The Company estimates the fair values of the related operations using discounted cash flows. The forecasts of future cash flows are based on the Company’s best estimate of future revenues and operating costs, based primarily on existing firm orders, expected future orders, contracts with suppliers, labor agreements, and general market conditions, and are subject to review and approval by senior management and the Board of Directors. Changes in these forecasts could cause a particular operating group to either pass or fail the first step in the SFAS No. 142 goodwill impairment model, which could significantly change the amount of impairment recorded.

The cash flow forecasts are adjusted by an appropriate discount rate derived from the Company’s market capitalization plus a suitable control premium at the date of evaluation. Therefore, changes in the stock price will also affect the amount of impairment recorded. At the date of the previous impairment, a 10% increase in the value of Boeing common stock would have reduced the impairment charge recorded in the first quarter of 2002 by approximately $190 million. A 10% decrease in the value of Boeing common stock would have increased the impairment charge by approximately $160 million.

Postretirement plans The Company sponsors various pension plans covering substantially all employees. The Company also provides postretirement benefit plans other than pensions, consisting principally of health care coverage, to eligible retirees and qualifying dependents. The liabilities and annual income or expense of the Company’s pension and other postretirement plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset return, and medical trend (rate of growth for medical costs). Not all net periodic pension income or expense is recognized in net earnings in the year incurred because it is allocated to production as product costs, and a portion remains in inventory at the end of a reporting period.

The Company uses a discount rate that is based on a point-in-time estimate as of the September 30 measurement date. This rate is determined based on a review of long-term, high quality corporate bonds as of the measurement date and use of models that match projected benefit payments of the Company’s major United States pension and other postretirement plans to coupons and maturities from high quality bonds. A 25 basis point increase in the discount rate would decrease the 2002 pension and other postretirement liabilities by approximately $1,000 million (3%) and $230 million (3%), respectively, and decrease the 2002 net periodic pension and other postretirement expense by approximately $16 million and $11 million, respectively. A 25 basis point decrease in the discount rate would increase the 2002 pension and other postretirement liabilities by approximately $1,250 million (3.5%) and $250 million (3.5%), respectively, and increase the 2002 net periodic pension and other postretirement expense by approximately $18 million and $13 million, respectively.

Net periodic pension costs include an underlying expected long-term rate of asset return. In developing this assumption, the Company looks at a number of factors: a review of asset class return by several of the Company’s trust fund investment advisors, long-term inflation assumptions, and long-term historical returns for the Company’s plans. The expected long-term rate of asset return is based on a diversified portfolio including domestic and international equities, fixed income, real estate, private equities and uncorrelated assets. Pension income or expense is especially sensitive to changes in the long-term rate of asset return. An increase or decrease of 25 basis points in the expected long-term rate of asset return would have increased or decreased 2002 pension income by approximately $95 million.

The 2002 postretirement benefit obligation for non-pension plans reflects a significant increase in medical trend. Recent losses due to higher-than-expected increases in medical claims costs have created an unrecognized loss in 2002. The Company increased its short-term medical trend for 2003 to reflect the revised expectations of continued cost increases in the next few years.

Standards Issued and Not Yet Implemented

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective January 1, 2003. This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The Company has determined that the implementation of this standard will not have a material effect on its financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This standard requires costs associated with exit or disposal activities to be recognized when they are incurred. The requirements of SFAS No. 146 apply prospectively to activities that are initiated after December 31, 2002, and as such, the Company cannot reasonably estimate the impact of adopting these new rules until and unless it undertakes relevant activities in future periods.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others, which clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor’s accounting for and disclosures of certain guarantees issued. FIN 45 requires enhanced disclosures for certain guarantees. It also will require certain guarantees that are issued or modified after December 31, 2002, including certain third-party guarantees, to be initially recorded on the balance sheet at fair value. For guarantees issued on or before December 31, 2002, liabilities are recorded when and if payments become probable and estimable. The Company expects FIN 45 to have the general effect of delaying recognition for a portion of the revenue for product sales that are accompanied by certain third-party guarantees. The financial statement recognition provisions are effective prospectively, and the Company cannot reasonably estimate the impact of adopting FIN 45 until guarantees are issued or modified in future periods, at which time their results will be initially reported in the financial statements. See Off-Balance Sheet Arrangements discussion.