based
plans on an as-if converted basis.
79
80
Note 10
Accounts Receivable
-------------------
Accounts receivable at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
U.S. Government contracts $2,597 $2,693
Commercial Airplanes segment customers 679 894
Other 1,944 1,979
Less valuation allowance (64) (47)
-------------------------------------------------------------------------------
$5,156 $5,519
===============================================================================
Accounts receivable included the following as of December 31, 2001 and 2000:
amounts not currently billable of $792 and $616 relating primarily to sales
values recorded upon attainment of performance milestones that differ from
contractual billing milestones and withholds on U.S. Government contracts ($466
and $487 not expected to be collected within one year); $75 and $172 relating to
claims and other amounts on U.S. Government contracts subject to future
settlement ($55 and $56 not expected to be collected within one year); and $185
and $169 of other receivables not expected to be collected within one year.
As of December 31, 2001, other accounts receivable included $1,025 related to
long-term contracts ($997 as of December 31, 2000) with customers other than the
U.S. Government and $450 of reinsurance receivables relating to a captive
insurance company. The accounts receivable balance as of December 31, 2000, has
been reclassified to include $591 of reinsurance receivables.
Note 11
Inventory
---------
Inventories at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Commercial aircraft programs $ 10,138 $ 10,898
Long-term contracts in progress 7,614 8,456
Commercial spare parts, used aircraft,
general stock materials and other 2,629 2,075
-------------------------------------------------------------------------------
20,381 21,429
Less advances and progress billings (13,461) (14,577)
-------------------------------------------------------------------------------
$ 6,920 $ 6,852
===============================================================================
Inventory production costs incurred on in-process and delivered units in excess
of the estimated average cost of such units determined as described in Note 1
represent deferred production costs. As of December 31, 2001, there were no
significant excess deferred production costs or unamortized tooling costs not
recoverable from existing firm orders for commercial programs.
80
81
Inventory costs at December 31, 2001, included unamortized tooling of $821 and
$305 relating to the 777 and Next-Generation 737 programs respectively, and
excess deferred production costs of $863 and $429 relating to the 777 and
Next-Generation 737 programs. Inventory costs at December 31, 2000, included
unamortized tooling of $1,135 and $447 relating to the 777 and Next-Generation
737 programs and excess deferred production costs of $1,121 and $635 relating to
the 777 and Next-Generation 737 programs. Firm backlog for both the 777 and
Next-Generation 737 programs is sufficient to recover all significant amounts of
excess deferred production costs as of December 31, 2001; however, such deferred
costs are recognized over the current program accounting quantity in effect at
the date of reporting. There are no excess deferred production costs or
unamortized tooling for the 717 program.
Used aircraft in inventory totaled $316 and $45 as of December 31, 2001
and 2000.
Interest capitalized as construction-period tooling costs amounted to $8, $12
and $17 in 2001, 2000 and 1999, respectively.
Inventory balances included $233 and $231 subject to claims or other
uncertainties primarily relating to the A-12 program as of December 31, 2001
and 2000. See Note 27.
The estimates underlying the average costs of deliveries reflected in the
inventory valuations may differ materially from amounts eventually realized for
the reasons outlined in Note 28.
Note 12
Customer and Commercial Financing
---------------------------------
Customer and commercial financing at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 1,398 $ 593
Investment in sales-type/financing leases 2,796 1,119
Operating lease equipment, at cost,
less accumulated depreciation
of $337 and $305 3,846 3,376
Commercial equipment financing
Notes receivable 1,008 915
Investment in sales-type/financing leases 776 697
Operating lease equipment, at cost,
less accumulated depreciation
of $85 and $95 716 432
-------------------------------------------------------------------------------
Less valuation allowance (142) (173)
-------------------------------------------------------------------------------
$10,398 $6,959
===============================================================================
Impairment of financing assets having a carrying value of $192 in 2001 and $152
in 2000 have been recognized in conformity with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure."
81
82
Included in this carrying value is $52 and $21 attributable to impaired assets
for which there is a related allowance for credit losses, and $140 and $131
attributable to impaired assets for which there is no related allowance for
credit losses in 2001 and 2000. The total valuation allowance related to these
assets was $8 and $18 in 2001 and 2000. The impact to interest income is not
significant. The valuation allowance is subject to change depending on
estimates of collectability and realizability of the customer financing
balances.
Customer and commercial financing assets that are leased by the Company under
capital leases and have been subleased to others totaled $437 and $461 as of
December 31, 2001 and 2000. Commercial equipment financing under operating lease
consists principally of corporate aircraft, machine tools, ocean-going vessels,
production equipment, and other equipment which the Company expects will
maintain strong collateral and residual values. Aircraft financing and
commercial equipment financing operating lease equipment is recorded at cost
and depreciated over its useful life to an estimated salvage value, primarily
on a straight-line basis.
Financing for aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing such
collateral. The operating lease aircraft category includes new and used jet and
commuter aircraft, spare engines and spare parts.
As of December 31, 2001 and 2000, the net book value of aircraft financing
operating lease equipment held for lease totaled $513 and $278.
As of December 31, 2001, sales-type/financing leases and operating leases
attributable to aircraft financing included $1,499 attributable to 717 model
aircraft ($692 accounted for as operating leases) and $1,030 attributable
to MD-11 model aircraft ($810 accounted for as operating leases).
See Note 25 for a discussion regarding the creditworthiness of counterparties
in customer and commercial financing arrangements.
Scheduled payments on customer and commercial financing are as follows:
Sales-Type/ Operating
Principal Financing Lease Lease
Payments on Payments Payments
Year Notes Receivable Receivable Receivable
-------------------------------------------------------------------
2002 $ 332 $1,112 $507
2003 251 392 401
2004 240 373 289
2005 298 357 256
2006 283 319 213
Beyond 2006 1,002 2,668 746
82
83
The components of investment in sales-type/financing leases at December 31
were as follows:
2001 2000
-------------------------------------------------------------------------------
Minimum lease payments receivable $ 5,221 $2,225
Estimated residual value of leased assets 970 545
Unearned income (2,619) (954)
-------------------------------------------------------------------------------
$ 3,572 $1,816
===============================================================================
Interest rates on fixed-rate notes ranged from 6.70% to 14.68%, and effective
interest rates on variable-rate notes ranged from 3.37% to 9.68%.
Note 13
Property, Plant and Equipment
-----------------------------
Property, plant and equipment at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Land $ 489 $ 460
Buildings 8,598 9,241
Machinery and equipment 10,642 10,378
Construction in progress 1,099 891
-------------------------------------------------------------------------------
$ 20,828 $ 20,970
Less accumulated depreciation (12,369) (12,156)
-------------------------------------------------------------------------------
$ 8,459 $ 8,814
===============================================================================
Balances are net of impairment asset valuation reserve adjustments for real
property available for sale of $113 and $41 for December 31, 2001 and 2000.
Depreciation expense was $1,140, $1,159 and $1,330 for 2001, 2000 and 1999,
respectively. Interest capitalized as construction-period property, plant and
equipment costs amounted to $72, $70 and $64 in 2001, 2000 and 1999,
respectively.
Rental expense for leased properties was $318, $280 and $320 for 2001, 2000 and
1999, respectively. These expenses, substantially all minimum rentals, are net
of sublease income. Minimum rental payments under operating leases with initial
or remaining terms of one year or more aggregated $1,504 at December 31, 2001.
Payments, net of sublease amounts, due during the next five years are as
follows:
2002 2003 2004 2005 2006
------------------------------------
$290 $220 $188 $151 $138
====================================
83
84
Note 14
Investments
-----------
Investments are recorded in 'Other assets' in the Consolidated Statements of
Financial Position. Investments in securities deemed available-for-sale included
$24 and $74 as of December 31, 2001 and 2000. Investments in securities deemed
held-to-maturity and recorded at amortized cost included $158 and $113 as of
December 31, 2001 and 2000.
Investments at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Gross Estimated Gross Estimated
Unrealized Fair Unrealized Fair
Cost Loss Value Cost Loss Value
-------------------------------------------------------------------------------
Available-for-Sale
Equity $ 44 $24 $ 20 $ 39 $19 $ 20
Debt 4 4 54 54
Held-to-Maturity
Debt 158 74 84 113 113
-------------------------------------------------------------------------------
$206 $98 $108 $206 $19 $187
===============================================================================
There were no gross unrealized gains for the years ended December 31, 2001
and 2000.
Included in held-to-maturity investments as of December 31, 2001 and 2000, are
$128 and $113 of Enhanced Equipment Trust Certificates.
At December 31, 2001, an available-for-sale security was transferred to
held-to-maturity at its fair value with $20 of unrealized loss recorded as a
component of accumulated other comprehensive income.
The Company also held securities of $274 and $231 at December 31, 2001 and 2000,
which were recorded at a cost basis that approximated the fair value of those
investments. For the year ended December 31, 2001, $24 was recorded as a
reduction of 'Other income, principally interest' in the Consolidated Statements
of Operations, related to an other-than-temporary asset impairment of these
investments.
Note 15
Goodwill and Acquired Intangibles
---------------------------------
Goodwill and acquired intangibles at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Goodwill $5,666 $4,189
Acquired intangibles 1,449 1,415
Accumulated amortization (672) (390)
-------------------------------------------------------------------------------
Net goodwill and acquired intangibles $6,443 $5,214
===============================================================================
84
85
Amortization of goodwill and acquired intangibles for the year ended
December 31, 2001, totaled $282, of which $131 related to the Space and
Communications segment, $68 related to the Commercial Airplanes segment, and $83
was identified as unallocated. Amortization of goodwill and acquired intangibles
for the year ended December 31, 2000, totaled $133, of which $28 related to the
Space and Communications segment, $22 related to the Commercial Airplanes
segment, and $83 was identified as unallocated. For the year ended
December 31, 1999, amortization of goodwill of $83 was identified as
unallocated.
Note 16
Income Taxes
------------
The provision for taxes on income consisted of the following:
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------
U.S. Federal
Taxes paid or currently payable $454 $1,517 $ 349
Change in deferred taxes 166 (770) 534
-------------------------------------------------------------------------------
620 747 883
State
Taxes paid or currently payable 80 246 55
Change in deferred taxes 38 (122) 77
-------------------------------------------------------------------------------
118 124 132
-------------------------------------------------------------------------------
Income tax provision $738 $ 871 $1,015
===============================================================================
The following is a reconciliation of the tax derived by applying the U.S.
federal statutory rate of 35% to the earnings before income taxes and
comparing that to the recorded income tax provision:
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------
U.S. federal statutory tax $1,247 $1,050 $1,163
Foreign Sales Corporation/
Extraterritorial Income tax benefit (222) (291) (230)
Research benefit (383) (24)
Nondeductibility of goodwill 36 37 31
State income tax provision,
net of effect on U.S. federal tax 76 80 86
Other provision adjustments (16) (5) (11)
-------------------------------------------------------------------------------
Income tax provision $ 738 $ 871 $1,015
===============================================================================
The 2001 effective income tax rate of 20.7% includes a one-time benefit of $343
reflecting a settlement with the Internal Revenue Service relating to research
credit claims on McDonnell Douglas Corporation fixed-price government contracts
applicable to the 1986-1992 federal income tax returns.
85
86
At December 31, the deferred tax assets, net of deferred tax liabilities,
resulted from temporary differences associated with the following:
2001 2000
-------------------------------------------------------------------------------
Inventory and long-term contract
methods of income recognition $ 1,561 $ 1,349
In-process research and development
related to acquisitions 182 208
Pension benefit accruals (1,798) (1,491)
Retiree health care accruals 1,970 1,977
Other employee benefits accruals 829 741
Customer and commercial financing (761) (597)
Other comprehensive income provision 284 10
-------------------------------------------------------------------------------
Net deferred tax assets $ 2,267 $ 2,197
===============================================================================
The temporary differences associated with inventory and long-term contract
methods of income recognition encompass related costing differences, including
timing and depreciation differences.
Valuation allowances were not required due to the nature of and circumstances
associated with the temporary tax differences.
Income taxes have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and IRS examinations have been completed through 1991. In
connection with these examinations, the Company disagrees with IRS proposed
adjustments, and the years 1979 through 1987 are in litigation.
In December 1996, The Boeing Company filed suit in the U.S. District Court for
the Western District of Washington for the refund of over $400 in federal income
taxes and related interest. The suit challenged the IRS method of allocating
research and development costs for the purpose of determining tax incentive
benefits on export sales through the Company's Domestic International Sales
Corporation (DISC) and its Foreign Sales Corporation (FSC) for the years 1979
through 1987. In September 1998, the District Court granted the Company's motion
for summary judgment. The U.S. Department of Justice appealed this decision. On
August 2, 2001, The United States Court of Appeals for the Ninth Circuit
reversed the District Court's summary judgment. The Company filed a petition
for rehearing with the Ninth Circuit Court of Appeals and was denied such
rehearing. The Company filed a petition for writ of certiorari with the United
States Supreme Court and is awaiting the Court's decision on whether to grant
hearing of this case before the Court. The Company has fully provided for
any potential earnings impact that may result from this decision. If the
Company were to prevail, the refund would include interest computed to the
payment date.
Income tax payments, net of tax refunds, were $1,521, $405 and $575 in 2001,
2000 and 1999, respectively.
The Company believes adequate provision for all outstanding issues has been
made for all open years.
86
87
Note 17
Accounts Payable and Other Liabilities
--------------------------------------
Accounts payable and other liabilities at December 31 consisted of the
following:
2001 2000
-------------------------------------------------------------------------------
Accounts payable $ 4,793 $ 5,040
Accrued compensation and employee benefit costs 3,890 2,938
Lease and other deposits 354 731
Dividends payable 143 149
Other 4,692 3,454
-------------------------------------------------------------------------------
$13,872 $12,312
===============================================================================
Accounts payable includes $351 and $441 as of December 31, 2001 and 2000,
attributable to checks written but not yet cleared by the bank. Other
liabilities as of December 31, 2001, include $542 attributable to the special
charges due to the events of September 11, 2001, described in Note 4.
Note 18
Deferred Lease Income
---------------------
The Company entered into an agreement with the United Kingdom Royal Air Force
(UKRAF) to lease four C-17 transport aircraft, delivered during the second and
third quarters of 2001. The lease term is seven years, at the end of which the
UKRAF has the right to purchase the aircraft for a stipulated value, continue
the lease for two additional years, or return the aircraft. Concurrent with the
negotiation of this lease, the Company and the UKRAF arranged to assign the
contractual lease payments to an independent financial institution. The Company
received proceeds from the financial institution in consideration of the
assignment of the future lease receivables from the UKRAF. The assignment of
lease receivables is non-recourse to the Company. The proceeds represent the
present value of the assigned total lease receivables discounted at a rate of
6.6%. The C-17 deliveries are accounted for as operating leases.
87
88
Note 19
Debt
----
Debt at December 31 consisted of the following:
2001 2000
-------------------------------------------------------------------------------
Non-recourse debt and notes
Enhanced equipment trust $ 593 $ -
6.1% notes due through 2003 14 74
Unsecured debentures and notes
$174, 8 3/8% due Feb. 15, 2001 174
$49, 7.565% due Mar. 30, 2002 46 49
$120, 9.25% due Apr. 1, 2002 120 120
$300, 6 3/4% due Sep. 15, 2002 300 299
$300, 6.35% due Jun. 15, 2003 300 300
$200, 7 7/8% due Feb. 15, 2005 204 206
$300, 6 5/8% due Jun. 1, 2005 295 294
$250, 6.875% due Nov. 1, 2006 249 248
$175, 8 1/10% due Nov. 15, 2006 175 175
$350, 9.75% due Apr. 1, 2012 348 348
$400, 8 3/4% due Aug. 15, 2021 398 398
$300, 7.95% due Aug. 15, 2024 300 300
$250, 7 1/4% due Jun. 15, 2025 247 247
$250, 8 3/4% due Sep. 15, 2031 248 248
$175, 8 5/8% due Nov. 15, 2031 173 173
$300, 6 5/8% due Feb. 15, 2038 300 300
$100, 7.50% due Aug. 15, 2042 100 100
$175, 7 7/8% due Apr. 15, 2043 173 173
$125, 6 7/8% due Oct. 15, 2043 125 125
Senior debt securities
2.0% - 7.4% due through 2012 4,782 1,547
Senior medium-term notes
1.9% - 7.6% due through 2017 2,109 1,775
Subordinated notes
4.7% - 8.3% due through 2004 24 25
Capital lease obligations
due through 2021 460 315
Commercial paper 43 651
Other notes 139 135
-------------------------------------------------------------------------------
$12,265 $8,799
===============================================================================
The $300 debentures due August 15, 2024, are redeemable at the holder's option
on August 15, 2012. All other debentures and notes are not redeemable prior to
maturity. Maturities of long-term debt for the next five years are as follows:
2002 2003 2004 2005 2006
-------------------------------------------------------------------------------
Boeing Captial
Corporation (BCC) $ 798 $ 940 $373 $ 704 $1,137
Other than BCC 523 383 70 535 480
-------------------------------------------------------------------------------
$1,321 $1,323 $443 $1,239 $1,617
===============================================================================
88
89
Total consolidated debt attributable to BCC amounted to $7,295 and $4,318 as of
December 31, 2001 and 2000.
The Company has $4,500 currently available under credit line agreements with a
group of commercial banks. Boeing Capital Corporation, a corporation
wholly owned by the Company, is named a subsidiary borrower for up to $2,000
under these arrangements. The Company has complied with the restrictive
covenants contained in various debt agreements.
On February 16, 2001, BCC filed a public shelf registration of $5,000 with the
Securities and Exchange Commission (SEC). From this $5,000 shelf, BCC received
proceeds on March 8, 2001, from the issuance of $750 in 6.10% senior notes due
2011. On May 10, 2001, BCC received proceeds from the issuance of $1,000 in
5.65% senior notes due 2006. On November 9, 2001, BCC received proceeds from
the issuance of $1,500 in two parts: $750, 5.75% due 2007, and $750, 6.5% due
2012. Effective October 31, 2001, $1,000 was allocated to the Series XI
medium-term note program. As of December 31, 2001, there had been no issuances
from this medium-term note program, and additionally, $750 of the $5,000 shelf
registration had not been allocated to any program.
At December 31, 2001 and 2000, borrowings under commercial paper and
uncommitted short-term bank facilities totaling $43 and $651 were supported
by available unused commitments under the revolving credit agreement.
On May 24, 2001, American Airlines issued Enhanced Equipment Trust
Certificates (EETC), and the Company through BCC received proceeds
attributable to monetization of lease receivables associated with 32 MD-83
aircraft owned by BCC and on lease to American Airlines. These borrowings
are non-recourse to the Company and are collateralized by the aircraft. The
effective interest rates range from 6.82% to 7.69%.
BCC has available approximately $60 in uncommitted, short-term bank credit
facilities whereby BCC may borrow, at interest rates which are negotiated at
the time of the borrowings, upon such terms as BCC and the banks may
mutually agree. At December 31, 2001 and 2000, there were no outstanding
borrowings under these credit facilities.
Total debt interest, including amounts capitalized, was $730, $527 and $512
for the years ended December 31, 2001, 2000 and 1999, and interest payments
were $587, $599 and $517, respectively.
Short-term debt and current portion of long-term debt as of December 31, 2001,
consisted of the following: $495 of unsecured debentures and notes, $758 of
senior debt securities, senior medium-term notes and subordinated notes, $57
of capital lease obligations, and $89 of other notes.
Note 20
Postretirement Plans
--------------------
The following table reconciles the funded status of both pensions and other
postretirement benefits (OPB), principally retiree health care, to the balance
on the Consolidated Statements of Financial Position. Plan assets consist
primarily of equities, fixed income obligations and cash equivalents. The
pension benefit obligations and plan assets shown in the table are valued
as of September 30.
89
90
Other
Pensions Postretirement Benefits
-------------- -----------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------
Benefit obligation
Beginning balance $ 29,102 $27,621 $6,268 $ 5,569
Service cost 591 636 132 138
Interest cost 2,187 2,079 478 418
Plan participants'
contributions 12 1
Amendments 188 196 73 (178)
Actuarial loss (gain) 2,562 (666) 258 539
Acquisitions/dispositions, net 1,160 (34) 129
Benefits paid (1,949) (1,925) (375) (347)
-------------------------------------------------------------------------------
Ending balance $ 32,693 $29,102 $6,800 $6,268
===============================================================================
Plan assets - fair value
Beginning balance $ 42,856 $37,026 $30 $22
Acquisitions/dispositions, net 6 1,684
Actual return on plan assets (7,150) 6,022 2
Company contribution 19 30 14 10
Plan participants'
contributions 12 1
Benefits paid (1,918) (1,898) (5) (4)
Exchange rate adjustment (15) (9)
-------------------------------------------------------------------------------
Ending balance $ 33,810 $42,856 $39 $30
===============================================================================
Reconciliation of funded status
to net amounts recognized
Funded status - plan assets
in excess of (less than)
projected benefit obligation $ 1,117 $13,754 $(6,761) $(6,238)
Unrecognized net
actuarial loss (gain) 2,897 (10,652) 1,652 1,484
Unrecognized prior service costs 1,465 1,427 (360) (502)
Unrecognized net transition assets (5) (30)
Adjustment for fourth
quarter contributions 7 8 102 93
-------------------------------------------------------------------------------
Net amount recognized $ 5,481 $4,507 $(5,367) $(5,163)
===============================================================================
Amount recognized in statements
of financial position
Prepaid benefit cost $ 5,838 $ 4,845
Intangible asset 388 69
Accumulated other
comprehensive income 555 8
Accrued benefit liability (1,300) (415) $(5,367) $(5,163)
-------------------------------------------------------------------------------
Net amount recognized $ 5,481 $ 4,507 $(5,367) $(5,163)
===============================================================================
90
91
Components of net periodic benefit costs and other supplemental information
were as follows:
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------
Components of net periodic
benefit cost - Pensions
Service cost $ 591 $ 636 $ 651
Interest cost 2,187 2,079 1,879
Expected return on plan assets (3,452) (3,117) (2,689)
Amortization of transition asset (26) (103) (106)
Amortization of prior service cost 150 149 139
Recognized net actuarial loss (gain) (370) (72) 1
-------------------------------------------------------------------------------
Net periodic benefit income $ (920) $ (428) $ (125)
===============================================================================
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------
Components of net periodic
benefit cost - OPB
Service cost $ 132 $ 138 $ 111
Interest cost 478 419 302
Expected return on plan assets (3) (2) (2)
Amortization of prior service cost (69) (66) (47)
Recognized net actuarial loss 60 44 10
-------------------------------------------------------------------------------
Net periodic benefit cost $ 598 $ 533 $ 374
===============================================================================
Weighted average assumptions
as of December 31, 2001 2000 1999
-------------------------------------------------------------------------------
Discount rate:
pensions and OPB 7.00% 7.75% 7.50%
Expected return on plan assets 9.25% 9.25% 9.00%
Rate of compensation increase 5.50% 5.50% 5.50%
Effect of 1% change in
assumed health care costs 2001 2000 1999
-------------------------------------------------------------------------------
Effect on total of service
and interest cost
1% increase $ 70 $ 64 $ 51
1% decrease (60) (57) (44)
Effect on postretirement
benefit obligation
1% increase 626 603 530
1% decrease (542) (517) (474)
The Company has various noncontributory plans covering substantially all
employees. All major pension plans are funded and all but two have plan assets
that exceed accumulated benefit obligations. Two pension plans attributable to
certain hourly employees have accumulated benefit obligations that exceed plan
assets. The loss of $555 in accumulated other comprehensive income as of
December 31, 2001, relates principally to the unrecognized net actuarial
losses of these plans.
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Certain of the pension plans provide that, in the event there is a change in
control of the Company which is not approved by the Board of Directors and the
plans are terminated within five years thereafter, the assets in the plan first
will be used to provide the level of retirement benefits required by the
Employee Retirement Income Security Act, and then any surplus will be used to
fund a trust to continue present and future payments under the postretirement
medical and life insurance benefits in the Company's group insurance benefit
programs.
The Company has an agreement with the Government with respect to certain of
the Company pension plans. Under the agreement, should the Company terminate
any of the plans under conditions in which the plan's assets exceed that
plan's obligations, the Government will be entitled to a fair allocation of
any of the plan's assets based on plan contributions that were reimbursed
under Government contracts. Also, the Revenue Reconciliation Act of 1990
imposes a 20% nondeductible excise tax on the gross assets reverted if the
Company establishes a qualified replacement plan or amends the terminating
plan to provide for benefit increases; otherwise, a 50% tax is applied. Any
net amount retained by the Company is treated as taxable income.
Effective October 6, 2000, the Company acquired a substantial portion of
Hughes' pension assets and liabilities. The acquired pension plans' assets
exceeded liabilities by $626. This acquisition comprised a substantial
portion of the year 2000 'Acquisition/disposition, net' activity.
The Company has certain unfunded and partially funded plans with a
projected benefit obligation of $3,301 and $488, plan assets of $2,481 and
$17, and unrecognized prior service costs and actuarial losses of $1,054
and $125 as of December 31, 2001 and 2000. The net provision for these plans
was $34, $56 and $63 for the years ended December 31, 2001, 2000 and 1999,
respectively.
The principal defined contribution plans are the Company-sponsored 401(k)
plans and a funded plan for unused sick leave. The provision for these
defined contribution plans in 2001, 2000 and 1999, was $452, $406 and $409,
respectively.
The Company's postretirement benefits other than pensions consist
principally of health care coverage for eligible retirees and qualifying
dependents, and to a lesser extent, life insurance to certain groups of
retirees. Retiree health care is provided principally until age 65 for
approximately half those retirees who are eligible for health care coverage.
Certain employee groups, including employees covered by most United Auto
Workers bargaining agreements, are provided lifetime health care coverage.
Benefit costs were calculated based on assumed cost growth for retiree
health care costs of a 9% annual rate for 2002, decreasing to a 5% annual
growth rate by 2010. In 2001, benefit costs for retiree health care were
calculated based on an annual growth rate of 9.5%, decreasing to a 5.5%
annual growth rate by 2010.
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Note 21
Shareholders' Equity
--------------------
In August 1998, the Board of Directors approved a resolution authorizing
management to repurchase up to 15% of the Company's issued and outstanding
stock as of June 30, 1998 (excluding shares held by the ShareValue Trust),
which amounted to 145,899,000 shares. This repurchase program was completed
in 2000. In December 2000 an additional repurchase program was authorized
by the Board of Directors. Under this resolution, management is authorized
to repurchase up to 85,000,000 shares. As of December 31, 2001, the Company
had repurchased 40,734,500 shares.
Twenty million shares of authorized preferred stock remain unissued.
Note 22
Share-Based Plans
-----------------
The 'Share-based plans expense' caption on the Consolidated Statements of
Operations represents the total expense recognized for all company plans
that are payable only in stock. These plans are described below.
The following summarizes share-based expense as of December 31, 2001, 2000
and 1999, respectively, with an offset to additional paid-in capital:
2001 2000 1999
--------------------------------------------------------------------------
Performance Shares $227 $147 $ 77
ShareValue Trust 72 72 72
Stock options, other 79 97 60
--------------------------------------------------------------------------
$378 $316 $209
==========================================================================
Performance Shares
Performance Shares are stock units that are convertible to common stock
contingent upon stock price performance. If, at any time up to five years after
award, the stock price reaches and maintains a price equal to 161.0% of the
stock issue price at the date of the award (representing a growth rate of 10%
compounded annually for five years), 25% of the Performance Shares awarded are
convertible to common stock. Likewise, at stock prices equal to 168.5%, 176.2%,
184.2%, 192.5% and 201.1% of the stock price at the date of award, the
cumulative portion of awarded Performance Shares convertible to common stock
are 40%, 55%, 75%, 100% and 125%, respectively. Performance Shares awards not
converted to common stock expire five years after the date of the award;
however, the Compensation Committee of the Board of Directors may, at its
discretion, allow vesting of up to 100% of the target Performance Shares if
the Company's total shareholder return (stock price appreciation plus
dividends) during the five-year performance period exceeds the average total
shareholder return of the S&P 500 over the same period.
No Performance Share awards were converted to common stock or deferred stock
units in 2001. During 2000, 75% of the Performance Share awards expiring
February 22, 2004, were converted to common stock or deferred stock units
(cumulative 3,402,874 Performance Shares), and 55% of the Performance Share
awards expiring February 28, 2005, were converted to common stock or deferred
stock units (cumulative 3,495,725 Performance Shares).
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The following table summarizes information about Performance Shares
outstanding at December 31, 2001, 2000 and 1999, respectively. Shares
outstanding are not reduced for cumulative Performance Shares converted to
common stock or deferred stock units.
Performance
(shares in thousands) Shares Outstanding
Grant Expiration ------------------------
Date Date Issue Price 2001 2000 1999
------------------------------------------------------------------
2/23/98 2/23/03 $50 11/16 3,528 3,490 3,459
12/14/98 2/23/03 33 9/16 46
2/22/99 2/22/04 36 1/4 4,535 4,524 4,569
2/28/00 2/28/05 37 5,030 5,032
10/09/00 2/28/05 37 1,294 1,299
2/26/01 2/26/06 62 3/4 5,797
==================================================================
Other stock unit awards. The total number of stock unit awards that are
convertible only to common stock and not contingent upon stock price were
1,597,343, 1,880,544 and 1,629,945 as of December 31, 2001, 2000
and 1999, respectively.
ShareValue Trust
The ShareValue Trust, established effective July 1, 1996, is a 14-year
irrevocable trust that holds Boeing common stock, receives dividends,
and distributes to employees appreciation in value above a 3% per annum
threshold rate of return. As of December 31, 2001, the Trust held
39,691,015 shares of the Company's common stock, split equally between
two funds, "fund 1" and "fund 2." If on June 30, 2002, the market value of
fund 1 exceeds $949 (the threshold representing a 3% per annum rate of
return), the amount in excess of the threshold will be distributed to
employees. The June 30, 2002, market value of fund 1 after distribution
(if any) will be the basis for determining any potential distribution on
June 30, 2006. Similarly, if on June 30, 2004, the market value of fund 2
exceeds $913, the amount in excess of the threshold will be distributed to
employees. Shares held by the Trust on June 30, 2010, after final
distribution will revert back to the Company.
The ShareValue Trust is accounted for as a contra-equity account and
stated at market value. Market value adjustments are offset to additional
paid-in capital.
Stock Options
The Company's 1997 Incentive Stock Plan permits the grant of stock options,
stock appreciation rights (SARs) and restricted stock awards (denominated
in stock or stock units) to any employee of the Company or its subsidiaries
and contract employees. Under the terms of the plan, 64,000,000 shares are
authorized for issuance upon exercise of options, as payment of SARs and as
restricted stock awards, of which no more than an aggregate of 6,000,000
shares are available for issuance as restricted stock awards and no more
than an aggregate of 3,000,000 shares are available for issuance as
restricted stock that is subject to restrictions based on continuous
employment for less than three years. This authorization for issuance under
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the 1997 plan will terminate on April 30, 2007. As of December 31, 2001, no
SARs have been granted under the 1997 Plan. The 1993 Incentive Stock Plan
permitted the grant of options, SARs and stock to employees of the Company
or its subsidiaries. The 1988 and 1984 stock option plans permitted the
grant of options or SARs to officers or other key employees of the Company
or its subsidiaries. No further grants may be awarded under these three plans.
Options and SARs have been granted with an exercise price equal to the fair
market value of the Company's stock on the date of grant and expire ten years
after the grant date. Vesting is generally over a five-year period with
portions of a grant becoming exercisable at one year, three years and five
years after the grant date. SARs, which have been granted only under the 1988
and 1984 plans, were granted in tandem with stock options; therefore, exercise
of the SAR cancels the related option and exercise of the option cancels the
attached SAR.
In 1994, McDonnell Douglas shareholders approved the 1994 Performance Equity
Incentive Plan. Restricted stock issued under this plan prior to 1997 vested
upon the merger between McDonnell Douglas and The Boeing Company. As of
December 31, 2001, a total of 594,000 shares had been granted and of those
67,938 remain restricted. Substantially all compensation relating to these
restricted shares will be amortized by the end of 2002. Unearned compensation
is reflected as a component of shareholders' equity.
Information concerning stock options issued to directors, officers and other
employees is presented in the following table:
2001 2000 1999
-------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------
Number of shares
under option:
Outstanding at
beginning of year 27,904 $40.58 29,228 $38.02 28,653 $36.03
Granted 2,812 56.94 3,693 45.63 3,462 43.40
Exercised (2,316) 30.58 (4,673) 28.30 (2,345) 22.03
Canceled or expired (214) 48.13 (328) 46.20 (515) 39.33
Exercised as SARs (16) 21.56 (27) 19.70
------ ------ ------
Outstanding at
end of year 28,186 42.97 27,904 40.58 29,228 38.02
===============================================================================
Exercisable at
end of year 19,416 $39.45 18,710 $37.32 19,749 $34.58
===============================================================================
As of December 31, 2001, 26,998,958 shares were available for grant under the
1997 Incentive Stock Plan, and 863,100 shares were available for grant under
the Incentive Compensation Plan.
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The following table summarizes information about stock options outstanding at
December 31, 2001 (shares in thousands):
Options Outstanding Options Exercisable
----------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life(years) Price Shares Price
-------------------------------------------------------------------------------
$10 to $19 2,375 1.9 $15.80 2,375 $15.80
$20 to $29 3,140 2.6 $23.34 3,137 $23.34
$30 to $39 3,627 7.1 $39.17 2,162 $38.96
$40 to $49 6,875 5.8 $42.41 4,898 $41.83
$50 to $59 11,914 6.8 $54.60 6,814 $53.43
$60 to $69 255 9.3 $63.79 30 $66.41
-------------------------------------------------------------------------------
28,186 19,416
===============================================================================
The Company has determined the weighted average fair values of stock-based
arrangements granted, including ShareValue Trust, during 2001, 2000 and 1999 to
be $21.35, $18.18 and $17.67, respectively. The fair values of stock-based
compensation awards granted and of potential distributions under the ShareValue
Trust arrangement were estimated using a binomial option-pricing model with the
following assumptions:
Expected Risk-Free
Grant ------------------------------------------- Interest
Date Option Term Volatility Dividend Yield Rate
-------------------------------------------------------------------------------
2001 7/20/01 9 years 23% 1.1% 5.1%
-------------------------------------------------------------------------------
2000 6/21/00 9 years 22% 1.1% 6.1%
10/09/00 9 years 23% 1.1% 5.8%
10/10/00 9 years 23% 1.1% 5.8%
-------------------------------------------------------------------------------
1999 6/28/99 9 years 22% 1.1% 6.3%
===============================================================================
Note 23
Derivative Financial Instruments
--------------------------------
Derivative and Hedging Activities
As adopted January 1, 2001, the Company accounts for derivatives pursuant to
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
as amended. This standard requires that all derivative instruments be
recognized in the financial statements and measured at fair value regardless
of the purpose or intent for holding them.
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The Company is exposed to a variety of market risks, including the effects of
changes in interest rates, foreign currency exchange rates, and commodity
prices. These exposures are managed, in part, with the use of derivatives. The
following is a summary of the Company's risk management strategies and the
effect of these strategies on the consolidated financial statements.
Fair Value Hedges
For derivatives designated as hedges of the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to as
fair value hedges), the gain or loss is recognized in earnings in the period
of change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. The effect of that accounting is to
reflect in earnings the extent to which the hedge is not effective in
achieving offsetting changes in fair value. Ineffectiveness was insignificant
for the year ended December 31, 2001.
Interest rate swap contracts under which the Company agrees to pay variable
rates of interest are generally designated as fair value hedges of fixed-rate
debt obligations. The Company uses interest rate swaps to adjust the
amount of total debt that is subject to variable and fixed interest rates.
In addition, the Company holds forward-starting interest rate swap agreements
to fix the cost of funding a firmly committed lease for which payment terms
are determined in advance of funding. This hedge relationship mitigates the
changes in fair value of the hedged portion of the firm commitment caused by
changes in interest rates. The net change in fair value of the swap and the
hedged portion of the firm commitment is reported in earnings.
For the year ended December 31, 2001, $1 of gain related to the basis
adjustment of certain terminated interest rate swaps was recorded in other
income.
Cash Flow Hedges
For derivatives designated as hedges of the exposure to variable cash flows
of a forecasted transaction (referred to as cash flow hedges), the effective
portion of the derivative's gain or loss is initially reported in
shareholders' equity (as a component of accumulated other comprehensive
income) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. The ineffective portion of the gain or loss
is reported in earnings immediately. Cash flow hedges used by the Company
include certain interest rate swaps, foreign currency forward contracts, and
commodity purchase contracts.
Interest rate swap contracts under which the Company agrees to pay fixed
rates of interest are generally designated as cash flow hedges of
variable-rate debt obligations. The Company uses interest rate swaps to
adjust the amount of total debt that is subject to variable and fixed
interest rates.
The Company uses foreign currency forward contracts to manage currency
risk associated with certain forecasted transactions, specifically sales
and purchase commitments made in foreign currencies. The Company's foreign
currency forward contracts hedge forecasted transactions principally
occurring up to five years in the future.
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Commodity derivatives, such as fixed-price purchase commitments, are used
by the Company to hedge against potentially unfavorable price changes for
items used in production. In 2001, the Company entered into certain
commitments to purchase electricity and natural gas at fixed prices over
the next three years, a portion of which qualify for cash flow hedge
treatment. Portions that do not qualify for cash flow hedge treatment
resulted in a loss of $1 recorded as a reduction of other income for the
year ended December 31, 2001.
At December 31, 2001, a net unrecognized loss of $172 ($108 net of tax)
was recorded in accumulated other comprehensive income associated with the
Company's cash flow hedging transactions for the year then ended. Of this
amount, a net unrecognized loss of $27 ($17 net of tax) was due to the
Company's transition adjustment upon implementation of SFAS No. 133, at
January 1, 2001.
For the year ended December 31, 2001, a loss of $14, net of tax, reflected
in accumulated other comprehensive income was reclassified to other income.
During the next twelve months, the Company expects to reclassify to other
income a loss of $20, net of tax, from the amount recorded in accumulated
other comprehensive income.
Derivative Financial Instruments Not Receiving Hedge Treatment
The Company holds interest exchange agreements and related interest rate
swaps. The intent of these interest rate swaps is to economically hedge
the exposures created by the interest exchange agreements. However,
because the exposures being hedged are derivative instruments, this
relationship does not qualify for hedge accounting under SFAS No. 133.
As a result, changes in fair value of both instruments are immediately
recognized in income. For the year ended December 31, 2001, the interest
exchange agreements resulted in other income of $8 and the related
interest rate swaps resulted in a reduction of other income of $9.
The Company also holds a forward-starting interest rate swap that is
not accounted for as a hedge.
As of December 31, 2001, the conversion feature of certain convertible
debt and warrants were reflected in other assets at their fair values of
$12. For the year ended December 31, 2001, the conversion feature of the
convertible debt and warrants recorded in other assets had an increase in
fair value, resulting in $2 recorded in other income.
At December 31, 2001, the Company had foreign currency forward contracts
carried at fair value that did not qualify for hedge accounting. The
Company realized a pretax gain of $9 attributable to these forward
contracts during the year ended December 31, 2001, reflected in other
income.
Upon adoption of SFAS No. 133, the Company recorded an unrecognized net
gain of $9 ($6 net of tax) in accumulated other comprehensive income
attributable to derivatives not receiving hedge treatment. The components
of this transition adjustment are being amortized to other income, with a
net loss of $1 expected to be reclassified to other income during the next
twelve months. At December 31, 2001, the unamortized balance in accumulated
other comprehensive income was a net gain of $9 ($6 net of tax).
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Interest rate swap contracts and foreign currency forward contracts are
entered into with a number of major financial institutions in order to
minimize counterparty credit risk. The Company generally does not require
collateral or other security supporting derivative contracts with its
counterparties. The Company believes that it is unlikely that any of its
counterparties will be unable to perform under the terms of derivative
financial instruments.
Note 24
Arrangements with Off-Balance-Sheet Risk
----------------------------------------
Financial Instruments
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business, principally relating to customer
financing activities. Financial instruments with off-balance-sheet
risk include financing commitments, credit guarantees, and participation
in customer financing receivables with third-party investors that involve
interest rate terms different from the underlying receivables.
Irrevocable financing commitments related to aircraft on order,
including options, scheduled for delivery through 2010 totaled $7,508 and
$6,230 as of December 31, 2001 and 2000. The Company anticipates that not
all of these commitments will be utilized and that it will be able to
arrange for third-party investors to assume a portion of the remaining
commitments, if necessary. The Company has additional commitments to
arrange for commercial equipment financing totaling $344 and $288 as of
December 31, 2001 and 2000.
Participations in customer financing receivables with third-party
investors that involve interest rate terms different from the underlying
receivables totaled $51 and $54 as of December 31, 2001 and 2000.
The Company's maximum exposure to credit-related losses associated with
credit guarantees, without regard to collateral but net of established
reserves, totaled $558 ($174 associated with commercial aircraft and
collateralized and $357 associated with the Sea Launch joint venture) and
$655 ($261 associated with commercial aircraft and collateralized and
$373 associated with the Sea Launch joint venture) as of December 31, 2001
and 2000. Of the $174 exposure associated with commercial aircraft as of
December 31, 2001, the Company estimates that the fair value of the
underlying collateral, principally commercial aircraft, would cover
approximately $63 of the exposure. A substantial portion of the
commercial aircraft credit-related guarantees have been extended on behalf
of counterparties with less than investment-grade credit. The
credit-related exposure related to Sea Launch is not significantly covered
by a collateral position in any assets.
The Company's maximum exposure to losses associated with asset value
guarantees, without regard to collateral but net of established reserves,
totaled $725 and $522 as of December 31, 2001 and 2000. These exposures
relate principally to commercial aircraft and are collateralized. As of
December 31, 2001, the Company estimates that the fair value of the
underlying collateral, principally commercial aircraft, would cover
approximately $680 of the exposure.
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As of December 31, 2001 and 2000, accounts payable and other liabilities
included $416 ($48 related to the events of September 11, 2001) and $343
attributable to risks associated with credit-related guarantees and
asset value guarantees.
Other Arrangements
As of December 31, 2001, future lease commitments on aircraft not recorded
on the Consolidated Statements of Financial Position totaled $323. These
lease commitments extend through 2015, and the Company's intent is to
recover these lease commitments through sublease arrangements.
As of December 31, 2001 and 2000, accounts payable and other liabilities
included $116 ($1 related to the events of September 11, 2001) and $114
attributable to adverse commitments under these lease arrangements.
As of December 31, 2001, the Company has commitments to purchase used
aircraft under trade-in agreements totaling $1,340. As of
December 31, 2001, accounts payable and other liabilities included $189
($140 related to the events of September 11, 2001) attributable to adverse
purchase commitments.
The Company holds various Enhanced Equipment Trust Certificates (EETCs)
totaling $128 as of December 31, 2001, relating to aircraft lease
receivables. The maximum exposure is generally limited to the amount of
the asset recorded on the Consolidated Statements of Financial Position.
Under one EETC arrangement, however, the Company has a maximum potential
exposure of $103 in excess of its asset value due to certain liquidity
obligations of the Company to other parties in the event of default by
the lessee. In the event of payment under this liquidity obligation,
the Company would receive a preferred collateral position in the
underlying asset.
Note 25
Significant Group Concentrations of Credit Risk
-----------------------------------------------
Financial instruments involving potential credit risk are predominantly
with commercial aircraft customers and the U.S. Government. As of
December 31, 2001, off-balance-sheet financial instruments described in
Note 24 predominantly related to commercial aircraft customers. Of the
$15,554 in accounts receivable and customer financing included in the
Consolidated Statements of Financial Position, $7,235 related to
commercial aircraft customers ($366 of accounts receivable and $6,869
of customer financing) and $2,597 related to the U.S. Government.
AMR Corporation and UAL Corporation were associated with 23% and 13% of
all financial instruments related to customer financing. Financing for
aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing
such collateral.
Of the $6,869 of aircraft customer financing, $6,440 related to customers
the Company believes have less than investment-grade credit. Similarly,
of the $7,508 of irrevocable financing commitments related to aircraft on
order including options, $7,113 related to customers the Company believes
have less than investment-grade credit
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Note 26
Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
As of December 31, 2001 and 2000, the carrying amount of accounts
receivable was $5,156 and $5,519, and the fair value of accounts
receivable was estimated to be $5,054 and $5,355. The lower fair value
reflects a discount due to deferred collection for certain receivables
that will be collected over an extended period. The carrying value of
accounts payable is estimated to approximate fair value.
The carrying amount of notes receivable, net of valuation allowance, is
estimated to approximate fair value. Although there are generally no
quoted market prices available for customer financing notes receivable,
the valuation assessments were based on the respective interest rates,
risk-related rate spreads and collateral considerations.
As of December 31, 2001 and 2000, the carrying amount of debt, net of
capital leases and non-recourse debt, was $11,198 and $8,410 and the fair
value of debt, based on current market rates for debt of the same risk and
maturities, was estimated at $11,669 and $8,866. The Company's debt,
however, is generally not callable until maturity.
With regard to financial instruments with off-balance-sheet risk, it is
not practicable to estimate the fair value of future financing commitments
because there is not a market for such future commitments, and all other
off-balance-sheet financial instruments are estimated to have only a
nominal fair value. The terms and conditions reflected in the outstanding
guarantees and commitments for financing assistance are not materially
different from those that would have been negotiated as of
December 31, 2001.
Note 27
Contingencies
-------------
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most
significant legal proceedings are related to matters covered by insurance.
Major contingencies are discussed below.
The Company is subject to federal and state requirements for protection of
the environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being
involved with related legal proceedings, claims and remediation obligations
since the 1980s.
The Company routinely assesses, based on in-depth studies, expert analyses
and legal reviews, its contingencies, obligations and commitments for
remediation of contaminated sites, including assessments of ranges and
probabilities of recoveries from other responsible parties who have and
have not agreed to a settlement and of recoveries from insurance carriers.
The Company's policy is to immediately accrue and charge to current
expense identified exposures related to environmental remediation sites
based on estimates of investigation, cleanup and monitoring costs to be
incurred.
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The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact
to the Company's financial position. With respect to results of
operations, related charges have averaged less than 2% of annual net
earnings. Such accruals as of December 31, 2001, without consideration
for the related contingent recoveries from insurance carriers, are less
than 2% of total liabilities.
Because of the regulatory complexities and risk of unidentified
contaminated sites and circumstances, the potential exists for
environmental remediation costs to be materially different from the
estimated costs accrued for identified contaminated sites. However, based
on all known facts and expert analyses, the Company believes it is not
reasonably likely that identified environmental contingencies will result
in additional costs that would have a material adverse impact to the
Company's financial position or operating results and cash flow trends.
The Company is subject to U.S. Government investigations from which civil,
criminal or administrative proceedings could result. Such proceedings
could involve claims by the Government for fines, penalties, compensatory
and treble damages, restitution and/or forfeitures. Under government
regulations, a company, or one or more of its operating divisions or
subdivisions, can also be suspended or debarred from government contracts,
or lose its export privileges, based on the results of investigations.
The Company believes, based upon all available information, that the
outcome of any such government disputes and investigations will not have a
material adverse effect on its financial position or continuing operations.
In 1991, the U.S. Navy notified McDonnell Douglas (now a subsidiary of the
Company) and General Dynamics Corporation (the "Team") that it was
terminating for default the Team's contract for development and initial
production of the A-12 aircraft. The Team filed a legal action to contest
the Navy's default termination, to assert its rights to convert the
termination to one for "the convenience of the Government," and to obtain
payment for work done and costs incurred on the A-12 contract but not paid
to date. As of December 31, 2001, inventories included approximately $583
of recorded costs on the A-12 contract, against which the Company has
established a loss provision of $350. The amount of the provision, which
was established in 1990, was based on McDonnell Douglas's belief, supported
by an opinion of outside counsel, that the termination for default would be
converted to a termination for convenience, and that the upper range of
possible loss on termination for convenience was $350.
On August 31, 2001, the U.S. Court of Federal Claims issued a decision
after trial upholding the Government's default termination of the A-12
contract on the ground that the Team could not meet the revised contract
schedule unilaterally imposed by the Government after the Government had
waived the original schedule. The court did not, however, enter a judgment
for the Government on its claim that the Team be required, as a consequence
of the alleged default, to repay progress payments that had not been
formally liquidated by deliveries at the time of termination. These
unliquidated progress payments total $1,350. On October 4, 2001, the court
confirmed that it would not be entering judgment in favor of the Government
in the amount of these unliquidated progress payments. This is the latest
decision relating to long-running litigation resulting from the A-12 contract
termination in 1991, and follows an earlier trial court decision in favor of
the contractors and reversal of that initial decision
on appeal.
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The Company believes, supported by an opinion of outside counsel, that the
trial court's rulings with respect to the enforceability of the unilateral
schedule and the termination for default are contrary to law and fact. The
Company believes the decision raises valid issues for appeal and is pursuing
its appeal.
If, contrary to the Company's belief, the decision of the trial court on
termination were sustained on appeal, the Company would incur an additional
loss of approximately $275, consisting principally of remaining inventory
costs and adjustments. And if, contrary to the Company's belief, the appeals
court further held that a money judgment should be entered against the Team
in the amount of the unliquidated progress payments, the Team would be
required to pay the Government $1,350 plus statutory interest from
February 1991 (currently totaling approximately $970). Under this outcome,
the Company would be obligated to pay one half of these amounts. The
additional loss to the Company would total approximately $1,430 in pretax
charges, consisting principally of the repayment obligations and the
remaining inventory costs and adjustments.
The Company believes that the loss provision established by McDonnell
Douglas in 1990 continues to provide adequately for the reasonably possible
reduction in value of A-12 net contracts in process as of December 31, 2001.
Final resolution of the A-12 litigation will depend upon the outcome of
further proceedings or possible negotiations with the Government.
On October 31, 1997, a federal securities lawsuit was filed against the
Company in the U.S. District Court for the Western District of Washington,
in Seattle. The lawsuit names as defendants the Company and three of its then
executive officers. Additional lawsuits of a similar nature have been filed
in the same court. These lawsuits were consolidated on February 24, 1998.
The lawsuits generally allege that the defendants desired to keep the
Company's share price as high as possible in order to ensure that the
McDonnell Douglas shareholders would approve the merger and, in the case
of the individual defendants, to benefit directly from the sale of Boeing
stock during the period from April 7, 1997 through October 22, 1997. By order
dated May 1, 2000, the Court certified two subclasses of plaintiffs in the
action: a. all persons or entities who purchased Boeing stock or call options
or who sold put options during the period from July 21, 1997 through
October 22, 1997, and b. all persons or entities who purchased McDonnell
Douglas stock on or after April 7, 1997, and who held such stock until it
converted to Boeing stock pursuant to the merger. The plaintiffs sought
compensatory damages and treble damages. On September 17, 2001, the Company
reached agreement with class counsel to settle the lawsuit for $92.5. The
settlement will have no effect on the Company's earnings, cash flow or
financial position, as it is within insurance limits. The settlement
is conditioned on notice to the class members and Court approval, which is
expected to occur in 2002.
On February 25, 2000, a purported class action lawsuit alleging gender
discrimination and harassment was filed against The Boeing Company, Boeing
North American, Inc., and McDonnell Douglas Corporation. The complaint,
filed with the United States District Court in Seattle, alleges that the
Company has engaged in a pattern and practice of unlawful discrimination,
harassment and retaliation against females over the course of many years.
The complaint, Beck v. Boeing, names 28 women who have worked for Boeing
in the Puget Sound area; Wichita, Kansas; St. Louis, Missouri; and Tulsa,
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Oklahoma. On March 15, 2000, an amended complaint was filed naming an
additional 10 plaintiffs, including the first from California. The lawsuit
attempts to represent all women who currently work for the Company, or who
have worked for the Company in the past several years.
The Company has denied the allegation that it has engaged in any unlawful
"pattern and practice." Plaintiffs' motion for class certification was filed
in May 2001. The class they sought included salaried employees in Puget
Sound, Wichita, St. Louis, and Long Beach, and hourly employees in Puget
Sound, Wichita, and St. Louis.
On October 19, 2001, the court granted class certification to a segment of
the population sought by the plaintiffs. The court ruled that the action
could proceed on the basis of two limited subclasses: a. all non-executive
salaried women (including engineers) in the Puget Sound area, and b. all
hourly women covered by the Machinists' Bargaining Agreement in the Puget
Sound area. The claims to be litigated are alleged gender discrimination in
compensation and promotion. The court also held that the plaintiffs could
not seek back pay. Rather, should liability be found, the potential remedies
include some form of injunctive relief as well as punitive damages. The
U.S. Ninth Circuit Court of Appeals has accepted the Company's interlocutory
appeal of the class certification decision, particularly the ruling that
leaves open the possibility of punitive damages. The Company intends to
continue its aggressive defense of these cases. It is not possible to predict
what impact, if any, these cases could have on the financial statements.
Note 28
Segment Information
-------------------
The Company is organized based on the products and services it offers.
Under this organizational structure, the Company operates in the following
principal areas: Commercial Airplanes, Military Aircraft and Missile Systems,
Space and Communications, and Customer and Commercial Financing. Commercial
Airplanes operations principally involve development, production and
marketing of commercial jet aircraft and providing related support
services, principally to the commercial airline industry worldwide. Military
Aircraft and Missile Systems operations principally involve research,
development, production, modification and support of the following products
and related systems: military aircraft, both land-based and aircraft-carrier-
based, including fighter, transport and attack aircraft with wide mission
capability, and vertical/short takeoff and landing capability; helicopters
and missiles. Space and Communications operations principally involve
research, development, production, modification and support of the following
products and related systems: space systems, missile defense systems,
satellites and satellite launching vehicles, rocket engines, and information
and battle management systems. Although some Military Aircraft and Missile
Systems and Space and Communications products are contracted in the commercial
environment, the primary customer is the U.S. Government. The Customer and
Commercial Financing segment is primarily engaged in the financing of
commercial and private aircraft, commercial equipment, and real estate.
In 2001, the Company adjusted the segment classification of certain business
activities. The Company established an "Other" segment classification which
principally includes the activities of Connexion by BoeingSM, a two-way
data communications service for global travelers; Air Traffic Management, a
business unit developing new approaches to a global solution to address air
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traffic management issues; and Phantom Works, an advanced research and
development organization focused on innovative technologies, improved
processes and the creation of new products. The results for 2000 and 1999
have been reclassified to conform to the revised segment classifications.
The Commercial Airplanes segment is subject to both operational and
external business environment risks. Operational risks that can seriously
disrupt the Company's ability to make timely delivery of its commercial
jet aircraft and meet its contractual commitments include execution of
internal performance plans, product performance risks associated with
regulatory certifications of the Company's commercial aircraft by the U.S.
Government and foreign governments, other regulatory uncertainties,
collective bargaining labor disputes, performance issues with key
suppliers and subcontractors and the cost and availability of energy
resources, such as electrical power. Aircraft programs, particularly new
aircraft models such as the 717 program, face the additional risk of
pricing pressures and cost management issues inherent in the design and
production of complex products. Financing support may be provided by the
Company to airlines, some of which are unable to obtain other financing.
While the Company's principal operations are in the United States, Canada,
and Australia, some key suppliers and subcontractors are located in Europe
and Japan. External business environment risks include adverse governmental
export and import policies, factors that result in significant and prolonged
disruption to air travel worldwide, and other factors that affect the
economic viability of the commercial airline industry. Examples of factors
relating to external business environment risks include the volatility of
aircraft fuel prices, global trade policies, worldwide political stability
and economic growth, acts of aggression that impact the perceived safety of
commercial flight, escalation trends inherent in pricing the Company's
aircraft, and a competitive industry structure which results in market
pressure to reduce product prices.
In addition to the foregoing risks associated with the Commercial Airplanes
segment, the Military Aircraft and Missile Systems segment and the Space and
Communications segment are subject to changing priorities or reductions in
the U.S. Government defense and space budget, and termination of government
contracts due to unilateral government action (termination for convenience)
or failure to perform (termination for default). Civil, criminal or
administrative proceedings involving fines, compensatory and treble damages,
restitution, forfeiture and suspension or debarment from government contracts
may result from violations of business and cost classification regulations on
U.S. Government contracts.
The launch services market has some degree of uncertainty since global demand
is driven in part by the launch customers' access to capital markets.
Additionally, some of the Company's competitors for launch services receive
direct or indirect government funding. The satellite market includes some
degree of risk and uncertainty relating to the attainment of technological
specifications and performance requirements.
Risk associated with the Customer and Commercial Financing segment includes
interest rate risks, asset valuation risks, specifically, aircraft valuation
risks, and credit and collectability risks of counterparties.
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As of December 31, 2001, the Company's principal collective bargaining
agreements were with the International Association of Machinists and
Aerospace Workers (IAM), representing 24% of employees (current agreements
expiring September and October 2002, and May 2004); the Society of
Professional Engineering Employees in Aerospace (SPEEA), representing 14% of
employees (current agreements expiring December 2002 and February 2004); the
United Automobile, Aerospace and Agricultural Implement Workers of America
(UAW), representing 4% of employees (current agreements expiring
September 2002, May 2003, and April 2004); and Southern California
Professional Engineering Association (SCPEA), representing 2% of employees
(current agreement expiring March 2005).
Sales and other operating revenue by geographic area consisted of the
following:
Year ended December 31, 2001 2000 1999
======================================================
Asia, other than China $ 7,112 $ 5,568 $10,776
China 1,504 1,026 1,231
Europe 8,434 9,038 9,678
Oceania 895 887 942
Africa 573 542 386
Western Hemisphere, other
than the United States 875 559 461
------------------------------------------------------
19,393 17,620 23,474
United States 38,805 33,701 34,519
------------------------------------------------------
Total sales $58,198 $51,321 $57,993
======================================================
Military Aircraft and Missile Systems segment and Space and
Communications segment combined sales were approximately 29%, 13% and 17%
of total sales in Europe for 2001, 2000 and 1999, respectively. Defense
sales were approximately 10%, 9% and 17% of total sales in Asia, excluding
China, for the same respective years. Exclusive of these amounts, Military
Aircraft and Missile Systems segment and Space and Communications segment
sales were principally to the U.S. Government. Sales to the U.S. Government
represented 33%, 34% and 25% of consolidated sales for 2001, 2000 and 1999,
respectively.
The information in the following tables is derived directly from the
segments' internal financial reporting used for corporate management purposes.
The expenses, assets and liabilities attributable to corporate activity are
not allocated to the operating segments. Approximately 3% of operating assets
are located outside the United States.
Customer and Commercial Financing segment revenues consist principally of
interest from financing receivables and lease income from operating lease
equipment, and segment earnings additionally reflect depreciation on leased
equipment and expenses recorded against the valuation allowance presented in
Note 12. No interest expense on debt is included in Customer and Commercial
Financing segment earnings.
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Customer and Commercial Financing segment revenues and earnings are derived
principally from Boeing Capital Corporation (BCC), a corporation wholly owned
by the Company. The Company has extended certain intercompany guarantees to
BCC, including guarantees on lease income from operating lease equipment. In
2001, segment earnings included $49 of income under guarantees that are
eliminated in consolidation.
For internal reporting purposes, the Company records Commercial Airplanes
segment revenues and operating profits for airplanes transferred to other
segments, and such transfers may include airplanes accounted for as operating
leases that are considered transferred to the Customer and Commercial Financing
segment. The revenues for these transfers are eliminated in the 'Accounting
differences/eliminations' caption. In the event an airplane accounted for as
an operating lease is subsequently sold, the 'Accounting differences/
eliminations' caption would reflect the recognition of revenue and operating
profit for the consolidated financial statements.
The Company records cost of sales for 7-series commercial airplane programs
under the program method of accounting described in Note 1. For internal
measurement purposes, the Commercial Airplanes segment records cost of sales
based on the cost of specific units delivered, and to the extent that
inventoriable costs exceed estimated revenues, a loss is not recognized until
delivery is made, which is not in accordance with generally accepted accounting
principles. For the 717 program, the cost of the specific units delivered is
reduced, on a per-unit basis, by the amount previously recognized for forward
losses. Proceeds from certain Commercial Airplanes segment suppliers
attributable to participation in development efforts are accounted for as a
reduction in the cost of inventory received from the supplier under the program
accounting method, and as an expense reduction in the period the proceeds are
received for internal measurement purposes. These adjustments between the
internal measurement method and the program accounting method are included in
the 'Accounting differences/eliminations' caption of net earnings. These
adjustments totaled $(721), $(637) and $(304) for the years ended
December 31, 2001, 2000 and 1999, respectively.
The Other segment loss in 2001 included $49 of expense resulting from
intercompany guarantees to BCC discussed in the Customer and Commercial
Financing segment paragraph above. This expense is eliminated in
consolidation.
The 'Accounting differences/eliminations' caption of net earnings also
includes the impact of cost measurement differences between generally
accepted accounting principles and federal cost accounting standards. This
includes the following: the difference between pension costs recognized
under SFAS No. 87, "Employers' Accounting for Pensions," and under federal
cost accounting standards, principally on a funding basis; the differences
between retiree health care costs recognized under SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and under federal
cost accounting standards, principally on a cash basis; and the differences in
timing of cost recognition related to certain activities, such as facilities
consolidation, undertaken as a result of mergers and acquisitions whereby such
costs are expensed under generally accepted accounting principles and deferred
under federal cost accounting standards. Additionally, the amortization of
costs capitalized in accordance with SFAS No. 34, "Capitalization of Interest
Cost," is included in the 'Accounting differences/eliminations' caption.
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The costs attributable to share-based plans are not allocated. Other
unallocated costs include corporate costs not allocated to the operating
segments, including goodwill amortization resulting from acquisitions prior to
1998. Unallocated assets primarily consist of cash and short-term investments,
prepaid pension expense, goodwill acquired prior to 1997, deferred tax assets,
and capitalized interest. Unallocated liabilities include various accrued
employee compensation and benefit liabilities, including accrued retiree
health care, income taxes payable, and debentures and notes payable.
Unallocated capital expenditures and depreciation relate primarily to shared
services assets.
In-process research and development for the year ended December 31, 2000,
included $505 associated with the Space and Communications segment and $52
associated with the Commercial Airplanes segment. These amounts are included
in the respective segment's depreciation and amortization amounts.
Segment Information:
Sales and Other Operating Revenues
Year ended December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $35,056 $31,171 $38,475
Military Aircraft and Missile Systems 12,451 11,924 11,866
Space and Communications 10,364 8,039 6,831
Customer and Commercial Financing 863 728 686
Other 365 303 439
Accounting differences/eliminations (901) (844) (304)
-------------------------------------------------------------------------------
$58,198 $51,321 $57,993
===============================================================================
Net Earnings (Loss) Before
Cumulative Effect of Accounting Change
Year ended December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $2,632 $2,736 $2,082
Military Aircraft and Missile Systems 1,346 1,245 1,161
Space and Communications 619 (243) 415
Customer and Commercial Financing 596 516 454
Other (388) (76) 4
Accounting differences/eliminations (368) (442) (432)
Share-based plans expense (378) (316) (209)
Unallocated expense (163) (362) (305)
-------------------------------------------------------------------------------
Earnings from operations 3,896 3,058 3,170
Other income, principally interest 318 386 585
Interest and debt expense (650) (445) (431)
-------------------------------------------------------------------------------
Earnings before taxes 3,564 2,999 3,324
Income taxes 738 871 1,015
-------------------------------------------------------------------------------
$2,826 $2,128 $2,309
===============================================================================
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Research and Development
Year ended December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $ 858 $ 574 $ 585
Military Aircraft and Missile Systems 258 257 259
Space and Communications 526 526 492
Other 294 84 5
-------------------------------------------------------------------------------
$1,936 $1,441 $1,341
===============================================================================
Depreciation and Amortization
Year ended December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $ 540 $ 619 $ 595
Military Aircraft and Missile Systems 235 181 188
Space and Communications 417 686 168
Customer and Commercial Financing 188 159 163
Other 63 34 35
Unallocated 307 357 496
-------------------------------------------------------------------------------
$1,750 $2,036 $1,645
===============================================================================
Assets at December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $11,479 $9,800 $8,075
Military Aircraft and Missile Systems 2,477 3,035 2,920
Space and Communications 10,299 9,629 4,245
Customer and Commercial Financing 9,646 6,856 5,700
Other 1,290 389 590
Unallocated 13,152 12,968 14,617
-------------------------------------------------------------------------------
$48,343 $42,677 $36,147
===============================================================================
Liabilities at December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $ 7,579 $7,972 $6,135
Military Aircraft and Missile Systems 1,612 1,189 1,072
Space and Communications 3,123 2,903 1,350
Customer and Commercial Financing 351 184 176
Other 697 56 60
Unallocated 24,156 19,353 15,892
-------------------------------------------------------------------------------
$37,518 $31,657 $24,685
===============================================================================
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Capital Expenditures, Net 2001 2000 1999
===============================================================================
Commercial Airplanes $ 207 $237 $ 307
Military Aircraft and Missile Systems 99 25 202
Space and Communications 362 438 585
Customer and Commercial Financing 1 7 1
Other 32 40 13
Unallocated 367 185 128
-------------------------------------------------------------------------------
$1,068 $932 $1,236
===============================================================================
Contractual Backlog (Unaudited)
at December 31, 2001 2000 1999
===============================================================================
Commercial Airplanes $ 75,850 $ 89,780 $72,972
Military Aircraft and Missile Systems 17,630 17,113 15,691
Space and Communications 13,111 13,707 10,585
-------------------------------------------------------------------------------
$106,591 $120,600 $99,248
===============================================================================
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THE BOEING COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in millions except per share data)
2001 2000
-----------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
===============================================================================
Sales and other
operating
revenues $15,702 $13,687 $15,516 $13,293 $14,693 $11,877 $14,841 $9,910
Earnings from
operations 245 1,066 1,367 1,218 712 865 925 556
Net earnings 100 650 840 1,236 481 609 620 418
Basic earnings
per share 0.13 0.81 1.02 1.48 0.57 0.71 0.71 0.48
Diluted earnings
per share 0.12 0.80 0.99 1.45 0.55 0.70 0.71 0.48
-------------------------------------------------------------------------------
Cash dividends
paid per share 0.17 0.17 0.17 0.17 0.14 0.14 0.14 0.14
-------------------------------------------------------------------------------
Market price:
High 39.42 59.80 69.85 65.60 70.94 66.94 42.25 48.13
Low 31.58 27.60 53.92 49.70 54.00 41.44 34.06 32.00
Quarter end 38.78 33.50 55.60 55.71 66.00 63.13 41.81 37.94
===============================================================================
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Independent Auditors' Report
Board of Directors and Shareholders, The Boeing Company:
We have audited the accompanying consolidated statements of financial position
of The Boeing Company and subsidiaries (the "Company") as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements (located at pages 29-35 and pages
70-110) referred to above present fairly, in all material respects, the
financial position of The Boeing Company and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States of America.
As discussed in note 23 to the consolidated financial statements, in 2001
the Company changed its method of accounting for derivative financial
instruments to conform to Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities,"
as amended.
/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP
Chicago, Illinois
January 28, 2002
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THE BOEING COMPANY AND SUBSIDIARIES
FIVE-YEAR SUMMARY
(Dollars in millions except per share data)
2001 2000 1999 1998 1997
===============================================================================
Operations
Sales and other operating revenues
Commercial Airplanes $35,056 $31,171 $38,475 $36,998 $27,479
Military Aircraft and
Missile Systems 12,451 11,924 11,866 12,488
Space and Communications 10,364 8,039 6,831 6,889
------- ------- ------- -------
Information, Space and Defense
Systems (a) 22,815 19,963 18,697 19,377 18,125
Customer and Commercial
Financing 863 728 686 545 746
Other (b) 365 303 439 569
Accounting differences/
eliminations (901) (844) (304) (1,335) (550)
-------------------------------------------------------------------------------
Total $58,198 $51,321 $57,993 $56,154 $45,800
-------------------------------------------------------------------------------
Net earnings (loss) $ 2,827 $ 2,128 $ 2,309 $ 1,120 $ (178)
Basic earnings
(loss) per share 3.46 2.48 2.52 1.16 (0.18)
Diluted earnings
(loss) per share 3.41 2.44 2.49 1.15 (0.18)
-------------------------------------------------------------------------------
Cash dividends paid $ 582 $ 504 $ 537 $ 564 $ 557
Per share 0.68 0.56 0.56 0.56 0.56
-------------------------------------------------------------------------------
Other income, principally interest 318 386 585 283 428
-------------------------------------------------------------------------------
Research and development expense 1,936 1,441 1,341 1,895 1,924
General and administrative expense 2,389 2,335 2,044 1,993 2,187
-------------------------------------------------------------------------------
Additions to plant and
equipment, net 1,068 932 1,236 1,665 1,391
Depreciation of plant and equipment 1,140 1,159 1,330 1,386 1,266
-------------------------------------------------------------------------------
Employee salaries and wages 11,703 11,615 11,019 12,074 11,287
Year-end workforce 188,000 198,000 197,000 231,000 238,000
===============================================================================
Financial position at December 31
Total assets $48,343 $42,677 $36,147 $37,024 $38,293
Working capital (4,280) (2,414) 2,056 2,836 5,111
Net plant and equipment 8,459 8,814 8,245 8,589 8,391
-------------------------------------------------------------------------------
Cash and short-term investments 633 1,010 3,454 2,462 5,149
Total debt 12,265 8,799 6,732 6,972 6,854
Customer and Commercial
Financing assets 10,398 6,959 6,004 5,711 4,600
-------------------------------------------------------------------------------
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THE BOEING COMPANY AND SUBSIDIARIES
FIVE-YEAR SUMMARY (Continued)
(Dollars in millions except per share data)
2001 2000 1999 1998 1997
===============================================================================
Shareholders' equity 10,825 11,020 11,462 12,316 12,953
Per share 13.57 13.18 13.16 13.13 13.31
Common shares outstanding
(in millions) (c) 797.9 836.3 870.8 937.9 973.5
===============================================================================
Contractual backlog
Commercial Airplanes $ 75,850 $ 89,780 $ 72,972 $ 86,057 $ 93,788
Military Aircraft and
Missile Systems 17,630 17,113 15,691 17,007
Space and Communications 13,111 13,707 10,585 9,832
-------- -------- -------- --------
Information, Space and Defense
Systems 30,741 30,820 26,276 26,839 27,852
-------------------------------------------------------------------------------
Total $106,591 $120,600 $ 99,248 $112,896 $121,640
===============================================================================
Cash dividends have been paid on common stock every year since 1942.
(a) The Information, Space, and Defense Systems segment of the Company was
reorganized into two segments: the Military Aircraft and Missile Systems segment
and the Space and Communications segment, which have been reported as separate
business segments since 1998. It is not practicable to determine the Military
Aircraft and Missile Systems and the Space and Communications break out of the
Information, Space and Defense Systems segment information for 1997.
(b) The Other segment classification was established in 2001 and the years
1998 through 2000 are restated.
(c) Computation excludes treasury shares and the outstanding shares held by
the ShareValue Trust.
114
115
Market for Registrant's Common Equity and Related Stockholder Matters
THE BOEING COMPANY WORLD HEADQUARTERS
The Boeing Company
100 North Riverside Plaza
Chicago, IL 60606-1596
(312) 544-2000
TRANSFER AGENT, REGISTRAR, DIVIDEND PAYING AGENT AND PLAN ADMINISTRATOR
The transfer agent is responsible for shareholder records, issuance of stock
certificates, distribution of dividends and IRS Form 1099. Requests
concerning these or other related shareholder matters are most efficiently
answered by contacting EquiServe Trust Company, N.A.
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
(888) 777-0923 (toll-free for domestic U.S. callers)
(781) 575-3400 (non-U.S. callers may call collect)
Boeing registered shareholders can also obtain answers to frequently asked
questions, on such topics as transfer instructions, the replacement of lost
certificates, consolidation of accounts and book entry shares through
EquiServe's home page on the World Wide Web at http://www.equiserve.com.
Registered shareholders also have secure Internet access to their own accounts
through EquiServe's home page (see above website address). They can view
their account history, change their address, certify their tax identification
number, request duplicate statements, make additional investments and download
a variety of forms related to stock transactions. If you are a registered
shareholder and want Internet access and either need a password or have
lost your password, please either log onto EquiServe's website or call one of
the EquiServe phone numbers shown above.
ANNUAL MEETING
The annual meeting of Boeing shareholders is scheduled to be held on Monday,
April 29, 2002. Details are provided in the proxy statement.
ELECTRONIC PROXY RECEIPT AND VOTING
Shareholders have the option of voting their proxies by Internet or tele-
phone, instead of returning their proxy cards through the mail. Instructions are
in the proxy statement and attached to the proxy card for the annual meeting.
Registered shareholders can go to http://www.econsent.com/ba to sign up to
receive their annual report and proxy statement in an electronic format in the
future. Beneficial owners may contact the brokers or banks that hold their
stock to find out whether electronic receipt is available. If you choose
electronic receipt, you will not receive the paper form of the annual report
and proxy statement. Instead, you will receive notice by e-mail when the
materials are available on the Internet.
115
116
WRITTEN INQUIRIES MAY BE SENT TO:
Shareholder Services Investor Relations
The Boeing Company The Boeing Company
Mail Code 5003-1001 Mail Code 5003-5016
100 N. Riverside Plaza 100 N. Riverside Plaza
Chicago, IL 60606-1596 Chicago, IL 60606-1596
COMPANY SHAREHOLDER SERVICES
Pre-recorded shareholder information is available
toll-free from Boeing Shareholder Services at (800) 457-7723. You may also
speak to a Boeing Shareholder Services representative at (312) 544-2835
between 8:00 a.m. and 4:30 p.m. Central Time.
TO REQUEST AN ANNUAL REPORT, PROXY STATEMENT, FORM 10-K, OR FORM 10-Q, CONTACT:
Data Shipping
The Boeing Company
Mail Code 3T-33
P.O. Box 3707
Seattle, WA 98124-2207
or call (425) 393-4964 or (800) 457-7723
BOEING ON THE WORLD WIDE WEB
The Boeing home page - http://www.boeing.com - is your entry point for
viewing the latest Company information about its products and people or for
viewing electronic versions of the annual report, proxy statement, Form 10-K,
or Form 10-Q.
DUPLICATE SHAREHOLDER ACCOUNTS
Registered shareholders with duplicate accounts may call EquiServe for
instructions on consolidating those accounts. The Company recommends that
registered shareholders always use the same form of their names in all stock
transactions to be handled in the same account. Registered shareholders may
also ask EquiServe to eliminate excess mailings of annual reports going to
shareholders in the same household.
CHANGE OF ADDRESS
For Boeing registered shareholders:
Call EquiServe at (888) 777-0923
or log onto your account at
http://www.equiserve.com,
or write to EquiServe
P.O. Box 43010
Providence, RI 02940-3010
For Boeing beneficial owners:
Contact your brokerage firm or bank to give notice of your change of address.
STOCK EXCHANGES
The Company's common stock is traded principally on the New York Stock
Exchange; the trading symbol is BA. Boeing common stock is also listed on the
Amsterdam, Brussels, London, Swiss and Tokyo stock exchanges. Additionally,
the stock is traded without being listed, on the Boston, Chicago, Cincinnati,
Pacific and Philadelphia exchanges.
GENERAL AUDITORS
Deloitte & Touche LLP
180 N. Stetson Avenue
Chicago, IL 60601-6779
(312) 946-3000 116
117
EQUAL OPPORTUNITY EMPLOYER
Boeing is an equal opportunity employer and seeks to attract and retain the
best-qualified people regardless of race, color, religion, national origin,
gender, sexual orientation, age, disability, or status as a disabled or
Vietnam Era Veteran.
117
118
(10) (i) U.S. $ 3 Billion 364-Day Credit Agreement
THE BOEING COMPANY
364-DAY
CREDIT AGREEMENT
among
THE BOEING COMPANY
for itself and on behalf of its Subsidiaries,
as a Borrower
THE LENDERS PARTY HERETO
CITIBANK, N.A.,
as Administrative Agent
JPMORGAN CHASE BANK,
as Syndication Agent
and
SALOMON SMITH BARNEY INC.
and
JPMORGAN SECURITIES, INC.,
as Joint Lead Arrangers and Joint Book Managers
dated as of November 23, 2001
TABLE OF CONTENTS
Article and Section Page
ARTICLE 1 DEFINITIONS
1.1 Definitions 2
1.2 Use of Defined Terms; References 2
1.3 Accounting Terms 2
ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES
2.1 Committed Advances 2
2.2 Making Committed Advances 2
2.3 Conversion to Term Loans, Repayment 2
2.4 Interest Rate on Committed Advances 2
2.5 Bid Advances 2
2.6 Lender Assignment or Sale 2
2.7 Fees 2
2.8 Reduction of the Commitments 2
2.9 Additional Interest on Eurodollar Rate Committed
Advances 2
2.10 Eurodollar Interest Rate Determination 2
2.11 Voluntary Conversion of Committed Advances 2
2.12 Prepayments 2
2.13 Increases in Costs 2
2.14 Taxes 2
2.15 Illegality 2
2.16 Payments and Computations 2
2.17 Sharing of Payments, Etc. 2
2.18 Evidence of Debt 2
2.19 Alteration of Commitments and Addition of Lenders 2
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2.20 Assignments; Sales of Participations and
Other Interests in Advances
2.21 Extension of Termination Date 2
2.22 Subsidiary Borrowers 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties by the Borrowers 2
ARTICLE 4 COVENANTS OF TBC
4.1 Affirmative Covenants of TBC 2
4.2 General Negative Covenants of TBC 2
4.3 Financial Statement Terms 2
4.4 Waivers of Covenants 2
ARTICLE 5 CONDITIONS PRECEDENT TO BORROWINGS
5.1 Conditions Precedent to the Initial Borrowing of TBC 2
5.2 Conditions Precedent to Each Committed Borrowing of TBC 2
5.3 Conditions Precedent to Each Bid Borrowing of TBC 2
5.4 Conditions Precedent to the Initial Borrowing
of a Subsidiary Borrower 2
5.5 Conditions Precedent to Each Committed
Borrowing of a Subsidiary Borrower 2
5.6 Conditions Precedent to Each Bid Borrowing
of a Subsidiary Borrower 2
ARTICLE 6 EVENTS OF DEFAULT
6.1 Events of Default 2
6.2 Lenders' Rights upon Borrower Default 2
ARTICLE 7 THE AGENT
7.1 Authorization and Action 2
7.2 Agent's Reliance, Etc. 2
7.3 Citibank, N.A. and its Affiliates 2
7.4 Lender Credit Decision 2
7.5 Indemnification 2
7.6 Successor Agent 2
7.7 Certain Obligations May Be Performed by Affiliates 2
ARTICLE 8 MISCELLANEOUS
8.1 Modification, Consents and Waivers 2
8.2 Notices 2
8.3 Costs, Expenses and Taxes. 2
8.4 Binding Effect 2
8.5 Severability 2
8.6 Governing Law 2
8.7 Headings 2
8.8 Execution in Counterparts 2
8.9 Right of Set-Off 2
8.10 Confidentiality 2
8.11 Agreement in Effect 2
Exhibit A-1 - Committed Note
Exhibit A-2 - Bid Note
Exhibit B-1 - Notice of Committed Borrowing
Exhibit B-2 - Notice of Bid Borrowing
Exhibit C - Request for Alteration
Exhibit D - Borrower Subsidiary Letter
Exhibit E - Extension Request
Exhibit F - Continuation Notice
Exhibit G - Opinion of Counsel of the Company
Exhibit H - Opinion of Counsel for Agent
Exhibit I - Opinion of in-house counsel to Subsidiary Borrower
Exhibit J - Guaranty of TBC
Exhibit K - Opinion of Counsel to TBC
Schedule I - Commitments
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CREDIT AGREEMENT
Dated as of November 23, 2001
THE BOEING COMPANY, a Delaware corporation ("TBC" or the "Company"), for itself
and on behalf of the other BORROWERS (as defined below), the LENDERS (as
defined below), SALOMON SMITH BARNEY INC. and JPMORGAN SECURITIES INC., as
joint lead arrangers and joint book managers, JPMORGAN CHASE BANK, as
syndication agent, and CITIBANK, N.A., in its capacity as administrative agent
for the Lenders (in such capacity, the "Agent"), agree as follows:
Article 1
Definitions
1.1 Definitions. As used in this Agreement, the following terms have the
respective meanings set out below:
"2000 Credit Agreement" means the Bank Credit Agreement, dated as of September
27, 2000, as amended and restated as of September 24, 2001, by and among TBC,
Citibank, N.A., as administrative agent, and certain other banks as lenders.
"Advance" means a Committed Advance or a Bid Advance.
"Agent" means Citibank, N.A. acting in its capacity as administrative agent for
the Lenders, or any successor administrative agent appointed pursuant to
Section 7.6.
"Agent's Account" means the account of the Agent maintained by the Agent with
Citibank, N.A., at its office at 388 Greenwich Street, New York, New York 10013,
Account 36852248, Attention: Mr. Brian Maxwell.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. (For purposes of this
definition, the term "controls", "controlling", "controlled by" and "under
common control with" mean, with respect to a Person, the possession, direct or
indirect, of the power to vote 5% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract, or otherwise.)
"Agreement" means this agreement, as it may be amended or otherwise modified
from time to time, and any written additions or supplements hereto.
"Applicable Lending Office" means, with respect to each Lender, such Lender's
Domestic Lending Office, in the case of a Base Rate Advance, and such Lender's
Eurodollar Lending Office, in the case of a Eurodollar Rate Advance, and, in
the case of a Bid Advance, the office of such Lender specified by such Lender
in a notice to the Agent as its Applicable Lending Office with respect to such
Bid Advance.
"Applicable Margin" means,
(i) with respect to Base Rate Advances, 0% per annum; and
(ii) with respect to Eurodollar Rate Advances for any date, a
fluctuating per annum rate equal to the then-applicable rate set
forth in the pricing grid below, depending upon the rating of the
long-term senior unsecured debt of TBC then in effect:
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Level Public Debt Rating: Applicable Applicable
S&P and Moody's Margin Through Margin After
the Termination the Termination
Date Date
Level I A+ by S&P or A1 by 0.110% 0.250%
Moody's or above
Level II less than Level I 0.240% 0.400%
but at least A by
S&P or A2 by Moody's
Level III less than Level II 0.280% 0.500%
but at least A- by
S&P or A3 by Moody's
Level IV less than Level III 0.350% 0.675%
but at least BBB+ by
S&P or Baa1 by Moody's
Level V less than Level IV 0.475% 0.875%
provided, however, that if the ratings from S&P and Moody's fall within
different levels, then the Applicable Margin shall be based on the higher
of the two ratings except that, if the lower of such ratings is more than
one level below the higher of such ratings, the Applicable Margin shall be
determined based on the level above the lower of such ratings, and
provided further that if, at any time, no rating is available from S&P
and Moody's or any other nationally recognized statistical rating
organization designated by TBC and approved in writing by the Majority
Lenders, the Applicable Margin for each Interest Period or each other
period commencing during the thirty days following such ratings becoming
unavailable shall be the Applicable Margin in effect immediately prior to
such ratings becoming unavailable. Thereafter, the rating to be used
until ratings from S&P and Moody's become available shall be as agreed
between TBC and the Agent, and TBC and the Agent shall use good faith
efforts to reach such agreement within such thirty-day period, provided,
however, that if no such agreement is reached within such thirty-day
period the Applicable Margin thereafter, until such agreement is reached,
shall be (a) if any such rating has become unavailable as a result of S&P
or Moody's ceasing its business as a rating agency, the Applicable Margin
in effect immediately prior to such cessation or (b) otherwise, the
Applicable Margin as set forth under Level V above; and
provided further that in the event and during the continuance of an Event
of Default, the Applicable Margin shall immediately increase by 1.0%
above the Applicable Margin then in effect, and, in the case of a
Eurodollar Rate Advance, such Advance shall automatically convert to a
Base Rate Advance at the end of the Interest Period then in effect for
such Eurodollar Rate Advance.
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"Applicable Percentage" means, for any date, a fluctuating per annum rate equal
to the then-applicable rate set forth in the pricing grid below, depending
upon the rating of the long-term senior unsecured debt of TBC then in
effect:
Level Public Debt Rating: S&P and Moody's Applicable Percentage
Level I A+ by S&P or A1 by Moody's or above 0.040%
Level II less than Level I 0.060%
but at least A by S&P or A2 by Moody's
Level III less than Level II 0.070%
but at least A- by S&P or A3 by Moody's
Level IV less than Level III 0.100%
but at least BBB+ by S&P or Baa1 by Moody's
Level V less than Level IV 0.125%
provided, however, that if the ratings from S&P and Moody's fall within
different levels, then the Applicable Percentage shall be based on the
higher of the two ratings except that, if the lower of such ratings is
more than one level below the higher of such ratings, the Applicable
Percentage shall be determined based on the level above the lower of such
ratings, and
provided further that if, at any time, no rating is available from S&P
and Moody's or any other nationally recognized statistical rating
organization designated by TBC and approved in writing by the Majority
Lenders, the Applicable Percentage for each period commencing during the
thirty days following such ratings becoming unavailable shall be the
Applicable Percentage in effect immediately prior to such ratings becoming
unavailable. Thereafter, the rating to be used until ratings from S&P and
Moody's become available shall be as agreed between TBC and the Agent, and
TBC and the Agent shall use good faith efforts to reach such agreement
within such thirty-day period, provided, however, that if no such
agreement is reached within such thirty-day period the Applicable
Percentage thereafter, until such agreement is reached, shall be (a) if
any such rating has become unavailable as a result of S&P or Moody's
ceasing its business as a rating agency, the Applicable Percentage in
effect immediately prior to such cessation or (b) otherwise, the
Applicable Percentage as set forth under Level V above.
"Applicable Utilization Fee" means, for any date that the aggregate outstanding
Advances exceed 25% of the aggregate Commitments, a fluctuating per annum
rate equal to the then-applicable rate set forth in the pricing grid
below, depending upon the rating of the long-term senior unsecured debt of
TBC then in effect:
Level Public Debt Rating: S&P and Moody's Applicable
Utilization Fee
Level I A+ by S&P or A1 by Moody's or above 0.100%
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Level II less than Level I 0.100%
but at least A by S&P or A2 by Moody's
Level III less than Level II 0.150%
but at least A- by S&P or A3 by Moody's
Level IV less than Level III 0.225%
but at least BBB+ by S&P or Baa1 by Moody's
Level V less than Level IV 0.275%
provided, however, that if the ratings from S&P and Moody's fall within
different levels, then the Applicable Utilization Fee shall be based on
the higher of the two ratings except that, if the lower of such ratings
is more than one level below the higher of such ratings, the Applicable
Utilization Fee shall be determined based on the level above the lower of
such ratings, and
provided further that if, at any time, no rating is available from S&P
and Moody's or any other nationally recognized statistical rating
organization designated by TBC and approved in writing by the Majority
Lenders, the Applicable Utilization Fee for each period commencing during
the thirty days following such ratings becoming unavailable shall be the
Applicable Utilization Fee in effect immediately prior to such ratings
becoming unavailable. Thereafter, the rating to be used until ratings
from S&P and Moody's become available shall be as agreed between TBC and
the Agent, and TBC and the Agent shall use good faith efforts to reach
such agreement within such thirty-day period, provided, however, that if
no such agreement is reached within such thirty-day period the Applicable
Utilization Fee thereafter, until such agreement is reached, shall be (a)
if any such rating has become unavailable as a result of S&P or Moody's
ceasing its business as a rating agency, the Applicable Utilization Fee
in effect immediately prior to such cessation or (b) otherwise, the
Applicable Utilization Fee as set forth under Level V above.
"Available Commitments" means, as of any date of determination, (a) the
aggregate Commitments of the Lenders, as such amount may be reduced,
changed or terminated in accordance with the terms of this Agreement,
reduced by (b) the aggregate Advances outstanding on such date of
determination.
"Base Rate" means the rate of interest announced publicly by Citibank, N.A.,
in New York City, from time to time, as Citibank's "base" rate.
"Base Rate Advance" means a Committed Advance which bears interest at the Base
Rate.
"Bid Advance" means an advance by a Lender to a Borrower as part of a Bid
Borrowing resulting from the auction bidding procedure described in
Section 2.5, and refers to a Fixed Rate Advance or a Eurodollar Rate Bid
Advance, each of which shall be a "Type" of Bid Advance.
"Bid Borrowing" means a borrowing consisting of simultaneous Bid Advances from
each of the Lenders whose offers to make one or more Bid Advances as part
of such borrowing has been accepted by a Borrower under the auction
bidding procedure described in Section 2.5.
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"Bid Note" means a promissory note of a Borrower payable to the order of a
Lender, in substantially the form of Exhibit A-2, evidencing the
indebtedness of that Borrower to such Lender resulting from a Bid Advance
made by such Lender to such Borrower.
"Bid Reduction" has the meaning specified in Section 2.1(a).
"Borrower" means, individually and collectively, as the context requires, TBC
and each Subsidiary Borrower (unless and until it becomes a "Terminated
Subsidiary Borrower" pursuant to Section 2.22).
"Borrower Subsidiary Letter" means, with respect to any Subsidiary Borrower, a
letter in the form of Exhibit D, signed by such Subsidiary Borrower and
TBC.
"Borrowing" means a Committed Borrowing or a Bid Borrowing.
"Business Day" means a day of the year on which banks are not required or
authorized to close in New York City and, if the applicable Business Day
relates to any Eurodollar Rate Advance, on which dealings are carried on
in the London interbank market.
"Commitment" means, for each Lender, the full amount set forth opposite the
name of such Lender in Schedule I or, if such Lender is a Replacement
Lender or a Lender that has entered into one or more assignments pursuant
to Section 2.20 or Section 2.21, the amount set forth for such Lender in
the Register maintained by the Agent pursuant to Section 2.20(d), as such
amount may be reduced pursuant to Section 2.3, Section 2.8 or Section 2.19
or increased pursuant to Section 2.19.
"Committed Advance" means an advance made by a Lender to a Borrower as part of
a Committed Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Committed Advance, each of which is a "Type" of Committed Advance.
"Committed Borrowing" means a borrowing consisting of simultaneous Committed
Advances of the same Type made by each of the Lenders pursuant to
Section 2.1.
"Committed Note" means a promissory note of a Borrower payable to the order of
any Lender, in substantially the form of Exhibit A-1, evidencing the
indebtedness of that Borrower to such Lender resulting from the Committed
Advances made by such Lender to that Borrower.
"Company" means The Boeing Company, a Delaware corporation (usually referred
to herein as "TBC").
"Confidential Information" means information that a Borrower furnishes to the
Agent or any Lender in a writing designated as confidential, but does not
include any such information that is or becomes generally available to
the public or that is or becomes available to the Agent or such Lender
from a source other than a Borrower.
"Consolidated" refers to the consolidation of accounts in accordance with
generally accepted accounting principles.
"Continuing Lender" has the meaning specified in Section 2.21(a).
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"Convert", "Conversion" and "Converted" each means a conversion of Committed
Advances of one Type into Committed Advances of another Type pursuant to
Section 2.10, 2.11 or 2.15.
"Debt" of a Person means
(i) indebtedness for borrowed money or for the deferred purchase
price of property or services;
(ii) financial obligations evidenced by bonds, debentures, notes or
other similar instruments,
(iii) financial obligations as lessee under leases which have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases; and
(iv) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or financial obligations of
others of the kind referred to in clauses (i) through (iii)
above.
"Default" means any Event of Default or any event that would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both.
"Domestic Lending Office" means with respect to any Lender, the office of such
Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I, or in the assignment or other agreement pursuant to which it
became a Lender or such other office of such Lender as such Lender may
from time to time specify to TBC and the Agent.
"Effective Date" has the meaning specified in Section 2.19.
"Eligible Assignee" means
(i) a commercial bank organized under the laws of the United
States, or any state thereof, and having a combined capital
and surplus in excess of $3,000,000,000;
(ii) a commercial bank organized under the laws of any other
country which is a member of the OECD, or a political
subdivision of any such country, and having a combined capital
and surplus in excess of $3,000,000,000, provided that such
bank is acting through a branch or agency located in either
(a) the country in which it is organized or (b) another country
which is also a member of the OECD or the Cayman Islands;
(iii) the central bank of any country which is a member of the OECD;
(iv) any Lender;
(v) an Affiliate of any Lender; and
(vi) so long as no Default has occurred and is continuing, any
other Person approved in writing by TBC, which approval has
been communicated in writing to the Agent, provided that
neither TBC nor an Affiliate of TBC shall qualify as an
Eligible Assignee.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time and the regulations promulgated and rulings issued
thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, (a) the office
of such Lender specified as its "Eurodollar Lending Office" opposite its
name on Schedule I (or, if no such office is specified, its Domestic
Lending Office) or in the assignment or other agreement pursuant to which
it became a Lender or (b) such other office of such Lender as such Lender
may from time to time specify to TBC and the Agent.
"Eurodollar Rate" means, for an Interest Period for a Eurodollar Rate Committed
Advance constituting part of a Committed Borrowing, and for the relevant
period specified in the applicable Notice of Bid Borrowing for a Eurodollar
Rate Bid Advance, an interest rate per annum equal to either
(a) the offered rate (rounded to the nearest whole multiple of 1/16
of 1% per annum, if such average is not such a multiple) for
deposits in U.S. dollars for a period substantially equal to
such Interest Period (if a Committed Advance) or such relevant
period specified in the applicable Notice of Bid Borrowing (if
a Bid Advance), appearing on Telerate Markets Page 3750 (or
any successor page or, if unavailable for any reason by
Telerate, then by reference to Reuters Screen) as of 11:00 a.m.
(London time) two business days before the first day of such
Interest Period or the first day of the relevant period
specified in such Notice of Bid Borrowing; or
(b) if the foregoing rate is unavailable from Telerate or the
Reuters Screen for any reason, the average (rounded to the
nearest whole multiple of 1/16 of 1% per annum, if such average
is not such a multiple) of the rates per annum are offered by
the principal office of each of the Reference Banks to prime
banks in the London interbank market at 11:00 a.m. (London time)
on deposits in U.S. dollars two Business Days before the first
day of such Interest Period or the first day of such relevant
period specified in the Notice of Bid Borrowing
(i) for such Eurodollar Committed Advance, on an amount
substantially equal to such Reference Bank's Eurodollar
Rate Advance constituting part of such Committed
Borrowing and for a period equal to such Interest
Period, or
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(ii) for such Eurodollar Rate Bid Advance, on an amount
substantially equal to the amount of the Eurodollar
Rate Bid Borrowing which includes such Bid Advance
multiplied by a fraction equal to such Reference Bank's
ratable portion of the Commitments and for a period
equal to the relevant period specified in such Notice
of Bid Borrowing. The Eurodollar Rate for any Interest
Period for each Eurodollar Rate Committed Advance
constituting part of the same Borrowing and for the
relevant period specified in a Notice of Bid Borrowing
for each Eurodollar Rate Bid Advance shall be determined
by the Agent on the basis of applicable rates furnished
to and received by the Agent from the Reference Banks
two Business Days before the first day of such Interest
Period or period, as the case may be, subject, however,
to the provisions of Section 2.10.
"Eurodollar Rate Advance" means a Committed Advance (a "Eurodollar Rate
Committed Advance") or a Bid Advance (a "Eurodollar Rate Bid Advance")
which bears interest at a rate of interest quoted as a margin (which shall
be the Applicable Margin in the case of a Committed Advance or as offered
by a Lender and accepted by a Borrower in the case of a Bid Advance) over
the Eurodollar Rate.
"Eurodollar Rate Bid Borrowing" has the meaning specified in Section 2.5(b).
"Eurodollar Rate Reserve Percentage" means the reserve percentage applicable to
a Lender for any Interest Period for a Eurodollar Rate Advance during such
Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Lender with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurodollar
Rate Advances is determined) having a term equal to such Interest Period.
"Event of Default" means any of the events described in Section 6.1.
"Extension Request" has the meaning specified in Section 2.21.
"Facility Fee" has the meaning specified in Section 2.7.
"Federal Funds Rate" means, for each day during a period, an interest rate per
annum equal to the weighted average of the fluctuating rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
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"Fixed Rate Advance" means an Advance made by a Lender to a Borrower as part of
a Fixed Rate Borrowing.
"Fixed Rate Borrowing" has the meaning specified in Section 2.5(b).
"Guaranty" means each Guaranty Agreement executed by TBC in favor of the Agent
and the Lenders, unconditionally guaranteeing the payment of all
obligations of a Subsidiary Borrower hereunder and under any Notes
executed or to be executed by it.
"Indemnified Costs" has the meaning specified in Section 7.5.
"Indemnified Parties" has the meaning specified in Section 8.3(b).
"Interest Period" means, for each Eurodollar Rate Committed Advance
constituting part of the same Borrowing, the period commencing on the
date of such Committed Advance or the date of the Conversion of a Base
Rate Advance into such a Eurodollar Rate Committed Advance and ending on
the last day of the period selected by the applicable Borrower pursuant to
the provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on
the last day of the period selected by such Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be one,
two, three, or six months (or nine months, with the consent of all Lenders
funding those particular Advances), as the applicable Borrower may, upon
notice received by the Agent not later than 11:00 a.m. (New York City time)
on the third Business Day prior to the first day of such Interest Period,
select, provided, however, that:
(i) no Interest Period shall end on a date later than the
Termination Date (or in the case of a Committed Advance which
is converted to a Term Loan pursuant to Section 2.3, the
Maturity Date);
(ii) Interest Periods commencing on the same date for Committed
Advances constituting part of the same Committed Borrowing
shall be of the same duration; and
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next
succeeding Business Day, provided that, if such extension
would cause the last day of such Interest Period to occur in
the next following calendar month, the last day of the Interest
Period shall occur on the immediately preceding Business Day.
"Lender", subject to Section 2.20, means any of the institutions that is a
signatory hereto or that, pursuant to Section 2.13, 2.19, 2.20 or 2.21,
becomes a "Lender" hereunder."Majority Lenders" means Lenders having
greater than 50% of the total Commitments or, if the Commitments have been
terminated in full, Lenders holding greater than 50% of the then aggregate
unpaid principal amount of the Advances.
"Maturity Date" means the Termination Date or, if the Term Loan Conversion
Option described in Section 2.3 has been exercised, the date that is the
one-year anniversary of the Termination Date.
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"Moody's" means Moody's Investor Services, Inc.
"Non-Extending Lender" has the meaning specified in Section 2.21(a).
"Note" means a Committed Note or a Bid Note.
"Notice of Bid Borrowing" has the meaning specified in Section 2.5(b).
"Notice of Borrowing" means a Notice of Committed Borrowing or a Notice of Bid
Borrowing.
"Notice of Committed Borrowing" has the meaning specified in Section 2.2(a).
"OECD" means the Organization for Economic Cooperation and Development.
"Person" means an individual, partnership, corporation (including a business
trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Property, Plant and Equipment" means any item of real property, or any interest
therein, buildings, improvements and machinery.
"Proposed Increased Commitment" has the meaning specified in Section 2.19(a).
"Reference Banks" means JPMorgan Chase Bank, Citibank, N.A., Bank of America,
N.A., and Deutsche Bank AG.
"Register" has the meaning specified in Section 2.20(d).
"Replacement Lenders" has the meaning specified in Section 2.21(c).
"Request for Alteration" means a document substantially in the form of
Exhibit C, duly executed by TBC, pursuant to Section 2.19.
"Required Assignment" has the meaning specified in Section 2.20(a).
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
"Subsidiary" means any corporation in which more than 50% of the Voting Stock is
owned by TBC, by TBC and any one or more other Subsidiaries, or by any one
or more other Subsidiaries.
"Subsidiary Borrower" means, individually and collectively, as the context
requires, each Subsidiary that is or becomes a
"Borrower" in accordance with Section 2.22; in each case, unless and until it
becomes a "Terminated Subsidiary Borrower".
"TBC" means The Boeing Company, a Delaware corporation.
"Term Loan" means a term loan resulting from the conversion of Committed
Advances on the Termination Date pursuant to Section 2.3.
"Term Loan Conversion Option" means the option under Section 2.3 for the
Borrowers to convert, as of the Termination Date, all Committed Advances
then outstanding into Term Loans.
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"Terminated Subsidiary Borrower" means, individually and collectively, as the
context requires, a Subsidiary Borrower that has ceased to be a "Borrower"
in accordance with Section 2.22.
"Termination Date" means the earlier to occur of (i) November 22, 2002, as such
date may be extended from time to time pursuant to Section 2.21, and (ii)
the date of termination in whole of the Commitments pursuant to Section 2.8
or Section 6.2.
"Total Capital" has the meaning specified in Section 4.2(b).
"Type", as to Committed Borrowings, means either Base Rate Advances or
Eurodollar Rate Committed Advances and, as to Bid Borrowings, means either
Fixed Rate Advances or Eurodollar Rate Bid Advances.
"Voting Stock" means, as to a corporation, all the issued and outstanding
capital stock of such corporation having general voting power, under
ordinary circumstances, to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not any capital stock of any
other class or classes shall or might have voting power upon the
occurrence of any contingency).
1.2 Use of Defined Terms; References. Any defined term used in the plural
preceded by the definite article encompasses all members of the relevant
class. Any defined term used in the singular preceded by "a", "an" or
"any" indicates any number of the members of the relevant class. All
references in this Agreement to a Section, Article, Schedule or Exhibit
are to a Section, Article, Schedule or Exhibit of or to this Agreement,
unless otherwise indicated.
1.3 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting
principles consistently applied.
Article 2
Amounts and Terms of the Advances
2.1 Committed Advances.
(a) Obligation to Make Committed Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make Committed Advances
to the Borrowers from time to time on any Business Day during the period
from the date hereof until the Termination Date in an aggregate principal
amount at any time outstanding not to exceed such Lender's Commitment,
provided that the aggregate amount of the Commitments of the Lenders shall
be deemed used from time to time to the extent of the aggregate amount of
the Bid Advances then outstanding and such deemed use of the aggregate
amount of the Commitments shall be applied to the Lenders ratably
according to their respective Commitments (such deemed use of the
aggregate amount of the Commitments being a "Bid Reduction").
(b) Amount of Committed Advances. Each Committed Borrowing shall be in an
aggregate amount not less than $10,000,000 or an integral multiple of
$1,000,000 in excess thereof.
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(c) Type of Committed Advances. Each Committed Borrowing shall consist of
Committed Advances of the same Type made on the same day by the Lenders
ratably according to their respective Commitments. Within the limits of
each Lender's Commitment, the Borrowers may from time to time borrow,
prepay pursuant to Section 2.12, and reborrow under this Section 2.1 and
Section 2.2.
2.2 Making Committed Advances.
(a) Notice of Committed Borrowing. Each Committed Borrowing shall be made on
notice, given by a Borrower to the Agent not later than 11:00 a.m. (New
York City time) on the day of the proposed Committed Borrowing in the case
of a Base Rate Borrowing and on the third Business Day prior to the date
of the proposed Committed Borrowing in the case of a Eurodollar Rate
Borrowing (a "Notice of Committed Borrowing"). Each such Notice of
Committed Borrowing shall be in substantially the form of Exhibit B-l,
specifying the requested
(i) date of such Committed Borrowing,
(ii) Type of Committed Advances constituting such Committed
Borrowing,
(iii) aggregate amount of such Committed Borrowing, and
(iv) in the case of a Committed Borrowing composed of Eurodollar
Rate Advances, the initial Interest Period for each such
Committed Advance, which Interest Period may be 1, 2, 3 or
6 months, at the option of the Borrower, or, if acceptable to
all the Lenders, 9 months.
Every Notice of Committed Borrowing given by a Subsidiary Borrower must be
countersigned by an authorized representative of TBC, in order to evidence
the consent of TBC, in its sole discretion, to that proposed Committed
Borrowing. Upon receipt of a Notice of Committed Borrowing, the Agent
shall promptly give notice to each Lender thereof.
(b) Funding Committed Advances. Each Lender shall, before 1:00 p.m. (New York
City time) on the date of such Committed Borrowing, make available for the
account of its Applicable Lending Office to the Agent at the Agent's
Account, in same day funds, such Lender's ratable portion of such
Committed Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article 5, the Agent
will make such funds available to the relevant Borrower at an account
specified by such Borrower.
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(c) Irrevocable Notice. Each Notice of Committed Borrowing shall be
irrevocable and binding. In the case of any Committed Borrowing that the
related Notice of Committed Borrowing specifies is to be composed of
Eurodollar Rate Advances, the Borrower requesting such Committed Borrowing
shall indemnify each Lender against any loss, cost or expense incurred by
such Lender on account of any failure to fulfill on or before the date
specified for such Committed Borrowing in such Notice of Committed
Borrowing the applicable conditions set forth in Article 5, including,
without limitation, any loss (but excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Committed
Advance to be made by such Lender as part of such Committed Borrowing when
such Committed Advance, as a result of such failure, is not made on such
date.
(d) Lender's Ratable Portion. Unless the Agent has received notice from a
Lender prior to 1:00 p.m. (New York City time) on the day of any Committed
Borrowing that such Lender will not make available to the Agent such
Lender's ratable portion of such Committed Borrowing, the Agent may assume
that such Lender has made such portion available to the Agent on the date
of such Committed Borrowing in accordance with subsection (b) of this
Section 2.2 and the Agent may, in reliance upon such assumption, make
available to the requesting Borrower on such date a corresponding amount.
If and to the extent that a Lender has not so made such ratable portion
available to the Agent, such Lender and such Borrower shall severally
repay to the Agent forthwith on demand an amount that in the aggregate
equals such corresponding amount together with interest thereon for each
day from the date such amount is made available by the Agent to such
Borrower until the date such amount is repaid to the Agent, at
(i) in the case of such Borrower, the interest rate applicable at
the time to Committed Advances constituting such Committed
Borrowing, and
(ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Lender's Committed
Advance as part of such Committed Borrowing for purposes of
this Agreement.
(e) Independent Lender Obligations. The failure of any Lender to make the
Committed Advance to be made by it as part of any Committed Borrowing
shall not relieve any other Lender of its obligation, if any, hereunder
to make its Committed Advance on the date of such Committed Borrowing,
but no Lender shall be responsible for the failure of any other Lender to
make the Committed Advance to be made by such other Lender on the date of
any Committed Borrowing.
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2.3 Conversion to Term Loans, Repayment. The Borrowers shall, subject to
the next succeeding sentence, repay to the Agent for the ratable account
of the Lenders on the Termination Date the aggregate principal amount of
the Committed Advances then outstanding. The Borrowers may, upon notice
given to the Agent not later than 11:00 a.m. (New York City time) on the
Termination Date, convert all or a part of the unpaid principal amount of
the Committed Advances outstanding as of the Termination Date into Term
Loans. If this Term Loan Conversion Option is exercised, then, on the
Termination Date, immediately prior to the time when the unpaid principal
amount of the Committed Advances would otherwise be due, the Committed
Advances shall automatically convert into Term Loans which the respective
Borrowers shall repay to the Agent for the ratable accounts of the Lenders
on the Maturity Date. The amounts so converted shall be treated for all
purposes of this Agreement as Committed Advances except that after the
Termination Date:
(i) the Borrowers may not make any additional borrowings;
(ii) any amounts paid or prepaid may not be reborrowed;
(iii) the amount of each Lender's Commitment shall be equal at all
times to the principal amount of the Term Loans payable to
such Lender from time to time;
(iv) the provisions of Section 2.19 shall not be effective;
(v) no Lender shall have the right to assign its rights in any
outstanding Term Loan; and
(vi) no Facility Fees or utilization fees shall accrue or be
payable after the Termination Date.
2.4 Interest Rate on Committed Advances. Each Borrower shall pay interest
on the unpaid principal amount of each of its Committed Advances from
the date of such Committed Advance until such principal amount is paid in
full, at the following rates per annum:
(i) during each period in which such Committed Advance is a Base
Rate Advance, at a rate per annum equal at all times to the
Base Rate in effect from time to time plus the Applicable
Margin plus the Applicable Utilization Fee, if any, payable
quarterly in arrears on the first day of each January, April,
July and October and on the Termination Date, or, if such
Borrower has exercised the Term Loan Conversion Option, the
Maturity Date, and
(ii) during each period in which such Committed Advance is a
Eurodollar Rate Advance, at a rate per annum equal at all times
during each relevant Interest Period for such Committed Advance
to the Eurodollar Rate for such Interest Period plus the
Applicable Margin plus the Applicable Utilization Fee, if any,
payable on the last day of each such Interest Period, and if
such Interest Period has a duration of more than three months,
quarterly on each day during such Interest Period that is three
months from either (A) the first day of such Interest Period or
(B) the last such interest payment date and on the date such
Committed Advance is Converted or paid in full.
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2.5 Bid Advances.
(a) Bid Advances Impact on Commitments. The Borrowers may make Bid Borrowings
from time to time on any Business Day during the period from the date
hereof until the Termination Date in the manner set forth below, provided
that, following the making of each Bid Borrowing, the aggregate amount of
the Advances then outstanding shall not exceed the aggregate amount of
the Commitments of the Lenders (computed without regard to the Bid
Reduction). As provided in Section 2.1 above, the aggregate amount of
the Commitments of the Lenders shall be deemed used from time to time to
the extent of the aggregate amount of the Bid Advances then outstanding,
and such deemed use of the aggregate amount of the Commitments shall be
applied to the Lenders ratably according to their respective Commitments;
provided, however, that any Lender's Bid Advances shall not otherwise
reduce that Lender's obligation to lend its pro rata share of the
remaining Available Commitments.
(b) Notice of Bid Borrowing. Any Borrower may request a Bid Borrowing by
delivering to the Agent a notice of a Bid Borrowing (a "Notice of Bid
Borrowing"), in substantially the form of Exhibit B-2, specifying the
following:
(i) the date and aggregate amount of the proposed Bid Borrowing,
(ii) the maturity date for repayment of each Bid Advance to be made
as part of such Bid Borrowing, which maturity date
(A) may not be later than 5 Business Days prior to the
Termination Date, but may otherwise be 7 days or more
from the date of such requested Bid Advance if the
Borrower specifies in the Notice of Bid Borrowing that
the rates of interest to be offered by the Lenders will
be fixed rates per annum (a "Fixed Rate Borrowing"),
and
(B) shall be either 1, 2, 3, 6 or 9 months from the date of
such Bid Borrowing if the Borrower specifies in the
Notice of Bid Borrowing that such Bid Borrowing is to
consist of Eurodollar Rate Bid Advances (a "Eurodollar
Rate Bid Borrowing"),
(iii) the interest payment date or dates relating thereto, and
(iv) any other terms to be applicable to such Bid Borrowing.
A Borrower requesting a Bid Borrowing shall deliver a Notice of Bid
Borrowing to the Agent not later than 11:00 a.m. (New York City time) (A)
at least one Business Day prior to the date of the proposed Bid Borrowing
if the proposed Bid Borrowing is to be a Fixed Rate Borrowing, and (B) at
least four Business Days prior to the date of the proposed Bid Borrowing,
if the proposed Bid Borrowing is to be a Eurodollar Rate Bid Borrowing.
Every Notice of Bid Borrowing given by a Subsidiary Borrower must be
countersigned by an authorized representative of TBC, in order to evidence
the consent of TBC, in its sole discretion, to that proposed Bid Borrowing.
The Agent shall in turn promptly notify each Lender of each request for
a Bid Borrowing by sending such Lender a copy of the related Notice of
Bid Borrowing.
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(c) Discretion as to Bid Advances. Each Lender may, in its sole discretion,
elect to irrevocably offer to make one or more Bid Advances to the
applicable Borrower as part of such proposed Bid Borrowing at a rate or
rates of interest specified by such Lender in its sole discretion (each
such rate of interest to be a fixed rate if the Borrower requested Fixed
Rate Advances or a margin over the Eurodollar Rate if the Borrower
requested Eurodollar Rate Bid Advances), by notifying the Agent (which
shall give prompt notice thereof to the Company and such Borrower),
before 10:00 a.m. (New York City time) (A) on the date of such proposed
Bid Borrowing, if the proposed Bid Borrowing is to be a Fixed Rate
Borrowing and (B) three Business Days before the date of such proposed Bid
Borrowing, in the case of a Notice of Bid Borrowing is to be a Eurodollar
Rate Bid Borrowing. In such notice the Lender shall specify the following:
(i) the minimum amount and maximum amount of each Bid Advance which
such Lender would be willing to make as part of such proposed Bid
Borrowing (which amounts may, subject to the first proviso in this
Section 2.5(a), exceed such Lender's Commitment),
(ii) the rate or rates of interest therefor (specified as stated in
this paragraph (c)), and
(iii) such Lender's Applicable Lending Office with respect to such Bid
Advance; provided that if the Agent in its capacity as a Lender,
in its sole discretion, elects to make any such offer, it shall
notify such Borrower and the Company of such offer before 9:30 a.m.
(New York City time) on the date on which notice of such election
is to be given to the Agent by the other Lenders. If, by 10:00 a.m.
(New York City time) on the date on which notice of a Lender's
election under this Section 2.5(c) is to be made, the Agent fails
to receive, at its address specified in Section 8.2, a notice from
a Lender provided for in this Section 2.5(c), the Agent may
conclusively presume that such Lender has elected not to offer to
make any Bid Advances to such Borrower with respect to the related
Notice of Bid Borrowing.
(d) Borrower Selection of Lender Bids. The Borrower proposing the Bid
Borrowing shall, in turn, (A) before 11:00 a.m. (New York City time) on
the date of such proposed Bid Borrowing, in the case of a proposed Bid
Borrowing to be a Fixed Rate Borrowing, and (B) before 12:00 noon (New
York City time) three Business Days before the date of such proposed Bid
Borrowing, in the case of a proposed Bid Borrowing to be a Eurodollar Rate
Bid Borrowing, either:
(i) cancel such Bid Borrowing by giving the Agent notice to that
effect, or
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(ii) accept, in its sole discretion, one or more of the offers made by a
Lender or Lenders pursuant to Section 2.5(c), by giving notice to
the Agent of the amount of each Bid Advance (which amount shall be
equal to or greater than the minimum amount and equal to or less
than the maximum amount, notified to such Borrower by the Agent on
behalf of such Lender for such Bid Advance pursuant to Section
2.5(c)) to be made by each Lender as part of such Bid Borrowing,
and reject any remaining offers made by Lenders pursuant to Section
2.5(c) by giving the Agent notice to that effect; provided that
offers will be accepted, if at all, in order of lowest to highest
interest rates, and, if two or more Lenders bid at the same rate,
the Bid Borrowing with respect to such rate will be allocated among
such Lenders in proportion to the amount bid by each such Lender.
If the Borrower proposing the Bid Borrowing notifies the Agent that
such Bid Borrowing is canceled pursuant to Section 2.5(d)(i), the
Agent shall give prompt notice thereof to the Lenders and such Bid
Borrowing shall not be made.
(e) Bid Borrowing. If the Borrower proposing the Bid Borrowing accepts one or
more of the offers made by a Lender or Lenders pursuant to Section
2.5(d)(ii), the Agent shall in turn promptly
(i) notify each Lender that has made an offer as described in Section
2.5(c), of the date and aggregate amount of such Bid Borrowing
and whether or not any offer or offers made by such Lender pursuant
to Section 2.5(c) have been accepted by such Borrower,
(ii) notify each Lender that is to make a Bid Advance, as part of such
Bid Borrowing, of the amount of each Bid Advance to be made by such
Lender as part of such Bid Borrowing, and
(iii) upon satisfaction of the conditions set forth in 5.3 or 5.6, as
applicable, notify each Lender that is to make a Bid Advance as
part of such Bid Borrowing that the applicable conditions set forth
in Article 5 appear to have been satisfied.
When each Lender that is to make a Bid Advance as part of such Bid
Borrowing has received notice from the Agent pursuant to clause (iii) of
the preceding sentence, such Lender shall, before 1:00 p.m. (New York City
time) on the date of such Bid Borrowing specified in the notice received
from the Agent pursuant to clause (i) of the preceding sentence, make
available for the account of its Applicable Lending Office to the Agent at
the Agent's Account such Lender's portion of such Bid Borrowing, in same
day funds. Upon fulfillment of the applicable conditions set forth in
Article 5 and after receipt by the Agent of such funds, the Agent will make
such funds available to the relevant Borrower at an account specified by
such Borrower. Promptly after each Bid Borrowing the Agent shall notify
each Lender of the amount of the Bid Borrowing, the consequent Bid
Reduction, and the dates upon which such Bid Reduction commenced and will
terminate.
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(f) If the Borrower proposing such Bid Borrowing notifies the Agent pursuant to
Section 2.5(d)(ii) above that it accepts one or more of the offers made by
any Lender or Lenders, such notice of acceptance shall be irrevocable and
binding on such Borrower. Such Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in the related
Notice of Bid Borrowing for such Bid Borrowing the applicable conditions
set forth in Article 5, including, without limitation, any loss (but
excluding loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Bid Advance to be made by such Lender as part of
such Bid Borrowing when such Bid Advance, as a result of such failure, is
not made on such date.
(g) Amount of Bid Borrowings. Each Notice of Bid Borrowing shall request an
aggregate amount of Bid Advances not less than $10,000,000 or an integral
multiple of $1,000,000 in excess thereof, provided that a Borrower may
accept offers aggregating less than $10,000,000 and offers which are not an
integral multiple of $1,000,000, and provided further that, as provided in
Section 2.5(a), following the making of each Bid Borrowing, the aggregate
amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Lenders (computed without regard to the
Bid Reduction). Within the limits and on the conditions set forth in this
Section 2.5, the Borrowers may from time to time borrow under this Section
2.5, repay pursuant to Section 2.5(g), and reborrow under this Section 2.5,
provided that a Bid Borrowing shall not be made within three Business Days
of the date of any other Bid Borrowing.
(h) Repayment of Bid Advances. On the maturity date of each Bid Advance
specified by the relevant Borrower for repayment of such Bid Advance in the
related Notice of Bid Borrowing, the Borrower shall repay to the Agent for
the account of the Lender which has made such Bid Advance the then unpaid
principal amount of such Bid Advance. The Borrowers shall have no right to
prepay any principal amount of any Bid Advance.
(i) Interest on Bid Advances; Bid Notes. The relevant Borrower shall pay
interest on the unpaid principal amount of each Bid Advance, from the date
of such Bid Advance to the date the principal amount of such Bid Advance is
repaid in full, at the fixed rate of interest specified by the Lender
making such Fixed Rate Advance in its notice with respect thereto
delivered pursuant to Section 2.5(c) or, in the case of a Eurodollar Rate
Bid Advance, the margin specified by the Lender making such Bid Advance in
its notice with respect thereto plus the Eurodollar Rate determined with
respect to such Bid Borrowing pursuant to Section 2.10, payable on the
interest payment date or dates specified by the Borrower for such Bid
Advance in the related Notice of Bid Borrowing. Upon the occurrence and
during the continuance of an Event of Default, the applicable Borrower
shall pay interest on the amount of unpaid principal of and interest on
each Bid Advance owing to a Lender, payable in arrears on the date or dates
interest is payable thereon, at a rate per annum equal at all times to 1%
per annum above the rate per annum required to be paid on such Bid Advance
under the terms of the Bid Note evidencing such Bid Advance unless
otherwise agreed in such Bid Note. The indebtedness of the applicable
Borrower resulting from each Bid Advance made to the Borrower as part of a
Bid Borrowing shall be evidenced by a separate Bid Note of such Borrower
payable to the order of the Lender making such Bid Advance, which Bid Note
shall be returned to the Borrower upon payment in full of such Bid Advance.
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2.6 Lender Assignment or Sale. Any Lender may, without the prior written
consent of the Borrowers, sell or assign all or any part of such Lender's
rights in any or all of the Bid Advances made by such Lender or in the Bid
Notes in connection with such Bid Advances as a participation, provided,
however, that
(i) any such sale or assignment shall not require any Borrower to file a
registration statement with the Securities and Exchange Commission or
apply to qualify the Advances or the Notes under the blue sky laws of
any state, and the selling or assigning Lender shall otherwise comply
with all federal and state securities laws applicable to such
transaction,
(ii) no purchaser or assignee in such a transaction shall thereby become a
"Lender" for any purpose under this Agreement,
(iii) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrowers) shall remain unchanged,
(iv) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, and
(v) the Borrowers, the Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement.
2.7 Fees. TBC agrees to pay to the Agent for the account of each Lender a
facility fee ("Facility Fee") on such Lender's Commitment, without regard
to usage. The Facility Fee shall be payable for the periods from the date
hereof in the case of each Lender named in Schedule I, and from the
effective date on which any other Lender becomes party hereto, until the
Termination Date (or such earlier date on which such Lender ceases to be a
party hereto) at the rate per annum equal to the Applicable Percentage in
effect from time to time. Facility Fees shall be payable in arrears on
each January 1, April 1, July 1 and October 1 during the term of this
Agreement until and on the Termination Date. The amount of the Facility
Fee payable on January 1, 2002 and on the Termination Date shall be
prorated based on the actual number of days elapsed either since the date
hereof (in the case of the January 1, 2002 payment) or since the date on
which the last payment in respect of the Facility Fee was made (in the case
of the payment made on the Termination Date).
2.8 Reduction of the Commitments.
(a) Optional Reductions. TBC shall have the right, upon at least 3 Business
Days' notice to the Agent, to terminate in whole or reduce ratably in part
the unused portions of the Commitments, provided that each partial
reduction shall be in a minimum amount of $10,000,000 or an integral
multiple of $1,000,000 in excess thereof, and provided further that the
aggregate amount of the Commitments shall not be reduced to an amount which
is less than the aggregate principal amount of the Bid Advances then
outstanding.
(b) Mandatory Reduction. At the close of business on the Termination Date, the
aggregate Commitments shall be automatically and permanently reduced, on a
pro rata basis, by an amount equal to the amount by which the aggregate
Commitments immediately prior to giving effect to such reduction exceed the
aggregate unpaid principal amount of the Committed Advances then
outstanding.
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2.9 Additional Interest on Eurodollar Rate Committed Advances. Each Borrower
shall pay to each Lender, so long as such Lender is required under
regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of each Eurodollar Rate Committed Advance of such Lender
to such Borrower, from the date of such Committed Advance until such
principal amount is paid in full, at an interest rate per annum for each
Interest Period equal to the remainder obtained by subtracting (i) the
Eurodollar Rate for such Interest Period for such Committed Advance from
(ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender
for such Interest Period, payable on each date on which interest is payable
on such Committed Advance. Such additional interest shall be determined by
such Lender and notified to the relevant Borrowers through the Agent.
2.10 Eurodollar Interest Rate Determination.
(a) Methods to Determine Eurodollar Rate. The Agent shall determine the
Eurodollar Rate for each Eurodollar Rate Advance by using the methods
described in the definition of the term "Eurodollar Rate," and shall give
prompt notice to the relevant Borrowers and the Lenders of each such
Eurodollar Rate.
(b) Role of Reference Banks. In the event the Eurodollar Rate cannot be
determined by the first method described in the definition of "Eurodollar
Rate," each Reference Bank shall furnish to the Agent timely information
for the purpose of determining the Eurodollar Rate in accordance with the
second method described therein. If any one or more of the Reference Banks
does not furnish such timely information to the Agent for the purpose of
determining a Eurodollar Rate, the Agent shall determine such interest rate
on the basis of timely information furnished by the remaining Reference
Banks. In the event the rate cannot be determined by either of the methods
described in the definition of "Eurodollar Rate," then:
(i) the Agent shall forthwith notify the Borrowers and the Lenders that
the interest rate cannot be determined for such Eurodollar Rate
Advances,
(ii) each such Advance, if a Committed Advance, will automatically, on the
last day of the then existing Interest Period therefor, Convert into
a Base Rate Advance (or if the Borrower was attempting to Convert a
Base Rate Advance into a Eurodollar Rate Committed Advance, such
Advance will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate Bid Advances,
or to make, or to Convert Base Rate Advances into, Eurodollar Rate
Committed Advances shall be suspended until the Agent notifies the
Borrowers and the Lenders that the circumstances causing such
suspension no longer exist.
(c) Inadequate Eurodollar Rate. If, with respect to any Eurodollar Rate
Committed Advances, the Majority Lenders notify the Agent that the
Eurodollar Rate for any Interest Period for such Committed Advances will
not adequately reflect the cost to such Majority Lenders of making, funding
or maintaining their respective Eurodollar Rate Committed Advances for such
Interest Period, the Agent shall forthwith so notify the relevant Borrowers
and the Lenders, whereupon
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(i) each such Eurodollar Rate Committed Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a
Base Rate Advance, and
(ii) the obligation of the Lenders to make, or to Convert Base Rate
Advances into, Eurodollar Rate Committed Advances shall be suspended
until the Agent notifies the Borrowers and the Lenders that the
circumstances causing such suspension no longer exist.
(d) Absence of an Interest Period on a Eurodollar Rate Committed Advance. If a
Borrower fails to select the duration of an Interest Period for a
Eurodollar Rate Committed Advance in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.1, the Agent
will forthwith so notify the Borrower and the Lenders and such Committed
Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
2.11 Voluntary Conversion of Committed Advances. Subject to the provisions of
Sections 2.10 and 2.15, any Borrower may Convert all such Borrower's
Committed Advances of one Type constituting the same Committed Borrowing
into Advances of the other Type on any Business Day, upon notice given to
the Agent not later than 11:00 a.m. (New York City time) on the third
Business Day prior to the date of the proposed Conversion; provided,
however, that the Conversion of a Eurodollar Rate Committed Advance into a
Base Rate Advance may be made on, and only on, the last day of an Interest
Period for such Eurodollar Rate Committed Advance. Each such notice of a
Conversion shall, within the restrictions specified above, specify
(i) the date of such Conversion,
(ii) the Committed Advances to be Converted, and
(iii) if such Conversion is into Eurodollar Rate Committed Advances, the
duration of the Interest Period for each such Committed Advance.
2.12 Prepayments. Any Borrower shall have the right at any time and from time
to time, upon prior written notice from such Borrower to the Agent, to
prepay its outstanding principal obligations with respect to its Committed
Advances in whole or ratably in part (except as provided in Section 2.15 or
2.19), provided that every notice of prepayment given by a Subsidiary
Borrower must be countersigned by an authorized representative of TBC, in
order to evidence the consent of TBC, in its sole discretion, to that
prepayment. Such prepaying Borrower may be obligated to make certain
prepayments of obligations with respect to one or more Committed Advances
subject to and in accordance with this Section 2.12.
(a) Base Rate Borrowings Prepayments. With respect to Base Rate Borrowings,
such prepayment shall be without premium or penalty, upon notice given to
the Agent, and shall be made not later than 11:00 a.m. (New York City time)
on the date of such prepayment. The Borrower shall designate in such
notice the amount and date of such prepayment. Accrued interest on the
amount so prepaid shall be payable on the first Business Day of the
calendar quarter next following the prepayment. The minimum amount of Base
Rate Borrowings which may be prepaid on any occasion shall be $10,000,000
or an integral multiple of $1,000,000 in excess thereof or, if less, the
total amount of Base Rate Advances then outstanding for that Borrower.
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(b) Eurodollar Rate Committed Borrowings Prepayments. With respect to
Eurodollar Rate Committed Borrowings, such prepayment shall be made on at
least 3 Business Days' prior written notice to the Agent not later than
11:00 a.m. (New York City time), and if such notice is given the applicable
Borrower shall prepay the outstanding principal amount of the Committed
Advances constituting part of the same Committed Borrowing in whole or
ratably in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid. The minimum amount of
Eurodollar Rate Committed Borrowings which may be prepaid on any occasion
shall be $10,000,000 or an integral multiple of $1,000,000 in excess
thereof or, if less, the total amount of Eurodollar Rate Committed Advances
then outstanding for that Borrower.
(c) Additional Prepayment Payments. The prepaying Borrower shall, on the date
of the prepayment, pay to the Agent for the account of each Lender interest
accrued to such date of prepayment on the principal amount prepaid plus, in
the case only of a prepayment on any date which is not the last day of an
applicable Eurodollar Interest Period, any amounts which may be required to
compensate such Lender for any losses or out-of-pocket costs or expenses
(including any loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds, but excluding loss of
anticipated profits) incurred by such Lender as a result of such
prepayment, provided that such Lender shall exercise reasonable efforts to
minimize any such losses, costs and expenses.
(d) Eurodollar Rate Committed Advance Prepayment Expense. If, due to the
acceleration of any of the Committed Advances pursuant to Section 6.2(b),
an assignment, repayment or prepayment under Section 2.19 or 2.20 or
otherwise, any Lender receives payment of its portion of, or is subject to
any Conversion from, any Eurodollar Rate Committed Advance on any day other
than the last day of an Interest Period with respect to such Committed
Advance, the relevant Borrowers shall pay to the Agent for the account of
such Lender any amounts which may be payable to such Lender by such
Borrower by reason of payment on such day as provided in Section 2.12(c).
2.13 Increases in Costs.
(a) Costs from Law or Authorities. If, due to either
(1) the introduction of, or any change (other than, in the case of
Eurodollar Rate Borrowings, a change by way of imposition or an
increase of reserve requirements described in Section 2.9) in, or new
interpretation of, any law or regulation effective at any time and
from time to time on or after the date hereof, or
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(2) the compliance with any guideline or the request from or by any
central bank or other governmental authority (whether or not having
the force of law),
there is an increase in the cost incurred by a Lender in agreeing to make
or making, funding or maintaining any Eurodollar Rate Committed Advance or
Eurodollar Rate Bid Advance then or at any time thereafter outstanding
(excluding for purposes of this Section 2.13 any such increased costs
resulting from (i) Taxes or Other Taxes (as to which Section 2.14 shall
govern) and (ii) changes in the basis of taxation of overall net income or
overall gross income by the United States or by the foreign jurisdiction or
state under the laws of which such Lender is organized or has its
Applicable Lending Office (or any political subdivision thereof), then TBC
shall from time to time, upon demand of such Lender (with a copy of such
demand to the Agent), pay to the Agent for the account of such Lender such
amounts as are required to compensate such Lender for such increased cost,
provided that such Lender shall exercise reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to minimize
any such increased cost and provided further that the Borrowers shall not
be required to pay any such compensation with respect to any period prior
to the 90th day before the date of any such demand, unless such
introduction, change, compliance or request shall have retroactive effect
to a date prior to such 90th day. A certificate as to the amount of such
increase in cost, submitted to the relevant Borrowers and the Agent by such
Lender, shall be conclusive and binding for all purposes under this Section
2.13(a), absent manifest error.
(b) Increased Capital Requirements. If any Lender determines that compliance
with any law or regulation or any guidelines or request from any central
bank or other governmental authority (whether or not having the force of
law) which is enacted, adopted or issued at any time and from time to time
after the date hereof affects or would affect the amount of capital
required or expected to be maintained by such Lender (or any corporation
controlling such Lender) and that the amount of such capital is increased
by or based upon the existence of such Lender's Commitment and other
commitments of this type, then, upon demand by such Lender (with a copy of
such demand to the Agent), the Borrowers shall immediately pay to the Agent
for the account of such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender in the
light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of
such Lender's Commitment, provided that such Lender shall exercise
reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to minimize any such compensation payable by the
Borrowers hereunder and provided further that the Borrowers shall not be
required to pay any such compensation with respect to any period prior to
the 90th day before the date of any such demand, unless such introduction,
change, compliance or request shall have retroactive effect to a date prior
to such 90th day. A certificate as to such amounts submitted to the
relevant Borrowers and the Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error.
(c) Borrower Rights Upon Cost Increases. Upon receipt of notice from any
Lender claiming compensation pursuant to this Section 2.13 or Section 2.14
and as long as no Default has occurred and is continuing, TBC shall have
the right, on or before the 30th day after the date of receipt of any such
notice,
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(i) to arrange for one or more Lenders or other commercial banks to assume
the Commitment of such Lender; subject, however, to payment to the
Agent by the assignor or the assignee of a processing and recording
fee of $3,500, in the event the assuming lender is not a Lender; or
(ii) to arrange for the Commitment of such Lender to be terminated and all
Committed Advances owed to such Lender to be prepaid;
and, in either case, subject to payment in full of all principal, accrued
and unpaid interest, fees and other amounts payable under this Agreement
and then owing to such Lender immediately prior to the assignment or
termination of the Commitment of such Lender.
2.14 Taxes.
(a) Exclusion and Inclusion of Taxes. Any and all payments by each Borrower
hereunder or with respect to any Advances or under any Notes shall be made,
in accordance with Section 2.16, free and clear of and without deduction
for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Agent, taxes that are imposed
on its overall net income by the United States and taxes that are imposed
on its overall net income (and franchise taxes imposed in lieu thereof) by
the state or foreign jurisdiction under the laws of which such Lender or
the Agent (as the case may be) is organized or any political subdivision
thereof and, in the case of each Lender, taxes that are imposed on its
overall net income ( and franchise taxes imposed in lieu thereof) by the
state or foreign jurisdiction of such Lender's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or with respect to any Advances or under any Notes,
hereinafter referred to as "Taxes"). If any Borrower shall be required by
law to deduct any Taxes from or in respect to any sum payable hereunder or
with respect to any Advances or under any Note to any Lender or the Agent,
(i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14) such Lender or the Agent
(as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make
such deductions and (iii) such Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) Payment of Other Taxes. In addition, each Borrower shall pay any present
or future stamp, documentary, excise, property or similar taxes, charges,
or levies that arise from any payment made hereunder or with respect to any
Advances and under any Notes or from the execution, delivery or
registration of, performance under, or otherwise with respect to, this
Agreement or any Notes ( "Other Taxes").
(c) Indemnification as to Taxes. Each Borrower shall indemnify each Lender and
the Agent for and hold it harmless against the full amount of Taxes and
Other Taxes, and for the full amount of taxes of any kind imposed by any
jurisdiction on amounts payable under this Section 2.14, imposed on or paid
by such Lender or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from
the date such Lender or the Agent (as the case may be) makes written demand
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(d) Evidence of or Exemption from Taxes. Within 30 days after the date of any
payment of Taxes, the Borrower which paid such Taxes shall furnish to the
Agent, at its address referred to in Section 8.2, the original or a
certified copy of a receipt evidencing such payment. In the case of any
payment hereunder or with respect to the Advances or under any Notes by or
on behalf of any Borrower through an account or branch outside the United
States or by or on behalf of any Borrower by a payor that is not a United
States person, if the Borrower determines that no taxes are payable in
respect thereof, such Borrower shall furnish, or shall cause such payor to
furnish, to the Agent, at such address, an opinion of counsel acceptable to
the Agent stating that such payment is exempt from Taxes. For purposes of
this subsection (d) and subsection (e), the terms "United States" and
"United States person" have the meanings specified in Section 7701 of the
Internal Revenue Code.
(e) Non-U.S. Lenders. Each Lender organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution
and delivery of this Agreement (in the case of each Lender listed in
Schedule I), and from the date on which any other Lender becomes a party
hereto (in the case of each other Lender), and from time to time thereafter
as requested in writing by TBC (but only so long thereafter as such Lender
remains lawfully able to do so), provide each of the Agent and TBC with two
original Internal Revenue Service forms W-8BEN or W-8EC1, as appropriate,
or any successor form prescribed by the Internal Revenue Service, to
establish that such Lender is not subject to, or is entitled to a reduced
rate of, United States withholding tax on payments pursuant to this
Agreement or with respect to any Advances or any Notes. If the forms
provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess
of zero, withholding tax at such rate shall be considered excluded from
Taxes unless and until such Lender provides the appropriate form certifying
that a lower rate applies, whereupon withholding tax at such lower rate
only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date on which a Lender becomes a
party to this Agreement, the Lender assignor was entitled to payments under
subsection 2.14(a) in respect of United States withholding tax with respect
to interest paid at such date, then, to such extent, the term Taxes shall
include (in addition to withholding taxes that may be imposed in the future
or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Lender assignee on such date.
If any form or document referred to in this subsection 2.14(e) requires the
disclosure of information, other than information necessary to compute the
tax payable and information required on the date hereof by Internal Revenue
Service form W-8BEN or W-8EC1, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the relevant
Borrowers and shall not be obligated to include in such form or document
confidential information.
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(f) Lender Failure to Provide IRS Forms. For any period with respect to which
any Lender has failed to provide TBC with the appropriate form described in
subsection 2.14(e) (other than if such failure is due to a change in law
occurring after the date on which a form originally was required to be
provided or if such form otherwise is not required under subsection
2.14(e)), such Lender shall not be entitled to indemnification under
subsection (a) or (c) with respect to Taxes imposed by the United States by
reason of such failure; provided, however, that should a Lender become
subject to Taxes because of its failure to deliver a form required
hereunder, TBC shall take such steps as such Lender shall reasonably
request to assist such Lender to recover such Taxes.
2.15 Illegality. If any Lender shall notify the Agent that either
(a) there is any introduction of, or change in or in the interpretation
of, any law or regulation that in the opinion of counsel for such
Lender in the relevant jurisdiction makes it unlawful, or
(b) any central bank or other governmental authority asserts that it is
unlawful
for such Lender to continue to fund or maintain any Eurodollar Rate
Advances or to perform its obligations hereunder with respect to Eurodollar
Rate Advances hereunder, then, upon the issuance of such opinion of counsel
or such assertion by a central bank or other governmental authority, the
Agent shall give notice of such opinion or assertion to the Borrowers
(accompanied by such opinion, if applicable). The Borrowers shall
forthwith either
(i) prepay in full all Eurodollar Rate Committed Advances and all
Eurodollar Rate Bid Advances made by such Lender, with accrued
interest thereon or
(ii) Convert each such Eurodollar Rate Committed Advance made by such
Lender into a Base Rate Advance.
Upon such prepayment or Conversion, the obligation of such Lender to make
Eurodollar Rate Committed Advances or Eurodollar Rate Bid Advances, or to
Convert Committed Advances into Eurodollar Rate Committed Advances, shall
be suspended until the Agent shall notify the Borrowers that the
circumstances causing such suspension no longer exists.
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2.16 Payments and Computations.
(a) Time and Distribution of Payments. The Borrowers shall make each payment
hereunder and with respect to any Advances or under any Notes not later
than 11:00 a.m. (New York City time) on the day when due in U.S. dollars to
the Agent at the Agent's Account in same day funds. The Agent shall
promptly thereafter cause to be distributed like funds relating to the
payment of principal or interest or fees ratably (other than amounts
payable pursuant to Section 2.5, 2.9, 2.13, 2.14, 2.15 or 2.19) to the
Lenders for the account of their respective Applicable Lending Offices, and
like funds relating to the payment of any other amount payable to any
Lender to such Lender for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement.
From and after the effective date of an assignment pursuant to Section
2.20, the Agent shall make all payments hereunder and with respect to any
Advances or under any Notes in respect of the interest assigned thereby to
the Lender assignee thereunder, and the parties to such assignment shall
make all appropriate adjustments in such payments for the periods prior to
such effective date directly between themselves.
(b) Computation of Interest and Fees. All computations of interest based on
the Base Rate and utilization fees shall be made by the Agent on the basis
of a year of 365 or 366 days, as the case may be. All computations of
interest based on the Eurodollar Rate or the Federal Funds Rate and of
Facility Fees shall be made by the Agent, and all computations of interest
pursuant to Section 2.9 shall be made by a Lender, on the basis of a year
of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which
such interest or fees are payable. Each determination by the Agent (or, in
the case of Section 2.9, by a Lender) of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error.
(c) Payment Due Dates. Whenever any payment hereunder or with respect to any
Advances or under any Notes shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest or fee, as the case may be; provided,
however, if such extension would cause payment of interest on or principal
of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the immediately preceding Business
Day.
(d) Presumption of Borrower Payment. Unless the Agent receives notice from a
Borrower prior to the date on which any payment is due to any Lenders
hereunder that such Borrower will not make such payment in full, the Agent
may assume that the Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each such Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent that such Borrower has
not made such payment in full to the Agent, each such Lender shall repay to
the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to
the Agent, at the Federal Funds Rate.
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2.17 Sharing of Payments, Etc. If any Lender obtains any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Committed Advances made by it (other than
pursuant to Sections 2.9, 2.13, 2.14, 2.15 or 2.19), in excess of its
ratable share of payments on account of the Committed Advances obtained by
all the Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Committed Advances made by them as shall
be necessary to cause such purchasing Lender to share the excess payment
ratably with each of them, provided, however, that if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender,
such purchase from each other Lender shall be rescinded and each such other
Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such Lender's
ratable share (according to the proportion of (i) the amount of such
Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The
Borrowers agree that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.17 may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of set-off)
with respect to such participation as fully as if such Lender were a
creditor of the Borrowers in the amount of such participation.
2.18 Evidence of Debt.
(a) Lender Records; If Notes Required. Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of each Borrower to such Lender resulting from each Committed
Advance owing to such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder in respect of Committed Advances. Each Borrower shall, upon
notice by any Lender to such Borrower (with a copy of such notice to the
Agent) to the effect that a Committed Note is required or appropriate in
order for such Lender to evidence (whether for purposes of pledge,
enforcement or otherwise) the Committed Advances owing to, or to be made
by, such Lender, such Borrower shall promptly execute and deliver to such
Lender a Committed Note payable to the order of such Lender in a principal
amount up to the Commitment of such Lender.
(b) Record of Borrowings, Payables and Payments. The Register maintained by
the Agent pursuant to Section 2.20(d) shall include a control account, and
a subsidiary account for each Lender, in which accounts (taken together)
shall be recorded
(i) the date and amount of each Borrowing made hereunder to each
Borrower, the Type of Advances constituting such Borrowing and, if
appropriate, the Interest Period applicable thereto,
(ii) the terms of each assignment pursuant to Section 2.20,
(iii) the amount of any principal or interest due and payable or to become
due and payable from each Borrower to each Lender hereunder, and
(iv) the amount of any sum received by the Agent from a Borrower hereunder
and each Lender's share thereof.
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(c) Evidence of Payment Obligations. Entries made in good faith by the Agent
in the Register pursuant to subsection (b) above, and by each Lender in its
account or accounts pursuant to subsection (a) above, shall be prima facie
evidence of the amount of principal and interest due and payable or to
become due and payable from a Borrower to, in the case of the Register,
each Lender and, in the case of such account or accounts, such Lender,
under this Agreement, absent manifest error; provided, however, that the
failure of the Agent or such Lender to make an entry, or any finding that
an entry is incorrect, in the Register or such account or accounts shall
not limit or otherwise affect the obligations of the Borrowers under this
Agreement.
2.19 Alteration of Commitments and Addition of Lenders.
(a) Alter Lender Commitment. By a written agreement executed only by TBC, the
Agent and the affected Lender and any non-party lender involved,
(i) the Commitment of such affected Lender may be increased to the amount
set forth in such agreement;
(ii) such non-party lender may be added as a Lender with a Commitment as
set forth in such agreement, provided that such lender agrees to be
bound by all the terms and provisions of this Agreement; and
(iii) the unused portion of the Commitment of such affected Lender may be
reduced or terminated and the Committed Advances owing to such Lender
may be prepaid in whole or in part, all as set forth in such
agreement.
(b) Conditions to Alteration. The Agent may execute any such agreement without
the prior consent of any Lender other than the Lender affected, provided,
however, that if at the time the Agent proposes to execute such agreement
or (A) TBC's long-term senior unsecured debt is rated lower than A- by S&P
or lower than A3 by Moody's and (B) a Default has occurred and is
continuing, then the Agent shall not execute any such agreement unless it
has first obtained the prior written consent of the Majority Lenders, and
provided further that the Agent shall not execute any such agreement
without the prior written consent of the Majority Lenders if such agreement
would increase the total of the Commitments to an amount in excess of
$3,000,000,000 or, pursuant to Section 2.19(c), $3,200,000,000.
(c) Increase Total Commitment. The Company has the right, once prior to the
initial Termination Date (and, if the Termination Date is extended pursuant
to Section 2.21, once following such extension), to increase the total of
the Commitments through a Request for Alteration, in minimum increments of
$50,000,000, up to a maximum aggregate of Commitments of $3,200,000,000,
provided that, in addition to the requirements specified in Section
2.19(b), at the time of and after giving effect to an increase, TBC's
long-term senior unsecured non-credit-enhanced debt ratings from Moody's
and S&P are better than or equal to A3 and A-, respectively. The Company
may offer the increases to
(i) the Lenders, and each Lender shall have the right, but no obligation,
to increase its Commitment, by giving notice thereof to the Agent, to
all or a portion of the proposed increase (the "Proposed Increased
Commitment"), allocations to be based on the ratio of each Lender's
Proposed Increased Commitment, if any, to the aggregate of all
Proposed Increased Commitments, and
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(ii) third party financial institutions acceptable to the Agent, provided
that the minimum commitment of each such institution equals or exceeds
$50,000,000.
(d) Request for Alteration. The Agent shall give each Lender prompt notice of
any such agreement becoming effective. All requests for Lender consent
under the provisions of this Section 2.19 shall specify the date upon which
any such increase, addition, reduction, termination, or prepayment shall
become effective (the "Effective Date") and shall be made by means of a
Request for Alteration substantially in the form as set forth in Exhibit C.
On the Effective Date on which the Commitment of any Lender is increased,
decreased, terminated or created or on which prepayment is made, all as
described in such Request for Alteration, the Borrowers or such Lender, as
the case may be, shall make available to the Agent not later than 12:30
p.m. (New York City time) on such date, in same day funds, the amount, if
any, which may be required (and the Agent shall distribute such funds
received by it to the Borrowers or to such Lenders, as the case may be) so
that at the close of business on such date the sum of the Committed
Advances of each Lender then outstanding shall be in the same proportion to
the total of the Committed Advances of all the Lenders then outstanding as
the Commitment of such Lender is to the total of the Commitments. The
Agent shall give each Lender notice of the amount to be made available by,
or to be distributed to, such Lender at least 3 Business Days before such
payment is made.
2.20 Assignments; Sales of Participations and Other Interests in Advances.
(a) Assignment of Lender Obligations. From time to time each Lender may, with
the prior written consent of TBC and subject to the qualifications set
forth below, assign to one or more Lenders or an Eligible Assignee all or
any portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Committed
Advances owing to it and the Committed Note, if any, held by it) and will,
at any time, if arranged by the Company pursuant to clause (i)(A) below
upon at least 30 days' notice to such Lender and the Agent, assign to one
or more Eligible Assignees all of its rights and obligations under this
Agreement (including without limitation, all of its Commitment, the
Committed Advances owing to it and the Committed Note, if any, held by it);
subject to the following:
(i) If such Lender notifies TBC and the Agent of its intent to request
the consent of TBC to an assignment, TBC shall have the right, for 30
days after receipt of such notice and so long as no Event of Default
has occurred and is continuing, in its sole discretion either (A) to
arrange for one or more Eligible Assignees to accept such assignment
(a "Required Assignment") or (B) to arrange for the rights and
obligations of such Lender (including, without limitation, such
Lender's Commitment), and the total Commitments, to be reduced by an
amount equal to the amount of such Lender's Commitment proposed to be
assigned and, in connection with such reduction, to prepay that
portion of the Committed Advances owing to such Lender which it
proposes to assign;
(ii) If TBC fails to notify such Lender within 30 days of TBC's receipt of
such Lender's request for consent to assignment that TBC has arranged
for an assumption or reduction of the portion of Commitment to be
assigned, the Borrowers shall be deemed to consent to the proposed
assignment;
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(iii) Any such assignment shall not require any Borrower to file a
registration statement with the Securities and Exchange Commission or
apply to qualify the interests in the Committed Advances under the
blue sky laws of any state and the assigning Lender shall otherwise
comply with all federal and state securities laws applicable to such
assignment;
(iv) The amount of the Commitment of the assigning Lender being assigned
pursuant to any such assignment (determined as of the date of the
assignment) shall either (A) equal 50% of all such rights and
obligations (or 100% in the case of a Required Assignment) or (B) not
be less than $10,000,000 or an integral multiple of $1,000,000 in
excess thereof;
(v) The aggregate amount of the Commitment assigned pursuant to all such
assignments of such Lender (after giving effect to such assignment)
shall in no event exceed 50% (except in the case of a Required
Assignment) of all such Lender's Commitment (as set forth in Schedule
I, in the case of each Lender that is a party hereto as of November
23, 2001, or as set forth in the Register as the aggregate Commitment
assigned to such Lender pursuant to one or more assignments, in the
case of any assignee); and
(vi) No Lender shall be obligated to make a Required Assignment unless
such Lender has received payments in an aggregate amount at least
equal to the outstanding principal amount of all Committed Advances
being assigned, together with accrued interest thereon to the date of
payment of such principal amount and all other amounts payable to
such Lender under this Agreement (including without limitation
Section 2.12(c), provided that such Lender shall receive its pro rata
share of the Facility Fee on the next date on which the Facility Fee
is payable).
(b) Effect of Lender Assignment. From and after the effective date of any
assignment pursuant to Section 2.20(a), (i) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such assignment, it shall have the
rights and obligations of a Lender hereunder except that such assignee may
not elect to assign any of its rights and obligations under this Agreement
acquired by such assignment for a period of nine months following the
effective date specified in such assignment and (ii) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such assignment, relinquish its rights
(other than its rights under Section 2.13, 2.14, 2.19 or 8.3 to the extent
any claim thereunder relates to an event arising prior to such assignment)
and be released from its obligations under this Agreement (and, in the case
of an assignment covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall
cease to be a party hereto).
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(c) Security Interest; Assignment to Lender Affiliate. Notwithstanding any
other provision in this Agreement, any Lender may, upon prior or
contemporaneous notice to TBC and the Agent, at any time (i) create a
security interest in all or any portion of its rights under this Agreement
(including without limitation, the Advances owing to it and the Notes held
by it, if any) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve System, and
(ii) assign all or any portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Commitment, the Committed Advances owing to it and the Committed Note held
by it, if any) to an Affiliate of such Lender unless the result of such an
assignment would be to increase the cost to any Borrowers of requesting,
borrowing, continuing, maintaining, paying or converting any Advances.
(d) Agent's Register. The Agent shall maintain at its address referred to in
Section 8.2 a copy of each assignment delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Committed Advances of each
Borrower owing to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrowers, the Agent and the Lenders may
treat each entity whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrowers or any Lender at any reasonable
time and from time to time upon reasonable prior notice. Upon receipt by
the Agent from the assigning Lender of an assignment in form and substance
satisfactory to the Agent executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with evidence of
each Committed Advance subject to such assignment, and a processing and
recording fee of $3,500 (payable by either the assignor or the assignee),
the Agent shall, if such assignment is a Required Assignment or has been
consented to by the Borrowers to the extent required by Section 2.20(a) or
has been effected pursuant to Section 2.21(c), (i) accept such assignment,
(ii) record the information contained therein in the Register, and (iii)
give prompt notice thereof to TBC.
(e) Lender Sale of Participations. Each Lender may sell participations in all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitments, the Advances owing
to it and the Notes held by it, if any) to one or more Affiliates of such
Lender or to one or more other commercial banks; provided, however, that
(i) any such participation shall not require any Borrowers to file a
registration statement with the Securities and Exchange Commission or
apply to qualify any interests in the Advances or any Notes under the
blue sky laws of any state and the Lender selling or granting such
participation shall otherwise comply with all federal and state
securities laws applicable to such transaction,
(ii) no purchaser of such a participation shall be considered to be a
"Lender" for any purpose under the Agreement,
(iii) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrowers) shall remain unchanged,
(iv) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations,
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(v) such Lender shall remain the holder of any Notes issued with respect
to its Advances for all purposes of this Agreement, and
(vi) the Borrowers, the Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement.
(f) Confidential Borrower Information. Any Lender may, in connection with any
assignment or participation or proposed assignment or participation
pursuant to this Section 2.20, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the Borrowers
furnished to such Lender by or on behalf of the Borrowers; provided,
however, that, prior to any such disclosure of Confidential Information,
such Lender shall obtain the written consent of the Borrowers, and the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any such Confidential Information received
by it from such Lender except as disclosure may be required or appropriate
to governmental authorities, pursuant to legal process, or by law or
governmental regulation or authority.
2.21 Extension of Termination Date.
(a) Extension Request. TBC may, on behalf of itself and the Subsidiary
Borrowers, by written notice to the Agent in the form of Exhibit E (each
such notice being an "Extension Request") given no earlier than 60 days and
no later than 45 days prior to the then applicable Termination Date,
request that the then applicable Termination Date be extended to a date 364
days after the then applicable Termination Date; provided, however, that
the Borrowers shall not have exercised the Term Loan Conversion Option for
Committed Advances outstanding on such Termination Date prior to such time.
Such extension shall be effective with respect to each Lender which, by a
written notice in the form of Exhibit F (a "Continuation Notice") to TBC
and the Agent given no earlier than 30 days and no later than 20 days prior
to the then applicable Termination Date, consents, in its sole discretion,
to such extension (each Lender giving a Continuation Notice being referred
to sometimes as a "Continuing Lender" and each Lender other than a
Continuing Lender being a "Non-Extending Lender"), provided, however, that
such extension shall be effective only if the aggregate Commitments of the
Continuing Lenders are not less than 51% of the aggregate Commitments of
the Lenders on the date of the Extension Request. No Lender shall have any
obligation to consent to any such extension of the Termination Date. The
Agent shall notify each Lender of the receipt of an Extension Request
within three (3) Business Days after receipt thereof. The Agent shall
notify the Company and the Lenders no later than 15 days prior to the then
applicable Termination Date whether the Agent has received Continuation
Notices from Lenders holding at least 51% of the aggregate Commitments on
the date of the Extension Request.
(b) Non-Extending Lenders. The Commitment of each Non-Extending Lender shall
terminate at the close of business on the Termination Date in effect prior
to the delivery of such Extension Request without giving any effect to such
proposed extension, and on such Termination Date TBC shall take one of the
following three actions:
(i) Replace the Non-Extending Lenders pursuant to Section 2.21(c); or
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(ii) Pay or cause to be paid to the Agent, for the account of the
Non-Extending Lenders, an amount equal to the Non-Extending Lenders'
Committed Advances, together with accrued but unpaid interest and
fees thereon and all other amounts then payable hereunder to the
Non-Extending Lenders; or
(iii) By giving notice to the Agent no later than three days prior to the
Termination Date in effect prior to the delivery of such Extension
Request, elect not to extend the Termination Date beyond the then
applicable Termination Date, and in this event the Borrowers may in
their sole discretion repay any amount of the Committed Advances then
outstanding or exercise the Term Loan Conversion Option with respect
to the Committed Advances outstanding on the Termination Date in
accordance with Section 2.3.
(c) Replacement Lenders. A Non-Extending Lender shall be obligated, at the
request of TBC, to assign at any time prior to the close of business on the
Termination Date applicable to such Non-Extending Lender all of its rights
(other than rights that would survive the termination of the Agreement
pursuant to Section 8.3) and obligations hereunder to one or more Lenders
or other commercial banks nominated by TBC and willing to become Lenders in
place of such Non-Extending Lender (the "Replacement Lenders"). In order
to qualify as a Replacement Lender, a Lender or lender must satisfy all of
the requirements of this Agreement (including without limitation the terms
of Section 2.20 relating to Required Assignments). Such obligation of each
Non-Extending Lenders is subject to such Non-Extending Lender's receiving
(i) payment in full from the Replacement Lenders of the principal amount of
all Advances owing to such Non-Extending Lender immediately prior to an
assignment to the Replacement Lenders and (ii) payment in full from the
relevant Borrowers of all accrued interest and fees and other amounts
payable hereunder and then owing to such Non-Extending Lender immediately
prior to the assignment to the Replacement Lenders. Upon such assignment,
the Non-Extending Lender shall no longer be a Lender, such Replacement
Lender shall become a Continuing Lender, and the Agent shall make
appropriate entries in the Register to reflect the foregoing.
2.22 Subsidiary Borrowers.
(a) Subsidiary Borrower Designation. TBC may at any time, and from time to
time, by delivery to the Agent of a Borrower Subsidiary Letter
substantially in the form of Exhibit D, duly executed by TBC and the
respective Subsidiary, designate such Subsidiary as a "Subsidiary Borrower"
for purposes of this Agreement, and such Subsidiary shall thereupon become
a "Subsidiary Borrower" for purposes of this Agreement and, as such, shall
have all of the rights and obligations of a Borrower hereunder. The Agent
shall promptly notify each Lender of each such designation by TBC and the
identity of the designated Subsidiary.
(b) TBC Consent to Subsidiary Borrower Borrowings and Notices. No Advances
shall be made to a Subsidiary Borrower, and no Conversion of any Advances
at the request of a Subsidiary Borrower shall be effective, without, in
each and every instance, the prior consent of TBC, in its sole discretion,
which shall be evidenced by the countersignature of TBC to the relevant
Notice of Borrowing or notice of Conversion. In addition, no notices which
are to be delivered by a Borrower hereunder shall be effective, with
respect to any Subsidiary Borrower, unless the notice is countersigned by
TBC.
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(c) Subsidiary Borrower Termination Event. The occurrence of any of the
following events with respect to any Subsidiary Borrower shall constitute a
"Subsidiary Borrower Termination Event" with respect to such Subsidiary
Borrower:
(i) such Subsidiary Borrower ceases to be a Subsidiary;
(ii) such Subsidiary Borrower is liquidated or dissolved;
(iii) such Subsidiary Borrower fails to preserve and maintain its existence
or makes any material change in the nature of its business as carried
out on the date such Subsidiary Borrower became a Borrower hereunder;
(iv) such Subsidiary Borrower merges or consolidates with or into another
Person, or conveys, transfers, leases, or otherwise disposes of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter
acquired) to any Person (except that a Subsidiary Borrower may merge
into or dispose of assets to another Borrower);
(v) any of the "Events of Default" described in Section 6.1(a) through
(f) occurs to or with respect to such Subsidiary Borrower as if such
Subsidiary Borrower were "TBC"; or
(vi) the Guaranty with respect to such Subsidiary Borrower ceases, for any
reason, to be valid and binding on TBC or TBC so states in writing.
(d) Terminated Subsidiary Borrower. Upon the occurrence of a Subsidiary
Borrower Termination Event with respect to any Subsidiary Borrower, such
Subsidiary Borrower (a "Terminated Subsidiary Borrower") shall cease to be
a Borrower for purposes of this Agreement and shall no longer be entitled
to request or borrow Advances hereunder. All outstanding Advances of a
Terminated Subsidiary Borrower shall be automatically due and payable as of
the date on which the Subsidiary Borrower Termination Event of such
Terminated Subsidiary Borrower occurred, together with accrued interest
thereon and any other amounts then due and payable by that Borrower
hereunder, unless, in the case of a Subsidiary Borrower Termination Event
described in paragraph (iv) of Section 2.22(c), the other Person party to
the transaction is a Borrower and such other Borrower has assumed in
writing all of the outstanding Advances and other obligations under this
Agreement and under the Notes, if any, of the Terminated Subsidiary
Borrower.
(e) TBC as Subsidiary Borrowers' Agent. Each of the Subsidiary Borrowers
hereby appoints and authorizes TBC to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to
TBC by the terms hereof, together with such powers as are reasonably
incidental thereto.
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(f) Subsidiaries' Several Liabilities. Notwithstanding anything in this
Agreement to the contrary, each of the Subsidiary Borrowers shall be
severally liable for the liabilities and obligations of such Subsidiary
Borrower under this Agreement and its Borrowings, and Notes, if any. No
Subsidiary Borrower shall be liable for the obligations of any other
Borrower under this Agreement or any Borrowings of any other Borrower or
any other Borrower's Notes, if any. Each Subsidiary Borrower shall be
severally liable for all payments of the principal of and interest on
Advances to such Subsidiary Borrower, and any other amounts due hereunder
that are specifically allocable to such Subsidiary Borrower or the Advances
to such Subsidiary Borrower. With respect to any amounts due hereunder,
including fees, that are not specifically allocable to a particular
Borrower, each Borrower shall be liable for such amount pro rata in the
same proportion as such Borrower's outstanding Advances bear to the total
of then-outstanding Advances to all Borrowers.
Article 3
Representations and Warranties
3.1 Representations and Warranties by the Borrowers. Each of the Borrowers
represents and warrants as follows:
(a) Corporate Standing. TBC is a duly organized corporation existing in good
standing under the laws of the State of Delaware. Each Subsidiary Borrower
is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, and each of TBC and each Subsidiary
Borrower is qualified to do business in every jurisdiction where such
qualification is required, except where the failure to so qualify would not
have a material adverse effect on the financial condition of TBC and the
Subsidiary Borrowers as a whole.
(b) Corporate Powers; Governmental Approvals. The execution and delivery and
the performance of the terms of this Agreement are, and the execution and
delivery and the performance of the terms of any Notes and of each Guaranty
will be, within the corporate powers of each Borrower party thereto, have
been or will have been (as appropriate) duly authorized by all necessary
corporate action, have, or will have, received (as appropriate) all
necessary governmental approval, if any (which approval, if any, remains in
full force and effect), and do not contravene any law, any provision of the
Certificate of Incorporation or By-Laws of any Borrower party thereto or
any contractual restriction binding on any Borrower party thereto.
(c) Enforceability. This Agreement and the Notes, if any, when duly executed
and delivered by each Borrower party thereto, will constitute legal, valid
and binding obligations of such Borrower, enforceable against such Borrower
in accordance with their respective terms, and each Guaranty, when duly
executed and delivered by TBC, will constitute a legal, valid and binding
obligation of TBC, enforceable against TBC in accordance with its terms,
subject to general equitable principles and except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application
relating to creditors' rights.
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(d) No Material Pending or Threatened Actions. In TBC's opinion, there are no
pending or threatened actions or proceedings before any court or
administrative agency that are reasonably likely to have a material adverse
affect on the financial condition or operations of the Company which is
likely to impair the ability of the Company to repay the Advances or which
would affect the legality, validity or enforceability of this Agreement or
the Advances.
(e) Consolidated Statements. The Consolidated statement of financial position
as of December 31, 2000 and the related Consolidated statement of earnings
and retained earnings for the year then ended (copies of which have been
furnished to each Lender) correctly set forth the Consolidated financial
condition of TBC and its Subsidiaries as of such date and the result of the
Consolidated operations for such year. The Consolidated statement of
financial position as of September 30, 2001 and the related Consolidated
statement of earnings and retained earnings for the nine month period then
ended (copies of which have been furnished to each Lender) correctly set
forth, subject to year-end audit adjustments, the Consolidated financial
condition of TBC and its Subsidiaries as of such date and the result of the
Consolidated operations for such nine month period.
(f) Regulation U. No Borrower is engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock within the meaning
of Regulation U issued by the Board of Governors of the Federal Reserve
System, and no proceeds of any Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Following application of the
proceeds of each Advance, not more than 25 percent of the value of the
assets (either of any Borrower only or of each Borrower and its
subsidiaries on a Consolidated basis) subject to the provisions of
Section 4.2(a) or subject to any restriction contained in any agreement or
instrument between any Borrower and any Lender or any Affiliate of a Lender
relating to Debt within the scope of Section 6.1(d) will be margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System).
(g) Investment Company Act. No Borrower is an "investment company," or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended. Neither the making of any Advances, nor the
application of the proceeds or repayment thereof by any Borrower, nor the
consummation of the other transactions contemplated hereby, will violate
any provision of such Act or any rule, regulation or order of the
Securities and Exchange Commission thereunder.
(h) No Material Adverse Change. There has been no material adverse change in
the Company's financial condition or results of operations since December
31, 2000 that is likely to impair the ability of the Company to repay the
Advances.
Article 4
Covenants of TBC
4.1 Affirmative Covenants of TBC. From the date of this Agreement and so long
as any amount is payable by a Borrower to any Lender hereunder or any
Commitment is outstanding, TBC will:
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(a) Periodic Reports. Furnish to the Lenders:
(1) within 60 days after the close of each of the first three quarters of
each of TBC's fiscal years, a Consolidated statement of financial
position of TBC and the Subsidiaries as of the end of such quarter and
a Consolidated comparative statement of earnings and retained earnings
of TBC and the Subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, each
certified by an authorized officer of TBC,
(2) within 120 days after the close of each of TBC's fiscal years, and if
requested by the Agent, within 60 days after the close of each of the
first three quarters thereof, a statement certified by an authorized
officer of TBC showing in detail the computations required by the
provisions of Sections 4.2(a), 4.2(b), 4.2(c) and 4.2(d), based on the
figures which appear on the books of account of TBC and the
Subsidiaries at the close of such quarters,
(3) within 120 days after the close of each of TBC's fiscal years, a copy
of the annual audit report of TBC, certified by independent public
accountants of recognized standing acceptable to the Agent, together
with financial statements consisting of a Consolidated statement of
financial position of TBC and the Subsidiaries as of the end of such
fiscal year and a Consolidated statement of earnings and retained
earnings of TBC and the Subsidiaries for such fiscal year,
(4) within 120 days after the close of each of TBC's fiscal years, a
statement certified by the independent public accountants who shall
have prepared the corresponding audit report furnished to the Lenders
pursuant to the provisions of clause (3) of this subsection (a), to
the effect that, in the course of preparing such audit report, such
accountants had obtained no knowledge, except as specifically stated,
that TBC had been in violation of the provisions of any one of
Sections 4.2(a), 4.2(b), 4.2(c) and 4.2(d), at any time during such
fiscal year,
(5) promptly upon their becoming available, all financial statements,
reports and proxy statements which TBC sends to its stockholders,
(6) promptly upon their becoming available, all regular and periodic
financial reports which TBC or any Subsidiary files with the
Securities and Exchange Commission or any national securities
exchange,
(7) within 3 Business Days after the discovery of the occurrence of any
event which constitutes a Default, notice of such occurrence together
with a detailed statement by a responsible officer of TBC of the steps
being taken by TBC or the appropriate Subsidiary to cure the effect of
such event, and
(8) such other information respecting the financial condition and
operations of TBC or the Subsidiaries as the Agent may from time to
time reasonably request.
In lieu of furnishing the Lenders the items referred to in clauses (1),
(3), (5) and (6) above, TBC may notify the Lenders that such items are
available on TBC's website at www.boeing.com or at such other website as
notified to the Agent and the Lenders.
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(b) Payment of Taxes, Etc. Duly pay and discharge, and cause each Subsidiary
duly to pay and discharge, all material taxes, assessments and governmental
charges upon it or against its properties prior to a date which is 5
Business Days after the date on which penalties are attached thereto,
except and to the extent only that the same shall be contested in good
faith and by appropriate proceedings by TBC or the appropriate Subsidiary.
(c) Insurance. Maintain, and cause each Subsidiary to maintain, with
financially sound and reputable insurance companies or associations,
insurance of the kinds, covering the risks and in the relative
proportionate amounts usually carried by companies engaged in businesses
similar to that of TBC or such Subsidiary, except, to the extent consistent
with good business practices, such insurance may be provided by TBC through
its program of self insurance.
(d) Corporate Existence. Preserve and maintain its corporate existence.
4.2 General Negative Covenants of TBC. From the date of this Agreement and so
long as any amount shall be payable by TBC or any other Borrower to any
Lender hereunder or any Commitment shall be outstanding, TBC will not:
(a) Mortgages, Liens, Etc. Create, incur, assume or suffer to exist any
mortgage, pledge, lien, security interest or other charge or encumbrance
(including the lien or retained security title of a conditional vendor)
upon or with respect to any of its Property, Plant and Equipment, or upon
or with respect to the Property, Plant and Equipment of any Subsidiary, or
assign or otherwise convey, or permit any Subsidiary to assign or otherwise
convey, any right to receive income from or with respect to its Property,
Plant and Equipment, except
(1) liens in connection with workmen's compensation, unemployment
insurance or other social security obligations;
(2) liens securing the performance of bids, tenders, contracts (other than
for the repayment of borrowed money), leases, statutory obligations,
surety and appeal bonds, liens to secure progress or partial payments
made to TBC or such Subsidiary and other liens of like nature made in
the ordinary course of business;
(3) mechanics', workmen's, materialmen's or other like liens arising in
the ordinary course of business in respect of obligations which are
not due or which are being contested in good faith;
(4) liens for taxes not yet due or being contested in good faith and by
appropriate proceedings by TBC or the affected Subsidiary;
(5) liens which arise in connection with the leasing of equipment in the
ordinary course of business;
(6) liens on Property, Plant and Equipment owned by TBC or any Subsidiary
of TBC existing on the date of this Agreement;
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(7) liens on assets of a Person existing at the time such Person is merged
into or consolidated with TBC or a Subsidiary of TBC or at the time of
purchase, lease, or acquisition of the property or Voting Stock of
such Person as an entirety or substantially as an entirety by TBC or a
Subsidiary of TBC, whether or not any Debt secured by such liens is
assumed by TBC or such Subsidiary, provided that such liens are not
created in anticipation of such purchase, lease, acquisition or
merger;
(8) liens securing Debt of a Subsidiary of TBC owing to TBC or to another
Subsidiary;
(9) liens on assets existing at the time of acquisition of such property
by TBC or a Subsidiary of TBC or purchase money liens to secure the
payment of all or part of the purchase price of property upon
acquisition of such assets by TBC or such Subsidiary or to secure any
Debt incurred or guaranteed by TBC or a Subsidiary prior to, at the
time of, or within one year after the later of the acquisition,
completion or construction (including any improvements on existing
property), or commencement of full operation, of such property, which
Debt is incurred or guaranteed solely for the purpose of financing all
or any part of the purchase price thereof or construction or
improvements thereon; provided, however, that in the case of any such
acquisition, construction or improvement, the lien shall not apply to
any property theretofore owned by TBC or such Subsidiary other than,
in the case of such construction or improvement, any theretofore
unimproved real property on which the property so constructed or the
improvement made is located;
(10) any extension, renewal or replacement (or successive extensions,
renewals or replacements in whole or in part of any lien referred to
in the foregoing; provided, however, that the principal amount of Debt
secured thereby shall not exceed the principal amount of Debt so
secured at the time of such extension, renewal or replacement and that
such extension, renewal or replacement shall be limited to all or any
part of the property that secured the lien so extended, renewed or
replace (plus improvements and construction on such property); and
(11) other liens, charges and encumbrances, so long as the aggregate amount
of the Consolidated Debt for which all such liens, charges and
encumbrances serve as security does not exceed 15% of Consolidated net
Property, Plant and Equipment.
(b) Consolidated Debt. Permit Consolidated Debt (subject to Section 4.3) to be
at any time more than 60% of Total Capital, where "Total Capital" means the
sum of Shareholders' Equity and Consolidated Debt.
(c) Payment in Violation of an Agreement. Make any payment, or permit any
Subsidiary to make any payment, of principal or interest, on any Debt which
payment would constitute a violation of the terms of this Agreement or of
the terms of any indenture or agreement binding on such corporation or to
which such corporation is a party except, in the case of any payment made
by a Subsidiary, to the extent such payment is not likely to impair the
ability of TBC to repay the Advances.
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(d) Merger or Consolidation. Merge or consolidate with or into, or convey,
transfer, lease, or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any Person except that a Borrower may
merge or consolidate with any Person so long as such Borrower is the
surviving corporation and no Default has occurred and is continuing or
would result therefrom, and except that any direct or indirect Subsidiary
of TBC may merge or consolidate with or into, or dispose of assets to, TBC
or any other direct or indirect Subsidiary of TBC, provided, in each case,
that no Event of Default has occurred and is continuing at the time of such
proposed transaction or would result therefrom.
(e) Material Change in Business. Make any material change in the nature of its
business as carried out on the date hereof.
4.3 Financial Statement Terms. For purposes of Section 4.2(b), all
capitalized terms not defined in this Agreement shall have the respective
meanings used in TBC's published Consolidated financial statements and
calculated under the generally accepted accounting principles and practices
applied by TBC on the date hereof in the preparation of such financial
statements. However, notwithstanding the foregoing, (a) such terms shall
exclude amounts attributable to Boeing Capital Services Corporation and its
Subsidiaries and Boeing Financial Corporation, a Delaware corporation; and
(b) Total Capital shall exclude the effects of any repurchase by TBC of its
common stock and any merger-related accounting adjustments which are
attributable to the merger with or acquisition of McDonnell Douglas
Corporation by TBC.
4.4 Waivers of Covenants. The departure by TBC or any Subsidiary from the
requirements of any of the provisions of this Article 4 shall be permitted
only if such departure has been consented to in advance in a writing signed
by the Majority Lenders, and such writing shall be effective as a consent
only to the specific departure described in such writing. Such departure
by TBC or any Subsidiary when properly consented to by the Majority Lenders
shall not constitute an Event of Default under Section 6.1(c).
Article 5
Conditions Precedent to Borrowings
5.1 Conditions Precedent to the Initial Borrowing of TBC. The obligation of
each Lender to make its initial Advance to TBC is subject to receipt by the
Agent on or before the day of the initial Borrowing of all of the
following, each dated as of the day hereof, in form and substance
satisfactory to the Agent and its counsel:
(a) Documentation. Copies of all documents, certified by an officer of TBC,
evidencing necessary corporate action by TBC and governmental approvals, if
any, with respect to this Agreement, to the Notes, if any, and to
Guaranties to be delivered by TBC pursuant to Section 5.4(e);
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(b) Officer's Certificate. A certificate of the Secretary or an Assistant
Secretary of TBC which certifies the names of the officers of TBC
authorized to sign the Notes, if any, and the other documents to be
delivered hereunder, together with true specimen signatures of such
officers and facsimile signatures of officers authorized to sign by
facsimile signature (on which certificate each Lender may conclusively rely
until it receives a further certificate of the Secretary or an Assistant
Secretary of TBC canceling or amending the prior certificate and submitting
specimen signatures of the officers named in such further certificate);
(c) Opinion of Company Counsel. A favorable opinion of counsel for TBC
substantially in the form of Exhibit G and as to such other matters as the
Agent may reasonably request, which opinion TBC hereby expressly instructs
such counsel to prepare and deliver;
(d) Opinion of Agent's Counsel. A favorable opinion of Shearman & Sterling,
counsel for the Agent, substantially in the form of Exhibit H;
(e) Termination of 2000 Agreement. TBC shall have terminated in whole the
commitments of the banks parties to the 2000 Credit Agreement; and
(f) Satisfaction of 2000 Agreement Obligations. TBC and its Subsidiaries shall
have satisfied all of their respective obligations under the 2000 Credit
Agreement including, without limitation, the payment of all fees under such
agreement.
5.2 Conditions Precedent to Each Committed Borrowing of TBC. The obligation
of each Lender to make a Committed Advance on the occasion of each
Committed Borrowing (including the initial Borrowing) is subject to the
further conditions precedent that on the date of the request for a
Committed Borrowing and on the date of such Borrowing, the following
statements shall be true, and both the giving of the applicable Notice of
Committed Borrowing and the acceptance by TBC of the proceeds of such
Committed Borrowing shall be a representation by TBC that:
(a) the representations and warranties contained in subsections (a) through (g)
of Section 3.1 are true and accurate on and as of each such date as though
made on and as of each such date (except to the extent that such
representations and warranties relate solely to an earlier date); and
(b) as of each such date no event has occurred and is continuing, or would
result from the proposed Committed Borrowing, which constitutes a Default.
5.3 Conditions Precedent to Each Bid Borrowing of TBC. The obligation of any
Lender to make a Bid Advance on the occasion of a Bid Borrowing (including
the initial Borrowing) is subject to the further conditions precedent that:
(a) Notice of Bid Borrowing. The Agent shall have received the written
confirmatory Notice of Bid Borrowing with respect thereto;
(b) Bid Notes. On or before the date of such Bid Borrowing, but prior to such
Bid Borrowing, the Agent shall have received a Bid Note payable to the
order of such Lender for each of the one or more Bid Advances to be made by
such Lender as part of such Bid Borrowing, in a principal amount equal to
the principal amount of the Bid Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such Bid Advance in
accordance with Section 2.5;
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(c) Periodic Reports. Each Lender intending to make a Bid Advance shall have
received the statements provided by TBC pursuant to Section 4.1(a)(1), (2)
and (3) or shall have received notice that such statements are available
on TBC's website www.boeing.com or any successor website notified to the
Agent and the Lenders; and
(d) Representations. On the date of such request and the date of such
Borrowing, the following statements shall be true, and each of the giving
of the applicable Notice of Borrowing and the acceptance by TBC of the
proceeds of such Bid Borrowing shall be a representation by TBC that:
(i) the representations and warranties contained in subsections (a)
through (g) of Section 3.1 are true and accurate on and as of each
such date as though made on and as of each such date (except to the
extent that such representations and warranties relate solely to an
earlier date);
(ii) as of each such date no event has occurred and is continuing, or
would result from the proposed Bid Borrowing, which constitutes a
Default; and
(iii) no event has occurred andno circumstance exists as a result of which
any information concerning TBC that has been provided by TBC to the
Agent or the Lenders in connection with such Bid Borrowing would
include an untrue statement of a material fact or omit to state any
material fact or any fact necessary to make the statements contained
therein, in light of the circumstances under which they were made,
not misleading.
5.4 Conditions Precedent to the Initial Borrowing of a Subsidiary Borrower.The
obligation of each Lender to make its initial Advance to any particular
Subsidiary Borrower is subject to the receipt by the Agent, on or before
the day of the initial Borrowing by such Subsidiary Borrower, of all of
the following, each dated on or prior to the day of the initial Borrowing,
in form and substance satisfactory to the Agent and its counsel:
(a) Borrower Subsidiary Letter. A Borrower Subsidiary Letter, substantially
in the form of Exhibit D, executed by such Subsidiary Borrower and TBC;
(b) Documentation. Copies of all documents, certified by an officer of the
Subsidiary Borrower, evidencing necessary corporate action by the
Subsidiary Borrower and governmental approvals, if any, with respect to
this Agreement and any Notes;
(c) Officer's Certificate. A certificate of the Secretary or an Assistant
Secretary of TBC or the Subsidiary Borrower which certifies the names of
the officers of the Subsidiary Borrower authorized to sign the Notes and
the other documents to be delivered hereunder, together with true specimen
signatures ofsuch officers and facsimile signatures of officers authorized
to sign by facsimile signature (on which certificate each Lender may
conclusively rely until it receives a further certificate of the Secretary
or an Assistant Secretary of TBC or the Subsidiary Borrower canceling or
amending the prior certificate and submitting signatures of the officers
named in such further certificate);
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(d) Opinion of Subsidiary Counsel. A favorable opinion of in-house counsel to
the Subsidiary Borrower, substantially in the form of Exhibit I and as to
such other matters as the Agent may reasonably request; and
(e) TBC Guaranty. A Guaranty of TBC that unconditionally guarantees the
payment of all obligations of such Subsidiary Borrower hereunder and under
the Notes of such Subsidiary Borrower, substantially in the form of
Exhibit J, executed and delivered by TBC to the Agent; and
(f) Opinion of Subsidiary Counsel. A favorable opinion of in-house counsel to
TBC, substantially in the form of Exhibit K and as to such other matters
as the Agent may reasonably request.
5.5 Conditions Precedent to Each Committed Borrowing of a Subsidiary Borrower.
The obligation of each Lender to make a Committed Advance to a Subsidiary
Borrower onthe occasion of each Committed Borrowing (including the initial
Borrowing) is subject to the further conditions precedent that on the date
of the request for such Committed Borrowing and the date of such Borrowing
the following statements shall be true, and each of the giving of the
applicable Notice of Committed Borrowing and the acceptance by such
Subsidiary Borrower of the proceeds of such Committed Borrowing shall be
(a) a representation by such Subsidiary Borrower that:
(i) the representations and warranties of that Subsidiary Borrower
contained (A) in subsections (a) through (g) of Section 3.1 are true
and accurate on and as of each such date as though made on and as of
each such date (except to the extent that such representations and
warranties relate solely to an earlier date), and (B) in its Borrower
Subsidiary Letter are true and correct on and as of the date of such
Borrowing, before and after giving effect to such Borrowing; and
(ii) as of each such date no event has occurred and is continuing, or would
result from the proposed Committed Borrowing, which constitutes a
Default;
and (b) a representation by TBC that the representations and warranties of
TBC contained in subsections (a) through (g) of Section 3.1 are true and
accurate on and as of each such date as though made on and as of each such
date (except to the extent that such representations and warranties relate
solely to an earlier date), and that, as of each such date, no event has
occurred and is continuing, or would result from the proposed Committed
Borrowing, which constitutes a Default.
5.6 Conditions Precedent to Each Bid Borrowing of a Subsidiary Borrower. The
obligation of any Lender to make a Bid Advance to any particular Subsid-
-iary Borrower on the occasion of each Bid Borrowing (including the
initial Borrowing) is subject to the further conditions precedent that:
(a) Notice of Bid Borrowing. The Agent shall have received the written
confirmatory Notice of Bid Borrowing with respect thereto;
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(b) Bid Notes. On or before the date of such Bid Borrowing, but prior to such
Bid Borrowing, the Agent shall have received a Bid Note payable to the
order of such Lender for each of the one or more Bid Advances to be made
by such Lender as part of such Bid Borrowing, in a principal amount equal
to the principal amount of the Bid Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such Bid Advance in
accordance with Section 2.5;
(c) Periodic Reports. Each Lender intending to make a Bid Advance shall have
received the statements provided by TBC pursuant to Section 4.1(a)(1), (2)
and (3) or shall have received notice that such statements are available on
TBC's website; and
(d) Subsidiary Representations. On the date of such request and the date of
such Borrowing, the following statements shall be true, and each of the
giving of the applicable Notice of Bid Borrowing and the acceptance by the
Subsidiary of the proceeds of such Bid Borrowing shall be (a) a
representation by such Subsidiary Borrower that:
(i) the representations and warranties contained (A) in subsections (a)
through (g) of Section 3.1 hereof with respect to such Subsidiary
Borrower are true and accurate on and as of each such date as though
made on and as of each such date (except to the extent that such
representations and warranties relate solely to an earlier date), and
(B) in its Borrower Subsidiary Letter are true and correct on and as
of the date of such Borrowing, before and after giving effect to
such Borrowing;
(ii) as of each such date no event has occurred and is continuing, or
would result from the proposed Bid Borrowing which constitutes a
Default; and
(iii) no event has occurred and no circumstance exists as a result of which
any information concerning TBC or the Subsidiary Borrower that has
been provided by TBC or the Subsidiary Borrower to the Agent or the
Lenders in connection with such Bid Borrowing would include an untrue
statement of a material fact or omit to state any material fact or
any fact necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading; and
(e) TBC Representation. A representation by TBC that the representations and
warranties of TBC contained in subsections (a) through (g) of Section 3.1
are true and accurate on and as of each such date as though made on and as
of each such date (except to the extent that such representations and
warranties relate solely to an earlier date), and that, as of each such
date, no event has occurred and is continuing, or would result from the
proposed Committed Borrowing which constitutes a Default.
Article 6
Events of Default
6.1 Events of Default. Each of the following shall constitute an Event of
Default:
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(a) Failure by TBC to make when due any payment of principal of or interest on
any Advance or under a Guaranty when the same becomes due and payable and
such failure is not remedied within 5 Business Days thereafter;
(b) Any representation or warranty made by TBC in connection with the execution
and delivery of this Agreement, the Borrowings or any Guaranty, or
otherwise furnished pursuant hereto proves to have been incorrect when made
in any material respect;
(c) Failure by TBC to perform any other term, covenant or agreement contained
in this Agreement, and such failure is not remedied within 30 days after
written notice thereof has been given to TBC by the Agent, at the request,
or with the consent, of the Majority Lenders.
(d) Failure by TBC to pay when due (i) any obligation for the payment of
borrowed money on any regularly scheduled payment date or following
acceleration thereof or (ii)any other monetary obligation if the aggregate
unpaid principal amount of the obligations with respect to which such
failure to pay or acceleration occurred equals or exceeds $50,000,000 and
such failure is not remedied within 5 Business Days after TBC receives
notice thereof from the Agent or the creditor on such obligation.
(e) TBC or any of its Subsidiaries
(1) incurs liability with respect to any employee pension benefit plan in
excess of $150,000,000 in the aggregate under
(A) Sections 4062, 4063, 4064 or 4201 of ERISA; or
(B) otherwise under Title IV of ERISA as a result of any reportable
event within the meaning of ERISA (other than a reportable event
as to which the provision of 30 days' notice is waived under
applicable regulations);
(2) has a lien imposed on its property and rights to property under
Section 4068 of ERISA on account of a liability in excess of
$50,000,000 in the aggregate; or
(3) incurs liability under Title IV of ERISA
(A) in excess of $50,000,000 in the aggregate as a result of the
Company or any Subsidiary or any Person that is a member of the
"controlled group"(as defined in Section 4001(a)(14) of ERISA) of
the Company or any Subsidiary having filed a notice of intent to
terminate any employee pension benefit plan under the "distress
termination" provision of Section 4041 of ERISA or
(B) in excess of $50,000,000 in the aggregate as a result of the Pen-
sion Benefit Guaranty Corporation having instituted proceedings
to terminate, or to have a trustee appointed to administer, any
such plan.
(f) The happening of any of the following events, provided such event has not
then been cured or stayed:
(1) the insolvency or bankruptcy of TBC,
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(2) the cessation by TBC of the payment of its Debts as they mature,
(3) the making of an assignment for the benefit of the creditors of TBC,
(4) the appointment of a trustee or receiver or liquidator for TBC or for
a substantial part of its property, or
(5) the institution of bankruptcy, reorganization, arrangement insolvency
or similar proceedings by or against TBC under the laws of any
jurisdiction in which TBC is organized or has material business,
operations or assets.
(g) So long as any Subsidiary is a Borrower hereunder, the Guaranty with
respect to such Subsidiary Borrower for any reason ceases to be valid and
binding on TBC or TBC so states in writing.
6.2 Lenders' Rights upon Borrower Default. If an Event of Default occurs or is
continuing, then the Agent shall at the request, or may with the consent,
of the Majority Lenders, by notice to TBC,
(a) declare the obligation of each Lender to make further Advances to be
terminated, whereupon the same shall forthwith terminate, and
(b) declare the Advances, all interest thereon, and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the
Advances, all such interest and all such other amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the
Borrowers, provided, however, that in the event of an actual or deemed
entry of an order for relief with respect toany Borrower under the Federal
Bankruptcy Code (whether in connection with a voluntary or an involuntary
case), (i) the obligation of each Lender to make Advances shall
automatically be terminated and (ii) the payment obligations of the
Borrowers with respect to Advances, all such interest, and all such amount
shall automatically become and be due and payable, without presentment,
demand, protest, or any notice of any kind, all of which are hereby
expressly waived by the Borrowers.
Article 7
The Agent
7.1 Authorization and Action. Each Lender hereby appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As
to any matters not expressly provided for by this Agreement (including
without limitation, enforcement or collection of any Notes), the Agent
shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders and such instructions shall be binding upon all
Lenders and all holders of interests in Advances; provided, however, that
the Agent shall not be required to take any action which exposes the Agent
to personal liability or which is contrary to this Agreement or applicable
law. The Agent agrees to give to each Lender prompt notice of each notice
given to it by the Borrowers pursuant to the terms of this Agreement.
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7.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, the Agent:
(a) may treat the Lender that made any Advance as the payee thereof until the
Agent receives and accepts an assignment entered into by such Lender, as
assignor, and an Eligible Assignee, as assignee, as provided in Section
2.20;
(b) may consult with legal counsel (including counsel for the Borrowers),
independent public accountants and other experts selected by it and shall
not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or other
experts;
(c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or
representations
(whether written or oral) made in or in connection with this Agreement;
(d) shall not have any duty to ascertain or to inquire as to the performance
or
observance of any of the terms, covenants or conditions of this Agreement
on the part of any Borrower or to inspect the property (including the
books and records) of any Borrower;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto;
and
(f) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, cable or telex) believed by it to be genuine
and signed or sent by the proper party or parties.
7.3 Citibank, N.A. and its Affiliates. With respect to its Commitment, the
Advances made by it, and any Notes issued to it, Citibank, N.A. shall have
the same rights and powers under this Agreement as any other Lender andmay
exercise the same as though it were not the Agent hereunder; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank, N.A., in its individual capacity. Citibank, N.A. and its
Affiliates may accept deposits from, lend money to, accept drafts drawn by,
act as trustee under indentures of, and generally engage in any kind of
business with, the Company, any of its Subsidiaries and any person or
entity who may do business with or own securities of the Company or any
Subsidiary, all as if Citibank, N.A. were not the Agent hereunder and
without any duty to account therefor to the other Lenders.
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7.4 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 3.1(e) and the
representations and warranties contained in Sections 3.1 and 3.2 and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement.
7.5 Indemnification. The Lenders agree to indemnify the Agent (to the extent
not reimbursed by TBC or any other Borrower), ratably according to the
respective principal amounts of the Committed Advances then made by each of
them (or if no Committed Advances are at the time outstanding or if
interests in any Committed Advances are held by persons which are not
Lenders, ratably according to the respective amounts of their Commitments)
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement
(collectively, the "Indemnified Costs"), provided that no Lender shall be
liable for any portion of the Indemnified Costs resulting from the Agent's
gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender agrees to reimburse the Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel
fees) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, this Agreement to the
extent that the Agent is not reimbursed for such expenses by TBC or any
other Borrower. In the case of any investigation, litigation or proceeding
giving rise to any Indemnified Costs, this Section 7.5 applies whether any
such investigation, litigation or proceeding is brought by the Agent, any
Lender or a third party.
7.6 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and TBC and may be removed at any time with
or without cause by the Majority Lenders. Upon any such resignation or
TBC removal, the Majority Lenders shall have the right, with the consent
of (if no Event of Default has occurred and is continuing), which shall
not be unreasonably withheld, to appoint a successor Agent, which shall be
commercial bank organized or licensed under the laws of the United States
of America or of any state thereof and having a combined capital and
surplus of at least $50,000,000. If no successor Agent has been so
appointed by the Majority Lenders, and has accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation
or the removal of the retiring Agent as provided herein, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent which meets
the requirements set out in the previous sentence. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article 7 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
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7.7 Certain Obligations May Be Performed by Affiliates. The Agent may appoint
any of its Affiliates to perform its obligations hereunder other than any
obligation requiring the Agent to receive, pay, or otherwise handle funds
or Notes, and provided that the Agent shall continue to be responsible to
the Borrowers and the Lenders for the due performance of the Agent's
obligations under this Agreement.
Article 8
Miscellaneous
8.1 Modification, Consents and Waivers.
(a) Waiver. No failure or delay on the part of any Lender in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power
hereunder. No notice to or demand on the Borrowers in any case shall
entitle the Borrowers to any other or further notice or demand in similar
or other circumstances.
(b) Amendment. No amendment or waiver of any provision of this Agreement or of
any Committed Notes, nor consent to any departure by the Borrowers
therefrom, shall in any event be effective unless such amendment, waiver
or consent is in writing and signed by the Majority Lenders, and then such
amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however,
that no amendment, waiver or consent shall, unless in writing and signed by
all the Lenders, do any of the following:
(i) waive any of the conditions specified in Section 5.1, 5.2, or 5.3,
(ii) except as provided in Section 2.19 or Section 2.21, increase the
Commitments of the Lenders or subject the Lenders to any additional
obligations,
(iii) reduce the principal of, or interest on, the Committed Advances or
any fees or other amounts payable hereunder,
(iv) except as provided in Section 2.21, postpone any date fixed for any
payment of principal of, or interest on, the Committed Advances or
any fees or other amounts payable hereunder,
(v) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Committed Advances or the number of Lenders
required for the Lenders or any of them to take any action hereunder,
(vi) amend this Section 8.1, or
(vii) release TBC from any of its obligations under any Guaranty or limit
the liability of TBC as guarantor thereunder;
and provided further that no amendment, waiver, or consent shall, unless in
writing and signed by the Agent in addition to the Lenders required above
to take such action, affect the rights or duties of the Agent under this
Agreement or any Note.
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(c) Majority Lenders. Notwithstanding the foregoing, this Section 8.1 shall
not affect the provisions of Section 4.4, "Waivers of Covenants", or
Article 6, "Events of Default".
8.2 Notices.
(a) Addresses. All communications and notices provided for hereunder shall be
in writing and mailed, telecopied, telexed or delivered and,
if to the Agent,
Citibank, N.A.
Two Penns Way, Suite 200
New Castle, Delaware 19720
Attention: Lender Loans Syndications Department
facsimile number (302) 894-6120;
if to any Borrower,
care of The Boeing Company
100 N. Riverside
Mail Code: 5003 3648
Chicago, Illinois
Attention: Treasurer
facsimile number (312) 544-2829
if to any Lender, to its office at the address given on the signature pages
of this Agreement; or,
as to each party, at such other address as designated by such party in a
written notice to each other party referring specifically to this
Agreement.
(b) Effectiveness of Notices. All communications and notices shall, when
mailed, telecopied, or telexed, be effective when deposited in the mail,
telecopied, or confirmed by telex answerback, respectively. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement or any Notes or of any Exhibit to be executed
and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
(c) Electronic Mail. Electronic mail may be used to distribute routine
communications, such as financial statements and other information, and
documents to be signed by the parties hereto; provided, however, that no
Notice of Borrowing, signature, or other notice or document intended to be
legally binding shall be effective if sent by electronic mail.
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8.3 Costs, Expenses and Taxes.
(a) TBC shall pay upon written request all reasonable costs and expenses in
connection with the preparation, execution, delivery, modification and
amendment requested by any of the Borrowers of this Agreement, any Notes
and the Guaranties (including, without limitation, printing costs and the
reasonable fees and out-of-pocket expenses of counsel for the Agent) and
costs and expenses, if any, in connection with the enforcement of this
Agreement, any Notes and the Guaranties (whether through negotiations,
legal proceedings or otherwise and including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel), as well as any and
all stamp and other taxes, and to save the Lenders and other holders of
interests in the Advances or any Notes harmless from any and all
liabilities with respect to or resulting from any delay by or omission of
the Borrowers to pay such taxes, if any, which may be payable or determined
to be payable in connection with the execution and delivery of this
Agreement, any Notes and the Guaranties.
(b) TBC agrees to indemnify the Agent and each Lender and each of their
Affiliates and their officers, directors, employees, agents and advisors
(each, an "Indemnified Party") from and against any and all claims,
damages, losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) incurred by or asserted or awarded
against any Indemnified Party, in each case arising out of or in connection
with or by reason of (including, without limitation, in connection with any
investigation, litigation or proceeding or preparation of a defense in
connection therewith) the Advances, this Agreement, the Notes, any of the
transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, except to the extent such claim, damage, loss,
liability or expense resulted from such Indemnified Party's gross
negligence or willful misconduct and except that no Indemnified Party shall
have the right to be indemnified hereunder to the extent such
indemnification relates to relationships of, between or among each of, or
any of, the Agent, the Lenders, any assignee of a Lender or any
participant. In the case of any investigation, litigation or other
proceeding to which this Section 8.3 applies, such indemnity shall be
effective whether or not such investigation, litigation or proceeding is
brought by TBC, its directors, shareholders or creditors or an Indemnified
Party or any other Person or an Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are
consummated. The Borrowers also agree not to assert any claim on any
theory of liability for special, indirect, consequential or punitive
damages against the Agent, and Lender, any of their Affiliates, or any of
their respective directors, officers, employees, attorneys and agents,
arising out of or otherwise relating to the Notes, this Agreement, any of
the transactions contemplated herein or the actual or proposed use of the
proceeds of Advances.
8.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Borrowers, the Lenders and the Agent, and their respective
successors and assigns, except that the Borrowers may not assign or
transfer their rights hereunder without the prior written consent of the
Lenders.
171
172
8.5 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.6 Governing Law. This Agreement, any Notes, the Guaranties and each Borrower
Subsidiary Letter shall be deemed to be contracts under the laws of the
State of New York and for all purposes shall be construed in accordance
with the laws of such State.
8.7 Headings. The Table of Contents and Article and Section headings used in
this Agreement are for convenience only and shall not affect the
construction of this Agreement.
8.8 Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
8.9 Right of Set-Off. Each Lender and each of its Affiliates that is or was at
one time a Lender hereunder is authorized at any time and from time to
time, upon
(i) the occurrence and during the continuance of any Event of Default and
(ii) the making of the request or the granting of the consent specified by
Section 6.2 to authorize the Agent to declare any Advances due and
payable pursuant to the provisions of Section 6.2,
to the fullest extent permitted by law, without notice to any Borrower (any
such notice being expressly waived by each Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such
Lender or such Affiliate to or for the credit or the account of any
Borrower against any and all of the obligations to such Lender or such
Affiliate of such Borrower now or hereafter existing under this Agreement
and any Notes held by such Lender, whether or not such Lender has made a
demand under this Agreement or such Notes and although such obligations may
be unmatured. Each Lender shall promptly notify any Borrower after any
such setoff and application made by such Lender, provided that the failure
to give such notice shall not affect the validity of such setoff and
application. The rights of each Lender under this Section are in addition
to other rights and remedies (including, without limitation, other rights
of setoff) which such Lender and its Affiliates may have.
8.10 Confidentiality. Neither the Agent nor any Lender shall disclose any
Confidential Information to any other Person without the consent of a
Borrower, other than
172
173
(a) to the Agent's or such Lender's Affiliates and their officers, directors,
employees, agents and advisors and, as contemplated by Section 2.20(f), to
actual or prospective assignees and participants, and then only on a
confidential basis,
(b) as required by any law, rule or regulation or judicial process, and
(c) as requested or required by any state, federal or foreign authority or
examiner regulating banks or banking.
8.11 Agreement in Effect. This Agreement shall become effective upon its
execution and delivery, respectively, to the Agent and TBC by TBC and the
Agent, and when the Agent shall have been notified by each Lender listed on
Schedule I that such Lender has executed it.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers thereunto duly authorized as of the day and year first above
written.
THE BOEING COMPANY
By___________________________________
Title: Assistant Treasurer
CITIBANK, N.A., Individually and
as Agent
By____________________________________
Name:
Title:
JPMORGAN CHASE BANK
By____________________________________
Name:
Title:
Co-Documentation Agents
BANK OF AMERICA, N.A.
By___________________________________
Name:
Title:
DEUTSCHE BANK AG NEW YORK BRANCH
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
173
174
MITSUBISHI TOKYO FINANCIAL GROUP, INC.
THE BANK OF TOKYO-MITSUBISHI, LTD.
By___________________________________
Name:
Title:
THE MITSUBISHI TRUST AND BANKING CORPORATION
By___________________________________
Name:
Title:
Senior Managing Agents
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By___________________________________
Name:
Title:
WACHOVIA BANK, N.A.
By___________________________________
Name:
Title:
THE BANK OF NEW YORK
By___________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By___________________________________
Name:
Title:
SUMITOMO MITSUI BANKING CORPORATION
By___________________________________
Name:
Title:
Managing Agents
BANK ONE, NA
By___________________________________
Name:
Title:
174
175
BARCLAYS BANK PLC
By___________________________________
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLAND BRANCH
By___________________________________
Name:
Title:
BNP PARIBAS
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By___________________________________
Name:
Title:
FLEET NATIONAL BANK
By___________________________________
Name:
Title:
THE ROYAL BANK OF SCOTLAND PLC
By___________________________________
Name:
Title:
Lenders
ABN AMRO BANK, N.V.
By___________________________________
Name:
Title:
AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
By___________________________________
Name:
Title:
175
176
BANCO BILBAO VIZCAYA ARGENTARIA
By___________________________________
Name:
Title:
DEUTSCHE VERKEHRSBANK AG
By___________________________________
Name:
Title:
INTESABCI
By___________________________________
Name:
Title:
MERRILL LYNCH BANK USA
By___________________________________
Name:
Title:
PNC BANK, N.A.
By___________________________________
Name:
Title:
ROYAL BANK OF CANADA
By___________________________________
Name:
Title:
STANDARD CHARTERED BANK
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By___________________________________
Name:
Title:
176
177
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By___________________________________
Name:
Title:
UBS A.G. STAMFORD BRANCH
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
SCHEDULE I
APPLICABLE LENDING OFFICES
Name of Domestic Eurodollar
Initial Lender Commitment Lending Office Lending Office
ABN Amro $50,000,000 208 South LaSalle 208 South LaSalle
Bank, N.V. Suite 1500 Suite 1500
Chicago, IL 60604 Chicago, IL 60604
Attn: Dominic Blea Attn: Dominic Blea
T: 312 992-5176 T: 312 992-5176
F: 312 992-5111 F: 312 992-5111
Australia and $23,800,000 1177 Ave of the Americas 1177 Ave of the Americas
New Zealand 6th Floor 6th Floor
Banking Group New York, NY 10036 New York, NY 10036
Limited Attn: Peter Gray Attn: Peter Gray
T: 212 801-9739 T: 212 801-9739
F: 212 556-4839 F: 212 556-4839
Banco Bilbao $25,000,000 1345 Ave of the Americas 1345 Ave of the Americas
Vizcaya 45th Floor 45th Floor
New York, NY 10105 New York, NY 10105
Attn: Santiago Hernandez Attn: Santiago Hernandez
T: 212 728-1677 T: 212 728-1677
F: 212 333-2904 F: 212 333-2904
Bank One, NA $100,000,000 One Bank One Plaza One Bank One Plaza
Chicago, IL 60670 Chicago, IL 60670
Attn: Jamie Leung Attn: Jamie Leung
T: 312 732-1707 T: 312 732-1707
F: 312 732-3537 F: 312 732-3537
177
178
Bank of $210,000,000 1850 Gateway Blvd. 1850 Gateway Blvd.
America, N.A. CA4-707-05-11 CA4-707-05-11
Concord, CA 94520 Concord, CA 94520
Attn: Vilma Tang Attn: Vilma Tang
T: 925 675-7336 T: 925 675-7336
F: 925 969-2865 F: 925 969-2865
The Bank of $125,000,000 One Wall Street, One Wall Street
New York 22nd Floor 22nd Floor
New York, NY 10005 New York, NY 10005
Attn: Dawn Hertling Attn: Dawn Hertling
T: 212 635-6742 T: 212 635-6742
F: 212 635-6399 F: 212 635-6399
The Bank of $120,000,000 1201 3rd Avenue 1201 3rd Avenue
Tokyo- Suite 1100 Suite 1100
Mitsubishi, Ltd. Seattle, WA 98101 Seattle, WA 98101
Attn: Kosuke Takahashi Attn: Kosuke Takahashi
T: 206 382-6049 T: 206 382-6049
F: 206 382-6067 F: 206 382-6067
Barclays $100,000,000 222 Broadway-11th Floor 222 Broadway-11th Floor
Bank PLC New York, NY 10038 New York, NY 10038
Attn: Chimatra Michael Attn: Chimatra Michael
T: 212 412-3161 T: 212 412-3161
F: 212 412-5306 F: 212 412-5306
Bayerische $100,000,000 560 Lexington Avenue 560 Lexington Avenue
Landesbank New York, NY 10022 New York, NY 10022
Girozantrale, Attn: James Fox Attn: James Fox
New York Branch T: 212 310-9986 T: 212 310-9986
F: 212 310-9868 F: 212 310-9868
BNP Paribas $100,000,000 209 South LaSalle 209 South LaSalle
Suite 500 Suite 500
Chicago, IL 60604 Chicago, IL 60604
Attn: Catherine Lui Attn: Catherine Lui
T: 312 977-2200 T: 312 977-2200
F: 312 977-1380 F: 312 977-1380
Citibank, N.A. $238,400,000 399 Park Avenue 399 Park Avenue
12th Floor, Zone 2 12th Floor, Zone 2
New York, NY 10043 New York, NY 10043
Attn: Philippa Portnoy Attn: Philippa Portnoy
T: 212 559-5812 T: 212 559-5812
F: 212 793-1246 F: 212 793-1246
Credit $100,000,000 1301 Ave of the Americas 1301 Ave of the Americas
Lyonnais New York, NY 10019 New York, NY 10019
New York Branch Attn: Bertrand Cousin Attn: Bertrand Cousin
T: 212 261-7363 T: 212 261-7363
F: 212 261-7368 F: 212 261-7368
178
179
Credit Suisse $150,000,000 11 Madison Avenue 11 Madison Avenue
First Boston New York, NY 10010 New York, NY 10010
Attn: Robert Finney Attn: Robert Finney
T: 212 325-9038 T: 212 325-9038
F: 212 325-8319 F: 212 325-8319
Deutsche Bank $210,000,000 40 Kingsbridge Road 40 Kingsbridge Road
AG Piscataway, NJ 08854 Piscataway, NJ 08854
New York Branch Attn: Nelson Lugaro Attn: Nelson Lugaro
T: 732 981-7439 T: 732 981-7439
F: 732 981-7470 F: 732 981-7470
Deutsche $30,000,000 609 Fifth Avenue 609 Fifth Avenue
VerkehrsBank AG 10th Floor 10th Floor
New York, NY 10017 New York, NY 10017
Attn: Volker Fabian Attn: Volker Fabian
T: 212 588-8864 T: 212 588-8864
F: 212 588-8936 F: 212 588-8936
Fleet $80,000,000 100 Federal Street 100 Federal Street
National Bank Mailstop: MADE 10010A Mailstop: Made 10010A
Boston, MA 02110 Boston, MA 02110
Attn: Roger Boucher Attn: Roger Boucher
T: 617 434-3951 T: 617 434-3951
F: 617 434-0601 F: 617 434-0601
The Industrial $180,000,000 1251 Ave of the Americas 1251 Ave of the Americas
Bank of Japan, New York, NY 10020 New York, NY 10020
Limited Attn: Joe Mitarotondo Attn: Joe Mitarotondo
T: 212 282-4088 T: 212 282-4088
F: 212 282-4494 F: 212 282-4494
IntesaBCI $50,000,000 1 William Street 1 William Street
New York, NY 10004 New York, NY 10004
Attn: Frank Maffei Attn: Frank Maffei
T: 212 607-3880 T: 212 607-3880
F: 212 809-2124 F: 212 809-2124
JPMorgan $238,400,000 60 Wall Street 60 Wall Street
Chase Bank New York, NY 10260 New York, NY 10260
Attn: Bob O'sieski Attn: Bob O'sieski
T: 212 648-0342 T: 212 648-0342
F: 212 648-5939 F: 212 648-5939
Merrill Lynch $50,000,000 15 W. South Temple 15 W. South Temple
Bank USA Suite 300 Suite 300
Salt Lake City, UT 84101 Salt Lake City, UT 84101
Attn: Butch Alder Attn: Butch Alder
T: 801 526-8324 T: 801 526-8324
F: 801 531-7470 F: 801 531-7470
Mitsubishi $90,000,000 520 Madison Avenue 520 Madison Avenue
Trust & Banking New York, NY 10022 New York, NY 10022
Attn: Joe Shammas Attn: Joe Shammas
T: 212 891-8451 T: 212 891-8451
F: 212 644-6825 F: 212 644-6825
179
180
PNC Bank, N.A. $54,400,000 One PNC Plaza One PNC Plaza
249 Fifth Avenue, 249 Fifth Avenue
2nd Floor 2nd Floor
Mailstop P1-POPP-2-3 Mailstop P1-POPP-2-3
Pittsburgh, PA 15222 Pittsburgh, PA 15222
Attn: Philip K. Liebscher Attn: Philip Liebscher
T: (412) 762-3202 T: (412) 762-3202
F: (412) 762-6484 F: (412) 762-6484
Royal Bank $25,000,000 Royal Bank of Canada Royal Bank of Canada
Of Canada Centre Centre
71 Queen Victoria Street 71 Queen Victoria Street
London EC4V 4DE London EC4V 4DE
Attn: Stephan Sayre Attn: Stephan Sayre
T: 44 207 653-4625 T: 44 207 653-4625
F: 44 207 329-0247 F: 44 207 329-0247
Royal Bank $100,000,000 Waterhouse Square Waterhouse Square
Of Scotland 138-142 Holborn 138-142 Holborn
London England London England
EC1N 2TH EC1N 2TH
Attn: Andrew Waddington Attn: Andrew Waddington
T: 44 207 375-8504 T: 44 207 375-8504
F: 44 207 375-8282 F: 44 207 375-8282
Standard $50,000,000 One Evertrust Plaza One Evertrust Plaza
Chartered Bank Jersey City, NJ 07302 Jersey City, NJ 07302
Attn: Victoria Faltine Attn: Victoria Faltine
T: 201 633-3454 T: 201 633-3454
F: 201 536-04478 F: 201 536-04478
Sumitomo $150,000,000 777 South Figueroa 777 South Figueroa
Mitsui Suite 2600 Suite 2600
Banking Los Angeles, CA 90017 Los Angeles, CA 90017
Corporation Attn: Miriam Delgado Attn: Miriam Delgado
T: 213 955-0883 T: 213 955-0883
F: 213 623-6832 F: 213 623-6832
UBS AG, $50,000,000 677 Washington Blvd. 677 Washington Blvd.
Stanford Branch Stanford, CT 06901 Stanford, CT 06901
Attn: Luke Goldsworthy Attn: Luke Goldsworthy
Banking Product Services Banking Product Services
T: 203 179-0481 T: 203-179-0481
F: 203 719-4176 F: 203 719-4176
U.S. Bank $25,000,000 1420 Fifth Avenue, 1420 Fifth Avenue
National 11th Floor 11th Floor
Association Seattle, WA 98101 Seattle, WA 98101
Attn: James Farmer Attn: James Farmer
T: 206 587-5237 T: 206 587-5237
F: 206 344-3654 F: 206 344-3654
Wachovia Bank $150,000,000 191 Peachtree Street NE 191 Peachtree Street NE
Atlanta, GA 30303 Atlanta, GA 30303
Attn: Joe Baschuite Attn: Joe Baschuite
T: 404 332-5178 T: 404 332-5178
F: 404 332-4136 F: 404 332-4136
180
181
Westdeutsche $25,000,000 1211 Ave of the Americas 1211 Ave of the Americas
Landesbank New York, NY 10036 New York, NY 10036
Attn: Phil Green Attn: Phil Green
T: 212 852-6113 T: 212 852-6113
F: 212 302-7946 F: 212 302-7946
Total of Commitments: $3,000,000,000
181
182
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
2433265 Manitoba Ltd. Manitoba
692567 Ontario Limited Ontario
757UA, Inc. Delaware
767ER, Inc. Delaware
ACN 004 471 078 PTY LIMITED Australia
AeroInfo Systems, Inc. British Columbia
AeroSpace Technologies of Australia Limited Australia
Aileron Inc. Delaware
Airspace Safety Analysis Corporation Delaware
Akash, Inc. Delaware
Aldford-1 Corporation Delaware
Astro Limited Bermuda
Astro-II, Inc. Vermont
Autometric, Inc. Maryland
Autonetics, Inc. Delaware
Aviatek Pty Limited Australia
Bahasa Aircraft Corporation Delaware
BCC (Aircraft Acquisitions) Limited United Kingdom
BCC Alpine Leasing, Inc. Delaware
BCC Bayshore Leasing Inc. Delaware
BCC Bolongo Company Delaware
BCC Bolongo Limited Virgin Islands
BCC Bucuti Leasing A.V.V. Aruba
BCC Carbita Point Company Delaware
BCC Carbita Point Limited Virgin Islands
BCC Charlotte Amalie Company Delaware
BCC Charlotte Amalie Limited Virgin Islands
BCC Drakes Passage Company Delaware
BCC Drakes Passage Limited Virgin Islands
BCC Dublin Leasing Ireland
BCC Equipment Leasing Corporation Delaware
BCC Hamilton Delaware
BCC Grand Cayman Limited British West
Indies
BCC Lindbergh Bay Company Delaware
BCC Lindbergh Bay Limited Virgin Islands
BCC Mafolie Hill Company Delaware
BCC Mafolie Hill Limited Virgin Islands
BCC Magens Bay Company Delaware
BCC Magens Bay Limited Virgin Islands
BCC Mahogany Company Delaware
BCC Mahogany Limited Virgin Islands
BCC Nazareth Company Delaware
BCC Nazareth Limited Virgin Islands
BCC Red Hook Company Delaware
BCC Red Hook Limited Virgin Islands
182
183
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
BCC Shannon Leasing Ireland
BCC Smith Bay Company Delaware
BCC Smith Bay Limited Virgin Islands
BCC St. George Leasing Limited Bermuda
BCS Richland, Inc. Washington
Beaufoy-1 Corporation Delaware
BNA International Systems, Inc. Delaware
BNA Operations International, Inc. Delaware
BNJ, Inc. Delaware
Boeing - Corinth Co. Delaware
Boeing - Irving Co. Delaware
Boeing - Oak Ridge Co. Delaware
Boeing Aerospace - TAMS, Inc. Delaware
Boeing Aerospace - U.K., Ltd. Delaware
Boeing Aerospace (Malaysia) Sdn. Bhd. Malaysia
Boeing Aerospace Australia Pty. Ltd. Delaware
Boeing Aerospace Ltd. Delaware
Boeing Aerospace Middle East Limited Delaware
Boeing Aerospace Operations, Inc. Delaware
Boeing Aerospace Switzerland, Inc. Delaware
Boeing Airborne Surveillance Enterprises, Inc. Delaware
Boeing Aircraft Holding Company Delaware
Boeing Australia Limited Australia
Boeing Business Services Company Delaware
Boeing Canada Inc. Ontario
Boeing Capital Corporation Delaware
Boeing Capital Leasing Limited Ireland
Boeing Capital Loan Corporation Delaware
Boeing Capital Securities Inc. Delaware
Boeing Capital Services Corporation Delaware
Boeing Capital Services Loan Corporation Delaware
Boeing Capital Washington Corporation Delaware
Boeing China, Inc. Delaware
Boeing China Technical Services, Inc. Delaware
Boeing Commercial Information and Communication Company Delaware
Boeing Commercial Space Company Delaware
Boeing Constructors, Inc. Texas
Boeing Defence UK Limited United Kingdom
Boeing Domestic Sales Corporation Washington
Boeing Electron Dynamic Devices, Inc. Delaware
Boeing Enterprises Australia, Inc. Delaware
Boeing Exchange Holdings, Inc. Delaware
Boeing Exchange Operations, Inc. Delaware
Boeing Financial Corporation Washington
Boeing Finland Oy Finland
183
184
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
Boeing Global Management Company, Inc. Delaware
Boeing Global Sales Corporation Delaware
Boeing Global Services, Inc. Delaware
Boeing Hong Kong Limited Hong Kong
Boeing Hornet Enterprises, Inc. Delaware
Boeing International B.V. The Netherlands
Boeing International B.V. & Co. Holding KgaA Germany
Boeing International Corporation Delaware
Boeing International Holdings, Ltd. Bermuda
Boeing International Logistics Spares, Inc. Delaware
Boeing International Overhaul & Repair Inc. Delaware
Boeing International Sales Corporation Washington
Boeing Investment Company, Inc. Delaware
Boeing LTS, Inc. Delaware
Boeing Launch Services, Inc. Delaware
Boeing Leasing Company Delaware
Boeing Logistics Spares, Inc. Delaware
Boeing Louisiana, Inc. Delaware
Boeing Management Company Delaware
Boeing Middle East Limited Delaware
Boeing Nevada, Inc. Delaware
Boeing North American Space Alliance Company Delaware
Boeing North American Space Enterprises Canada, Inc. Ontario
Boeing North American Space Operations Company Delaware
Boeing of Canada Ltd. Delaware
Boeing Offset Company Inc. Delaware
Boeing Operations International, Incorporated Delaware
Boeing Overseas, Inc. Delaware
Boeing Phantom Works Investments, Inc. Delaware
Boeing Precision Gear, Inc. Delaware
Boeing Realty Corporation California
Boeing Sales Corporation Guam
Boeing Satellite Systems International, Inc. Delaware
Boeing Satellite Systems, Inc. Delaware
Boeing Service Company Texas
Boeing Space Operations Company Delaware
Boeing Space Systems International Company Delaware
Boeing Space Systems International Service Company Delaware
Boeing Spain, Ltd. Delaware
Boeing Stellar Holdings B.V. The Netherlands
Boeing Stores, Inc. Delaware
Boeing Support Services, Inc. Delaware
Boeing Technology International, Inc. Washington
Boeing Toronto, Ltd. Ontario
Boeing Travel Management Company Delaware
Boeing Worldwide Operations Limited Bermuda
Boeing-SVS, Inc. Nevada
CAG, Inc. Oregon
184
185
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
Canard Holdings, Inc. Delaware
CBSA Leasing II, Inc. Delaware
CBSA Leasing, Inc. Delaware
Continental DataGraphics Limited United Kingdom
Continental Graphics Corporation Delaware
Continental Graphics Holdings, Inc. Delaware
Cougar, Ltd. Bermuda
Delmar Photographic & Printing Company North Carolina
Dillon, Inc. Delaware
Douglas Express Limited Virgin Islands
Douglas Federal Leasing Limited Virgin Islands
Douglas Leasing Inc. Delaware
Douglas Realty Company, Inc. California
Falcon II Leasing Limited Virgin Islands
Falcon Leasing Limited Virgin Islands
Gaucho-1 Inc. Delaware
Gaucho-2 Inc. Delaware
Hanway Corporation Delaware
Hawk Leasing, Inc. Delaware
Hawker de Havilland Inc. California
Intellibus Network Solutions, Inc. Delaware
Jeppesen DataPlan, Inc. Delaware
Jeppesen GmbH Germany
Jeppesen Sanderson, Inc. Delaware
Jeppesen U.K. Limited United Kingdom
Kuta-3 Aircraft Corporation, Limited Delaware
Kuta-One Aircraft Corporation, Limited Delaware
Kuta-Three Aircraft Corporation Delaware
Kuta-Two Aircraft Corporation Delaware
Longacres Park, Inc. Washington
Longbow Golf Club Corporation Delaware
McDonnell Douglas Arabia, Limited Saudi Arabia
McDonnell Douglas Aircraft Finance Corporation Delaware
McDonnell Douglas Corporation Maryland
McDonnell Douglas Dakota Leasing, Inc. Delaware
McDonnell Douglas Express, Inc. Delaware
McDonnell Douglas F-15 Technical Services Company, Inc. Delaware
McDonnell Douglas Finance Corporation - Federal
Leasing, Limited Virgin Islands
McDonnell Douglas Foreign Sales Corporation Virgin Islands
McDonnell Douglas Helicopter Company Delaware
McDonnell Douglas Helicopter Support Services, Inc. Delaware
McDonnell Douglas Korea, Ltd. Delaware
McDonnell Douglas Indonesia Leasing, Inc. Delaware
McDonnell Douglas Insurance Holdings Corporation Delaware
McDonnell Douglas Macedonia Leasing, Inc. Delaware
McDonnell Douglas Middle East, Ltd. Delaware
185
186
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
McDonnell Douglas Overseas Finance Corporation Delaware
McDonnell Douglas Radio Services Corporation Delaware
McDonnell Douglas Services, Inc. Missouri
McDonnell Douglas (Singapore) Pte. Ltd. Singapore
McDonnell Douglas Support Services - Military, Inc. Delaware
McDonnell Douglas Truck Services, Inc. Delaware
MD Dakota Leasing Limited Virgin Islands
MDAFC - Nashville Company Delaware
MD-Air Leasing Limited Virgin Islands
MD-Federal Holding Company Delaware
MDC Properties, Inc. Michigan
MDFC - Aircraft Leasing Company Delaware
MDFC - Aircraft Leasing Limited Virgin Islands
MDFC - Bali, Limited Virgin Islands
MDFC - Carson Company Delaware
MDFC - Carson Limited Virgin Islands
MDFC - Express Leasing Company Delaware
MDFC - Express Leasing Limited Virgin Islands
MDFC - Jakarta, Limited Virgin Islands
MDFC - Knoxville Company Delaware
MDFC - Knoxville Limited Virgin Islands
MDFC - Lakewood Company Delaware
MDFC - Lakewood Limited Virgin Islands
MDFC - Memphis Company Delaware
MDFC - Memphis Limited Virgin Islands
MDFC - Nashville Limited Virgin Islands
MDFC - Reno Company Delaware
MDFC - Sierra Company Delaware
MDFC - Spring Limited Virgin Islands
MDFC - Tahoe Company Delaware
MDFC Loan Corporation Delaware
MDFC Spring Company Delaware
MDRC of Missouri, Inc. Missouri
Montana Aviation Research Company Delaware
Network Information Services Co., Ltd. Japan
Nobeltec Corporation Delaware
North American Aviation, Inc. Delaware
Pacific Business Enterprises, Inc. Delaware
PK DataGraphics Germany
Plaza Realty Holdings Corporation Delaware
Preston Aviation Solutions Pty Ltd Australia
Processing Properties, Inc. Delaware
Radical Pty. Ltd Australia
Rainier Aircraft Leasing, Inc. Delaware
Raven Leasing, Inc. Delaware
RGL-1 Corporation Delaware
RGL-2 Corporation Delaware
RGL-3 Corporation Delaware
186
187
EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
Place of
Name Incorporation
==============================================================================
RGL-4 Corporation Delaware
RGL-5 Corporation Delaware
RGL-6 Corporation Delaware
Rocketdyne, Inc. Delaware
Spectrolab, Inc. California
Sunshine Leasing Company-1 Delaware
SVS Environmental Systems, Inc. Nevada
SVS Inspection Technologies Oregon
SVS R&D Systems, Inc. New Mexico
Taiko Leasing, Inc. Delaware
Thayer Leasing Company-1 Delaware
TPG America, Inc. Virginia
VC-X 757, Inc. Delaware
Wingspan, Inc. Delaware
Total Number of Subsidiaries: 246
187
188
Appendix of graphic and image material pursuant
to Rule 304(a) of Regulation S-T
Graphic and image material item Number 1
Consolidated revenues:
A bar chart for the five years 1997-2001 indicating consolidated
revenues (Dollars in billions):
1997 1998 1999 2000 2001
Total 45.800 56.154 57.993 51.321 58.198
Graphic and image material item Number 2
Research and development (excluding IPR&D):
A bar chart of research and development expense (excluding IPR&D),
including percent of sales, for the five years 1997-2001
(Dollars in millions):
1997 1998 1999 2000 2001
Total 1,924 1,895 1,341 1,441 1,936
Percent of sales 4.2% 3.4% 2.3% 2.8% 3.3%
188
189
|
|
|
| The Boeing Company
| 100 N. Riverside
| Chicago, IL 60606
|
| March 8, 2002
| 1-9150-KJM-001
|
|
|
| Securities and Exchange Commission
| 450 5th Street N.W.
| Judiciary Plaza
| Washington, D.C. 20549
|
|
|
| Dear Sirs:
|
B O E I N G |
| Submitted herewith for filing on behalf of The Boeing Company
| is the Annual Report on Form 10-K for the year ended
| December 31, 2001. This filing is being effected by direct
| transmission to the Commission's EDGAR system.
|
|
|
| Yours truly,
|
|
| /s/ Kevin J. Murphy
|
|
| Kevin J. Murphy
| Chief Accountant
| The Boeing Company
| (312) 544-2647
|
|
|
|
|
|
|
|
|
|
|
|
|
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