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The Company is organized based on the products and services that it offers. Under this organizational structure, the Company operates in three principal areas: Commercial Airplanes, Military Aircraft and Missiles, and Space and Communications. Commercial Airplanes operations principally involve development, production and marketing of commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide. Military Aircraft and Missiles operations principally involve research, development, production, modification and support of the following products and related systems: military aircraft, both land- based and aircraft-carrier-based, including fighter, transport and attack aircraft with wide mission capability, and vertical/short takeoff and landing capability; helicopters and missiles. Space and Communications operations principally involve research, development, production, modification and support of the following products and related systems: space systems; missile defense systems; satellite launching vehicles; rocket engines; and information and battle management systems. Although some Military Aircraft and Missiles and Space and Communications products are contracted in the commercial environment, the primary customer is the U.S. Government. The Customer and Commercial Financing/Other segment is primarily engaged in the financing of commercial and private aircraft, commercial equipment, and real estate. The Commercial Airplanes segment is subject to both operational and external business-environment risks. Operational risks that can seriously disrupt the Company’s ability to make timely delivery of its commercial jet aircraft and meet its contractual commitments include execution of internal performance plans, product performance risks associated with regulatory certifications of the Company’s commercial aircraft by the U.S. Government and foreign governments, other regulatory uncertainties, collective bargaining labor disputes, and performance issues with key suppliers and subcontractors. While the Company’s principal operations are in the United States, Canada, and Australia, some key suppliers and subcontractors are located in Europe and Japan. External business-environment risks include adverse governmental export and import policies, factors that result in significant and prolonged disruption to air travel worldwide, and other factors that affect the economic viability of the commercial airline industry. Examples of factors relating to external business- environment risks include the volatility of aircraft fuel prices, global trade policies, worldwide political stability and economic growth, escalation trends inherent in pricing the Company’s aircraft, and a competitive industry structure which results in market pressure to reduce product prices. In addition to the foregoing risks associated with the Commercial Airplanes segment, the Military Aircraft and Missiles 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. As of December 31, 1998, the Company’s principal collective bargaining agreements were with the International Association of Machinists and Aerospace Workers (IAM) representing 30% of employees (current agreements expiring September 1999, October 1999, and May 2001), Seattle Professional Engineering Employees Association (SPEEA) representing 12% of employees (current agreements expiring December 1999), the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) representing 6% of employees (current agreements expiring June 1999, September 1999, and April 2000), and Southern California Professional Engineering Association (SCPEA) representing 2% of employees (current agreement expiring March 2001). Sales by geographic area consisted of the following: Military Aircraft and Missiles segment and Space and Communications segment combined sales were approximately 16%, 19% and 29% of total sales in Europe for 1998, 1997 and 1996, respectively. Defense sales were approximately 19%, 19% and 22% of total sales in Asia, excluding China, for the same respective years. Exclusive of these amounts, Military Aircraft and Missiles segment and Space and Communications segment sales were principally to the U.S. Government. The information in the following tables is derived directly from the segments’ internal financial reporting used for corporate management purposes. The expenses, assets and liabilities attributable to corporate activity are not allocated to the operating segments. Less than 2% of operating assets are located outside of the United States. Customer and Commercial Financing/Other segment revenues consist principally of interest from financing receivables and lease income from operating lease equipment, and segment earnings additionally reflect depreciation on leased equipment and expenses recorded against the valuation allowance presented in Note 8. No interest expense on debt is included in Customer and Commercial Financing/Other segment earnings. Accounting differences principally result from differences in cost measurements under generally accepted accounting principals. Accounting differences include the following: the difference between pension costs recognized under SFAS No. 87, Employers’ Accounting for Pensions, and under federal cost accounting standards, principally on a funding basis; the difference between retiree health care costs recognized under SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, and under federal cost accounting standards, principally on a cash basis; and amortization of costs capitalized in accordance with SFAS No. 34, Capitalization of Interest Costs. The costs attributable to share-based plans are not allocated. Other unallocated costs include corporate costs not allocated to the operating segments, including goodwill amortization. Unallocated assets primarily consist of cash and short-term investments, prepaid pension expense, goodwill, deferred tax assets, and capitalized interest. Unallocated liabilities include various accrued employee compensation and benefit liabilities, including accrued retiree health care, taxes payable, and debentures and notes payable. Unallocated capital expenditures and depreciation relate primarily to shared services assets. Sales are not recorded for inter-segment transactions. Losses from operations for 1997 include the impact of the valuation adjustment described in Note 3. In 1998 the Information, Space and Defense Systems Group of the Company was reorganized into two groups: the Military Aircraft and Missile Systems Group and the Space and Communications Group, which will be reported as separate business segments for 1998 and on. It is not practicable to determine the Military Aircraft and Missiles and Space and Communications breakout of the Information, Space and Defense Systems segment information for 1997 and 1996 presented below.
The Boeing Company and Subsidiaries |
