Debt consisted of the following:
Additional disclosure information
Maturities of long-term debt for the next five years are as follows:
We have $4,000 currently available under credit line agreements with a group of commercial banks. BCC is named a subsidiary borrower for up to $2,000 under these arrangements. Total debt interest, including amounts capitalized, was $873, $801 and $730 for the years ended December 31, 2003, 2002 and 2001, respectively. Interest expense recorded by BCC is reflected as a separate line item on our Consolidated Statements of Operations, and is included in earnings from operations. Total company interest payments were $767, $720 and $587 for the same periods. We continue to be in full compliance with all covenants contained in our debt agreements.
Short-term debt and current portion of long-term debt consisted of the following:
At December 31, 2003 and 2002, BCC had borrowings under its commercial paper program totaling $0 and $73 (excluding Commercial Paper conduit). The weighted average interest rate on short-term borrowings at December 31, 2002 was 2.8%.
Financing activities
On February 16, 2001, BCC filed a public shelf registration of $5,000 with
the Securities and Exchange Commission (SEC), which was declared effective
on February 26, 2001. As of December 31, 2003, BCC had received proceeds
from the issuance of $3,250, in aggregate, of senior notes. Effective
October 31, 2001, BCC allocated $1,000 to the Series XI medium-term note
program. Effective June 20, 2002, the remaining $750 under the shelf
registration was allocated to this program. At December 31, 2003, an
aggregate amount of $402 remains available under the Series XI medium-term
program for potential debt issuance.
On May 24, 2001, American Airlines issued EETCs, and we received, through BCC, proceeds attributable to monetization of lease receivables associated with 32 MD-83 aircraft owned by BCC and on lease to American Airlines. These borrowings of $538 and $566 as of December 31, 2003 and 2002, are nonrecourse to us and are collateralized by the aircraft. The effective interest rates range from 6.82% to 7.69%. BCC accounts for this transaction as a leveraged lease, therefore, this debt balance is netted against the BCC sales-type/financing lease assets.
On February 22, 2002, BCC filed a public shelf registration of $5,000 with the SEC, which was declared effective on March 4, 2002. BCC allocated $1,000 to establish a new retail mediumterm note program involving the sale of notes with a minimum denomination of one thousand dollars. At December 31, 2003, an aggregate amount of $3,019, of which $119 is retail notes, remains available for potential debt issuance.
On June 6, 2002, BCC established a $1,500 Euro medium-term note program. At December 31, 2003, an aggregate amount of $1,440 remains available for potential debt issuance.
On September 13, 2002, we filed a public shelf registration of $1,000 with the SEC, which was declared effective on September 20, 2002. On February 11, 2003, we received proceeds from the issuance of $1,000 of unsecured notes. This issuance was made up of two offerings; $600, 5.125% note due 2013, and $400, 6.125% note due 2033.
On December 23, 2003, we put in place a support agreement in which we commit to maintain certain financial metrics at BCC.
At December 31, 2003, $283 of BCC senior debt was collateralized by portfolio assets and underlying equipment totaling $470. The debt consists of the 1.71% to 5.79% notes due through 2015 and the 1.69% commercial paper securitized debt due through 2009.
Note 15 – Postretirement Plans
We have various pension plans covering substantially all employees. We fund all our major pension plans through trusts. The key objective of holding pension funds in a trust is to satisfy the retirement benefit obligations of the pension plans. Pension assets are placed in trust solely for the benefit of the pension plans’ participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long term with the growth of obligations for future benefit payments.
We also have postretirement benefits other than pensions which consist principally of health care coverage for eligible retirees and qualifying dependents, and to a lesser extent, life insurance to certain groups of retirees. Retiree health care is provided principally until age 65 for approximately half those retirees who are eligible for health care coverage. Certain employee groups, including employees covered by most United Auto Workers bargaining agreements, are provided lifetime health care coverage.
Obligations and funded status
The following table reconciles the funded status of both pensions and the
other postretirement benefits (OPB), principally retiree health care,
to the balance on the Consolidated Statements of Financial Position.
Benefit obligation balances presented in the table reflect the projected
benefit obligation (PBO) for our pension plans, and accumulated postretirement
benefit obligations (APBO) for our OPB plans. Both the PBO and APBO include
the estimated present value of future benefits that will be paid to plan
participants, based on expected future salary growth and employee services
rendered through the measurement date. We use a measurement date of September
30 for our pension and OPB plans.
At December 31, 2003 and 2002, accounts payable and other liabilities included $60 and $64 of estimated claims payable for the OPB plans. Claims payable estimates include a liability for claims that were incurred during the reporting period, including those that have been reported by participants, as well as those that have not yet been reported by participants by the end of the period. The increase in the minimum pension liability included in other comprehensive income was $358 and $5,716 at December 31, 2003 and 2002.
The accumulated benefit obligation (ABO) for all pension plans was $36,145 and $32,791 at September 30, 2003 and 2002. All major pension plans but one have ABOs that exceed plan assets. The following table shows the key information for plans with ABO in excess of plan assets.
Components of net periodic benefit (income)/ cost were as follows:
We determine the discount rate each year as of the measurement date, based on a review of interest rates associated with long-term high quality corporate bonds. The discount rate determined on each measurement date is used to calculate the benefit obligation as of that date, and is also used to calculate the net periodic benefit (income)/cost for the upcoming plan year. The pension and OPB plans have the same discount rate for all periods presented.
The pension fund’s expected return on assets assumption is derived from an extensive study conducted by our trust investment group and its actuaries on a periodic basis. The study includes a review of actual historical returns achieved by the pension trust and anticipated future long-term performance of individual asset classes with consideration given to the appropriate investment strategy. While the study gives appropriate consideration to recent trust performance and historical returns, the assumption represents a long-term prospective return. The expected return on plan assets determined on each measurement date is used to calculate the net periodic benefit (income)/cost for the upcoming plan year.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A onepercentage-point change in assumed health care cost trend rates would have the following effect:
Plan Assets
Pension assets totaled $33,209 and $28,834 at September 30, 2003 and 2002.
Pension assets are allocated with a goal to achieve diversification between
and within various asset classes. Pension investment managers are retained
with a specific investment role and corresponding investment guidelines.
Investment managers have the ability to purchase securities on behalf
of the pension trusts, and several of them have permission to invest
in derivatives, such as equity or bond futures. Derivatives are sometimes
used by the pension plans to achieve the equivalent market exposure of
owning a security or to rebalance the total portfolio to the target asset
allocation. Derivatives are more costeffective investment alternatives
when compared to owning the corresponding security. In the instances
in which derivatives are used, cash balances must be maintained at a
level equal to the notional exposure of the derivatives.
The actual allocations for the pension assets as of September 30, 2003 and 2002, and target allocations by asset category, are as follows:
Actual allocation percentages will vary from target allocation percentages based on short-term fluctuations in cash flows due to contributions made on or near September 30 and benefit payments.
Equity includes domestic and international equity securities, such as common, preferred or other capital stock, as well as equity futures, currency forwards and residual cash allocated to the equity managers. Equity includes our common stock in the amounts of $1,102 (3.3% of plan assets) and $1,096 (3.8% of plan assets) at September 30, 2003 and 2002. Equity derivatives based on net notional amounts was insignificant.
Debt includes domestic and international debt securities, such as U.S. Treasury securities, U.S. Government agency securities, corporate bonds and commercial paper; cash equivalents; investments in bond derivatives such as bond futures, options, swaps and currency forwards; and redeemable preferred stock and convertible debt. Debt includes $1,175 in cash we contributed on September 30, 2003. Subsequently, these funds were allocated to equity and debt in accordance with the asset allocation needs at the time. Bond derivatives based on net notional amounts totaled 1.9% and 1.3% of plan assets at September 30, 2003 and 2002.
Most of the trusts’ investment managers, who invest in debt securities, invest in “To-Be-Announced” mortgage-backed securities (TBA). A TBA represents a contract to buy or sell mortgagebacked securities to be delivered at a future agreed upon date. TBAs are deemed economically equivalent to purchasing mortgage- backed securities outright, but are often more attractively priced in comparison to traditional mortgage-backed securities. If the investment manager wishes to maintain a certain level of investment in TBA securities, the manager will sell them prior to settlement and buy new TBAs for another future settlement; this approach is termed “rolling”. Most of the TBA securities held were related to TBA roll strategies. Debt included $1,936 and $2,348 related to TBA securities at September 30, 2003 and 2002.
Real estate includes investments in private real estate investments. Other currently includes investments in various private equity partnerships.
We also hold $58 in trust fund assets for other postretirement benefit plans. Most of these funds are invested in a balanced index fund which is comprised of approximately 60% equities and 40% debt securities. The expected rate of return on these assets does not have a material effect on the net periodic benefit cost.
Cash Flows
Contributions Required pension contributions
under Employee Retirement Income Security Act (ERISA) regulations will
be approximately $100 in 2004. However, we are evaluating a discretionary
contribution to our plans in the range of $1.0 billion (pre-tax) during
the first quarter of 2004, and will consider making additional contributions
later in the year. We expect to contribute approximately $20 to our other
postretirement benefit plans in 2004.
Estimated Future Benefit Payments The table below reflects the total pension benefits expected to be paid from the plans or from our assets, including both our share of the benefit cost and the participants’ share of the cost, which is funded by participant contributions. Other postretirement benefits payments reflect our portion only.
Termination Provisions
Certain of the pension plans provide that, in the event there is a change
in control of the Company which is not approved by the Board of Directors
and the plans are terminated within five years thereafter, the assets
in the plan first will be used to provide the level of retirement benefits
required by ERISA, and then any surplus will be used to fund a trust
to continue present and future payments under the postretirement medical
and life insurance benefits in our group insurance benefit programs.
We have an agreement with the U.S. Government with respect to certain pension plans. Under the agreement, should we terminate any of the plans under conditions in which the plan’s assets exceed that plan’s obligations, the U.S. Government will be entitled to a fair allocation of any of the plan’s assets based on plan contributions that were reimbursed under U.S. Government contracts. Also, the Revenue Reconciliation Act of 1990 imposes a 20% non-deductible excise tax on the gross assets reverted if we establish a qualified replacement plan or amend the terminating plan to provide for benefit increases; otherwise, a 50% tax is applied. Any net amount we retain is treated as taxable income.
401(k)
We provide certain defined contribution plans to all eligible employees.
The principal plans are the Company-sponsored 401(k) plans and an unfunded
plan for unused sick leave. The provision for these defined contribution
plans was $464, $448 and $452 in 2003, 2002 and 2001, respectively.