Pensions 2002 operating cash flow included $0.3 billion of cash funding to the pension plans. On April 15, 2002, the Company voluntarily funded three of its defined benefit plans to ensure that each of its plans would have assets that were at least approximately equal to (and in most cases greater than) the liability for vested benefits as measured by the Pension Benefit Guaranty Corporation. The Company does not expect significant pension funding requirements in 2003, although it may make additional discretionary contributions.

The Company measures its pension plan using a September 30 year-end for financial accounting purposes. The significant declines experienced in the financial markets have unfavorably impacted asset performance. As a result, the Company has reduced its expected long-term rate of asset return by 25 basis points to 9.0% beginning in 2003. The expected long-term rate of asset return is based on target asset allocations of 60% equity with a return of 10.0%, 30% fixed income with a return of 6.8%, and 10% other (including real estate) with a return of 9.2%. Current allocations are within 1 to 3% of each of the long-term targets. The decline in asset performance coupled with historically low interest rates (a key factor when estimating plan liabilities), caused the Company to recognize a significant non-cash charge to equity in the fourth quarter of 2002. This charge, which amounted to a $5.7 billion increase to the accrued pension plan liability and a $3.6 billion after tax decrease to the accumulated other comprehensive income account within shareholders’ equity, did not impact earnings or cash flow, and could reverse in future periods should either interest rates increase or market performance and plan returns improve. The Company uses a discount rate that is based on a point-in-time estimate as of the September 30 measurement date. Although future changes to the discount rate are unknown, had the discount rate increased or decreased 100 basis points, the pension and postretirement liability would have decreased $3.6 billion or increased $4.4 billion, respectively.

Investing activities The majority of BCC’s customer financing is funded by debt and cash flow from its own operations. As of December 31, 2002, the Company had outstanding irrevocable commitments of approximately $3.2 billion to arrange or provide financing related to aircraft on order or under option for deliveries scheduled through the year 2007. 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 20 and 21. Outstanding loans and commitments are primarily secured by the underlying aircraft.

Additional investments of $0.4 billion were made by BCC in Enhanced Equipment Trust Certificates (EETCs) offered by various airlines in 2002. EETCs are widely used in the airline industry as a method of financing aircraft. BCC provides financing for airlines and has begun investing in these types of instruments as an investor. See BCC Segment Results of Operations and Financial Condition.

Financing activities Debt maturities during this three-year period included $1.3 billion in 2002, $0.5 billion in 2001, and $0.5 billion in 2000. Additionally, BCC issued $2.8 billion of debt in 2002, $3.9 billion in 2001 and $2.0 billion in 2000. 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. In 2002, BCC debt issuance was generally used for growth in the customer financing portfolio. The Company has a share repurchase program, but there were no share repurchases in 2002. See Note 18.

Disclosures about contractual obligations and commitments The following table summarizes the Company’s known obligations to make future payments or other consideration pursuant to certain contracts as of December 31, 2002, as well as an estimate of the timing in which these obligations are expected to be satisfied.

Contractual obligations

Other long-term liabilities in the table above include accrued retiree health care, accrued pension plan liability and deferred lease income.

Inventory procurement contracts The Company has entered into certain significant inventory procurement contracts that specify determinable prices and quantities, and long-term delivery timeframes. These agreements require suppliers and vendors to be prepared to build and deliver items in sufficient time to meet the Company’s production schedules. 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 inventory commitments 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. Although there are no plans to do so, if any of the Company’s programs were to be terminated, the Company would be exposed to potentially material termination costs.

Industrial participation agreements The Company has entered into various industrial participation agreements with customers in foreign countries to effect economic flow back and/or technology transfer to their businesses or government agencies as the result of their procurement of goods and/or services from the Company. These commitments may be satisfied by the Company’s placement of direct work, placement of vendor orders for supplies, opportunities to bid on supply contracts, transfer of technology, or other forms of assistance to the foreign country. The Company does not commit to industrial participation obligations unless a contract for sale of the Company’s products or services is signed. To be eligible for such a commitment from the Company, the foreign country or customer must have sufficient capability and capacity and must be competitive in cost, quality and schedule. In certain cases, if a contract is placed with a foreign supplier to satisfy an industrial participation obligation, failure of that supplier to comply with any or all of these terms and conditions relieves the Company of its obligations pursuant to that portion of its industrial participation commitment. In certain cases, penalties could be imposed if the Company does not meet its industrial participation obligations. During 2002, no penalties were incurred by the Company. As of December 31, 2002, the Company has outstanding industrial participation obligations totaling approximately $8.2 billion that extend through 2013.