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| Management’s
Discussion and Analysis | | | |
| |
| 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. |
| 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. | | | |
