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Notes
to Consolidated Financial Statements (continued)
Years
ended December 31, 1998, 1997 and 1996
(Dollars in millions except per share data)
Note
8
Customer and Commercial Financing
Customer
and commercial financing at December 31 consisted of the following:
Customer
and commercial financing assets that are leased by the Company under
capital leases and have been subleased to others totaled $333 and
$342 as of December 31, 1998 and 1997. Commercial equipment financing
under operating lease consists principally of real property, highway
vehicles, machine tools and production equipment. Commercial equipment
financing also includes amounts attributable to regional aircraft,
principally with fewer than 80 seats.
Scheduled
payments on customer and commercial financing are as follows:
The component
of investments in sales-type/financing leases at December 31 were
as follows:
The
Company has entered into interest rate swaps with third-party investors
whereby the interest rate terms differ from the terms in the original
receivable. These interest rate swaps related to $62 of customer financing
receivables as of December 31, 1998. Interest rate swaps on financing
receivables are settled on the same dates interest is due on the underlying
receivables and principally swap the interest rate from a fixed to
a variable rate.
Interest
rates on fixed-rate notes ranged from 5.06% to 12.43%, and effective
interest rates on variable-rate notes ranged from 0.03% to 4.50% above
the London Interbank Offered Rate (LIBOR).
Sales
and other operating revenues included interest income associated with
notes receivable and sales-type/financing leases of $205, $217 and
$195 for 1998, 1997 and 1996, respectively.
Financing
for aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing
such collateral. The operating lease aircraft category includes new
and used jet and commuter aircraft, spare engines and spare parts.
The
valuation allowance is subject to change depending on estimates of
collectability and realizability of the customer financing balances.
Note
9
Property, Plant and Equipment
Property,
plant and equipment at December 31 consisted of the following:
Depreciation
expense was $1,386, $1,266 and $1,132 for 1998, 1997 and 1996, respectively.
Interest capitalized as construction-period property, plant and equipment
costs amounted to $45, $28 and $28 in 1998, 1997 and 1996, respectively.
Rental
expense for leased properties was $349, $308 and $242 for 1998, 1997
and 1996, respectively. These expenses, substantially all minimum
rentals, are net of sublease income. Minimum rental payments under
operating leases with initial or remaining terms of one year or more
aggregated $737 at December 31, 1998. Payments, net of sublease amounts,
due during the next five years are as follows:
Note
10
Goodwill
As of December
31, goodwill associated with the December 1996 acquisition of Rockwell’s
aerospace and defense business units consisted of the following:
Note
11
Income Taxes
The provision
for taxes on income consisted of the following:
The following
is a reconciliation of the income tax provision (benefit) computed
by applying the U.S. federal statutory rate of 35 percent to the recorded
income tax provision:
The deferred
tax assets, net of deferred tax liabilities, resulted from temporary
tax differences associated with the following:
The temporary
tax differences associated with inventory and long-term contract methods
of income recognition encompass related costing differences, including
timing and depreciation differences.
Valuation allowances
were not required due to the nature of and circumstances associated
with the temporary tax differences.
Income taxes
have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and IRS examinations have been completed through
1987. In connection with these examinations, the Company disagrees
with IRS proposed adjustments, and the years 1979 through 1987 are
in litigation. The Company has also filed refund claims for additional
research and development tax credits, primarily in relation to its
fixed-price government development programs. Successful resolutions
will result in increased income to the Company.
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. 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 Foreign Sales Corporation
(FSC) for the years 1979 through 1987. In September 1998, the District
Court granted the Company’s motion for summary judgment. The U.S.
Department of Justice has appealed this decision. If the Company were
to prevail, the refund would include interest computed to the payment
date. The issue could affect tax computations for subsequent years;
however, the financial impact would depend on the final resolution
of audits for these years.
The Company believes
adequate provision has been made for all open years.
Income tax payments
were $85, $219 and $648 in 1998, 1997 and 1996, respectively.
Note
12
Accounts Payable and Other Liabilities
Accounts payable
and other liabilities at December 31 consisted of the following:
Note
13
Debt
Debt at December
31 consisted of the following:
The $300 debentures
due August 15, 2024, are redeemable at the holder’s option on August
15, 2012. All other debentures and notes are not redeemable prior
to maturity. Maturities of long-term debt for the next five years
are as follows:
The Company has
$2,400 currently available under credit line agreements with a group
of commercial banks. The Company has complied with the restrictive
covenants contained in various debt agreements.
During the fourth
quarter of 1997, Boeing Capital Corporation (BCC), a corporation wholly
owned by the Company, filed a shelf registration statement with the
Securities and Exchange Commission for up to $1,200 aggregate principal
amount of debt securities. As of December 31, 1998, $571 has been
drawn on this shelf registration. In addition, BCC has $240 available
but unused under a credit line agreement with a group of commercial
banks. At December 31, 1998 and 1997, borrowings under commercial
paper and uncommitted short-term bank facilities totaling $172 and
$98 were supported by available unused commitments under the revolving
credit agreement. Total consolidated debt attributable to BCC amounted
to $1,971 and $1,798 as of December 31, 1998 and 1997.
The $100 notes
due August 15, 2042, with a stated rate of 7.50% were issued to a
private investor in connection with an interest rate swap arrangement
that resulted in an effective synthetic rate of 7.865%. The swap arrangement
results in semi-annual interest rate payments at LIBOR, and is scheduled
to settle when the underlying note matures. Additionally, BCC has
interest rate swaps totaling $350 relating to capital lease obligations
and $80 relating to medium-term notes. The swaps attributable to capital
lease obligations have a receive rate that is floating based on LIBOR,
and a pay rate that is fixed. Of the swaps attributable to medium-term
notes, $50 have a receive rate that is fixed, and a pay rate that
is floating based on LIBOR; and $30 have a receive rate that is floating
based on LIBOR, and a pay rate that is fixed. Interest rate swaps
on these capital lease obligations and medium-term notes are settled
on the same dates interest is due on the underlying obligations.
BCC has available
approximately $60 in uncommitted, short-term bank credit facilities
whereby the Company may borrow, at interest rates which are negotiated
at the time of the borrowings, upon such terms as the Company and
the banks may mutually agree. At December 31, 1998 and 1997, borrowings
on these credit facilities totaled $50 and $18.
Total debt interest,
including amounts capitalized, was $520, $573 and $450 for the years
ended December 31, 1998, 1997 and 1996, and interest payments were
$514, $588 and $436, respectively.
The Boeing
Company and Subsidiaries
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