Management’s Discussion and Analysis

Management’s Discussion and Analysis

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.

Cash flow summary Following is a summary of Company cash flows based on changes in cash and shortterm investments. This cash flow summary is not intended to replace the Consolidated Statements of Cash Flows on page 37 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

Non-cash charges to earnings (a)

Change in gross inventory (b)

Change in customer advances (c)

Net changes in receivables, liabilities, deferred income taxes and other (d)

Facilities and equipment expenditures

Pension income variance to funding

$ 2.8

2.4

1.0

(1.0)

(0.4)

(1.1)

(1.0)

$ 2.1

2.6

1.6

(0.5)

0.4

(0.9)

(0.4)

$2.3

1.8

5.6

(3.6)

0.2

(1.2)

(0.3)

Free cash flow

Proceeds from dispositions (e)

Change in customer and commercial financing (f)

Change in debt (g)

Acquisitions, net of cash acquired

Net shares acquired, other (h)

Cash dividends

2.7

0.2

(3.8)

3.4

(2.3)

(0.6)

4.9

0.2

(1.1)

2.0

(5.7)

(2.3)

(0.5)

4.8

0.4

(0.6)

(0.2)

(2.9)

(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.
(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.

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