| Previously identified market-based risks associated with
Delta III inventory is being mitigated by a combination of
reusing inventory on other Delta programs, customer payments
provided to reassign payloads to other launch vehicles, and
the retention of existing customer deposits should those customers
terminate their contract for Delta III launches. At this time
the Delta III inventory is no longer considered a material
financial risk.
The Sea Launch venture, in which the Company is a 40% partner
with RSC Energia (25%) of Russia, Kvaerner ASA (20%) of Norway,
and KB Yuzhnoye/PO Yuzhmash (15%) of Ukraine, provides ocean-based
launch services to commercial satellite customers. The venture
had one successful launch in 2002. The Company’s investment
in this venture as of December 31, 2002, is reported at zero,
which reflects the recognition of losses reported by Sea Launch
in prior years. The venture incurred losses in 2002, due to
the relatively low volume of launches, reflecting a depressed
satellite market. The Company 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
of $33 million and financial exposure related to accounts
receivable/inventory of $253 million. The exposures related
to guarantees are included in the Off-Balance Sheet Arrangements
discussion and disclosed in Note 20 to the consolidated financial
statements.
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 $68 million, $72 million, and $60 million for
2002, 2001 and 2000, respectively, attributable to United
Space Alliance.
On February 1, 2003, the country experienced the tragic loss
of Space Shuttle Columbia and its seven-person crew. The Company
is assisting NASA to determine the cause of this accident.
This accident did not impact the Company’s results of operations
for 2002, and it is too early to determine the effect on the
Company’s business operations for 2003 and beyond.
Research and Development
Within the Space and Communications businesses the Company
continued investing in the new Delta IV expendable launch
vehicle which resulted in its successful inaugural commercial
launch in November of 2002. This product gives the Company
greater access to a portion of the launch market that was
previously unavailable with the Delta II rocket alone.
In the communications market, the Company is investing to
enable connectivity between existing air/ground platforms,
increase communications availability and bandwidth through
more robust space systems, and leverage innovative communications
concepts. Investments were made in Global Situational Awareness
concepts to develop communication system architectures to
support various business opportunities including Future Combat
Systems, Joint Tactical Radio System, FAB-T and Global Missile
Defense. A major contributor to the Company’s support of these
DoD transformation programs is the investment in the Boeing
Integration Center where the Company’s Network Centric Operations
concepts are developed in partnership with its customers.
The Company also will continue to make focused investments
that will lead to the development of next-generation space
intelligence systems.
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