In addition to the foregoing risks associated with the Commercial Airplanes segment, the Military Aircraft and Missile Systems segment and the Space and Communications segment are subject to changing priorities or reductions in the U.S. Government defense and space budget, and termination of government contracts due to unilateral government action (termination for convenience) or failure to perform (termination for default). Civil, criminal or administrative proceedings involving fines, compensatory and treble damages, restitution, forfeiture and suspension or debarment from government contracts may result from violations of business and cost classification regulations on U.S. Government contracts.

The commercial launch and satellite service markets have some degree of uncertainty since global demand is driven in part by the launch customers’ access to capital markets. Additionally, some of the Company’s competitors for launch services receive direct or indirect government funding. The satellite market includes some degree of risk and uncertainty relating to the attainment of technological specifications and performance requirements.

Risk associated with the Boeing Capital Corporation segment includes interest rate risks, asset valuation risks, specifically, aircraft valuation risks, and credit and collectability risks of counterparties.

As of December 31, 2002, the Company’s principal collective bargaining agreements were with the International Association of Machinists and Aerospace Workers (IAM) representing 20% of employees (current agreements expiring in May 2004, and September and October 2005); the Society of Professional Engineering Employees in Aerospace (SPEEA) representing 13% of employees (current agreements expiring February 2004 and December 2005); and the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) representing 4% of employees (current agreements expiring May 2003, April 2004, and September 2005).

Note 22 - Disclosures about Fair Value of Financial Instruments

As of December 31, 2002 and 2001, the carrying amount of accounts receivable was $5,007 and $5,156, respectively, and the fair value of accounts receivable was estimated to be $4,772 and $5,054, respectively. The lower fair value reflects a discount due to deferred collection for certain receivables that will be collected over an extended period. The carrying value of accounts payable is estimated to approximate fair value.

As of December 31, 2002, the carrying amount of notes receivable, net of valuation allowance, was $2,954 and the fair value was estimated to be $3,258.As of December 31, 2001, the carrying amount of notes receivable, net of valuation allowance, was estimated to approximate fair value. Although there are generally no quoted market prices available for customer financing notes receivable, the valuation assessments were based on the respective interest rates, risk-related rate spreads and collateral considerations.

As of December 31, 2002 and 2001, the carrying amount of debt, net of capital leases, was $13,704 and $11,805, respectively, and the fair value of debt, based on current market rates for debt of the same risk and maturities, was estimated at $14,604 and $12,274, respectively. The Company’s debt, however, is generally not callable until maturity.

With regard to financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of future financing commitments because there is not a market for such future commitments. Other off-balance sheet financial instruments, including asset-related guarantees, credit guarantees, and interest rate guarantees related to an equipment trust certificate, are estimated to have a fair value of $358 at December 31, 2002.

Note 23 – Contingencies

Legal Various legal proceedings, claims and investigations related to products, contracts and other matters are pending against the Company. Most significant legal proceedings are related to matters covered by insurance. Major contingencies are discussed below.

The Company is subject to U.S. Government investigations from which civil, criminal or administrative proceedings could result. Such proceedings could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. The Company believes, based upon all available information, that the outcome of any such government disputes and investigations will not have a material adverse effect on its financial position or continuing operations.

In 1991, the U.S. Navy notified McDonnell Douglas (now a subsidiary of the Company) and General Dynamics Corporation (the “Team”) that it was terminating for default the Team’s contract for development and initial production of the A-12 aircraft. The Team filed a legal action to contest the Navy’s default termination, to assert its rights to convert the termination to one for “the convenience of the Government,” and to obtain payment for work done and costs incurred on the A-12 contract but not paid to date. As of December 31, 2002, inventories included approximately $583 of recorded costs on the A-12 contract, against which the Company has established a loss provision of $350. The amount of the provision, which was established in 1990, was based on McDonnell Douglas’s belief, supported by an opinion of outside counsel, that the termination for default would be converted to a termination for convenience, and that the best estimate of possible loss on termination for convenience was $350.

On August 31, 2001, the U.S. Court of Federal Claims issued a decision after trial upholding the U.S. Government’s default termination of the A-12 contract on the grounds that the Team could not meet the revised contract schedule unilaterally imposed by the U.S. Government. The court did not, however, enter a money judgement for the U.S. Government on its claim for unliquidated progress payments. This followed an earlier trial court decision in favor of the contractors and reversal of that initial decision on appeal. The Team appealed that decision to the Court of Appeals and is awaiting a decision. The Team also obtained a stay of the trial court’s judgment to prevent the Navy from collecting any allegedly due amounts prior to the decision by the Court of Appeals.