In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of certain entities. First, FIN 46 will require identification of the Company’s participation in variable interests entities (VIE), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns. FIN 46 also sets forth certain disclosures regarding interests in VIE that are deemed significant, even if consolidation is not required. The Company is currently assessing the application of FIN 46 as it relates to its variable interests. See Off-Balance Sheet Arrangements discussion.

Consolidated Results of Operations and Financial Condition

The Company operates in four principal segments: Commercial Airplanes, Military Aircraft and Missile Systems, Space and Communications, and BCC. All other activities fall within the Other segment, principally made up of Boeing Technology, Connexion by BoeingSM and Air Traffic Management.

Consolidated Results of Operations

Revenues

Revenues for 2002 were $54.1 billion compared with $58.2 billion in 2001 and $51.3 billion in 2000. The lower revenues in 2002 principally reflect decreased deliveries in the Commercial Airplanes segment. Fewer commercial airplane deliveries in 2002 were offset by growth of $1.5 billion in the Military Aircraft and Missile Systems segment revenues. The higher revenues in 2001 compared to 2000 principally reflect increased deliveries in the Commercial Airplanes segment, but also reflect an increase in Space and Communications segment revenues.

Based on current schedules and plans, the Company projects total 2003 revenues to be approximately $49 billion.

Operating Earnings

Operating earnings for 2002 were $3,868 million compared with $3,896 million in 2001 and $3,058 million in 2000. 2001 operating earnings were significantly impacted by $935 million of pre-tax special charges related to the events of September 11, 2001. See Note 3. Excluding the September 11, 2001, special charges, operating earnings in 2002 would have been $963 million lower than 2001 operating earnings. This decrease in operating earnings reflected lower commercial airplane deliveries offset by production efficiencies in the Commercial Airplanes segment and higher deliveries of Military Aircraft and Missile Systems segment products. Space and Communications segment operating earnings also decreased as commercial satellite losses offset growth and performance on other programs. In addition, $426 million of asset impairment charges and additional valuation reserves related to customer and commercial financing assets were recorded by BCC and the Other segment during 2002.

Operating earnings of $3,896 million for 2001 were $838 million higher than 2000 operating earnings of $3,058 million. Excluding the September 11, 2001, pre-tax special charges of $935 million, operating earnings in 2001 would have been $1,773 million higher than 2000 operating earnings. The increase in operating earnings during 2001 was primarily related to higher commercial airplane deliveries and an increase in Space and Communications segment operating earnings.

As indicated in Note 16, the Company has generated significant net periodic benefit income related to pensions: $404 million in 2002, $920 million in 2001, and $428 million in 2000. Not all net periodic pension benefit 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. Accordingly, the operating earnings for 2002, 2001 and 2000, included $537 million, $785 million and $403 million, respectively, of pension income.

Due to the significant investment losses incurred in recent years, the expected future market-related value of assets is expected to decrease significantly in the near future. This decrease, when combined with the decrease of 25 basis points in the expected long-term asset return is expected to reduce pension income reflected in operating earnings from $537 million in 2002 to approximately $75 million in 2003. In 2004, the pension impact to earnings will depend on market conditions, but based upon current assumptions, the Company expects to recognize a non-cash pension expense estimated to range from $200 million to $300 million.