The following is a reconciliation of the tax derived by applying the U.S. federal statutory rate of 35% to the earnings before income taxes and comparing that to the recorded income tax provision:

The effective income tax rate for 2002 was 27.1% compared with 20.7% in 2001 and 29.0% in 2000. The 2002 effective income tax rate of 27.1% varies from the federal statutory tax rate of 35%, principally due to Foreign Sales Corporation (FSC) and Extraterritorial Income (ETI) Exclusion tax benefits. This rate also reflects tax credits, state income taxes and favorable resolution of certain audit issues.

The effective income tax rates of 20.7% for 2001 and 29.0% for 2000 also vary from the federal statutory tax rate principally due to FSC and ETI benefits. Offsetting these benefits are state income taxes and the non-deductibility of certain goodwill, principally the goodwill acquired by the acquisition of the aerospace and defense units from Rockwell International Corporation in 1996. The 2001 income tax rate also reflects a one-time benefit of $343 reflecting a settlement with the Internal Revenue Service (IRS) relating to research credit claims on McDonnell Douglas Corporation fixed price government contracts applicable to the 1986–1992 federal income tax returns.

The components of net deferred tax assets at December 31 were as follows:

At December 31, the deferred tax assets, net of deferred tax liabilities, resulted from temporary differences associated with the following:

Income taxes have been settled with the IRS for all years through 1978, and IRS examinations have been completed through 1991. In connection with these examinations, the Company disagrees with IRS proposed adjustments, and the years 1979 through 1987 are in litigation. The IRS examination for McDonnell Douglas Corporation for the years 1993 through 1995 has been settled and the Company received a refund of $102 in 2002. The Company believes adequate provision for all outstanding issues has been made for all open years.

In December 1996, The Boeing Company filed suit in the U.S. District Court for the Western District of Washington for the refund of over $400 in federal income taxes and related interest. If the Company were to prevail, the refund of the amount in dispute would include interest computed to the payment date. However, the Company cannot predict the likelihood of a favorable outcome. The suit challenged the IRS method of allocating research and development costs for the purpose of determining tax incentive benefits on export sales through the Company’s Domestic International Sales Corporation (DISC) and its FSC for the years 1979 through 1987. The Company prevailed with the District Court, but lost an appeals decision with the Ninth Circuit Court of Appeals. The Company appealed to the Supreme Court and is awaiting their decision, which is expected in the first half of 2003. The Company’s financial statements will not be negatively impacted as a result of the suit’s outcome.

Income tax payments, net of tax refunds, were $(49), $1,521 and $405 in 2002, 2001 and 2000, respectively.

Note 8 – Accounts Receivable

Accounts receivable at December 31 consisted of the following:

The following table summarizes the Company’s accounts receivable under U.S. Government contracts that were not billable or related to outstanding claims as of December 31:

Unbillable receivables on U.S. Government contracts arise when the sales or revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms of the contract. Accounts receivable related to claims are items that the Company believes are earned, but are subject to uncertainty concerning their determination or ultimate realization.