UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      
Commission file number 1-442
 
THE BOEING COMPANY
 
(Exact name of registrant as specified in its charter)
Delaware
 
91-0425694
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
100 N. Riverside Plaza, Chicago, IL
 
60606-1596
(Address of principal executive offices)
 
(Zip Code)
 
(312) 544-2000
 
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company  
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of July 15, 2015, there were 679,495,119 shares of common stock, $5.00 par value, issued and outstanding.


THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended June 30, 2015
INDEX
Part I. Financial Information (Unaudited)
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II. Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 


Part I. Financial Information
Item 1. Financial Statements
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in millions, except per share data)
Six months ended June 30
 
Three months ended June 30
  
2015

 
2014

 
2015


2014

Sales of products

$41,408

 

$37,542

 

$21,923



$19,527

Sales of services
5,284

 
4,968

 
2,620


2,518

Total revenues
46,692

 
42,510

 
24,543


22,045

 


 


 
 
 
 
Cost of products
(35,627
)
 
(31,932
)
 
(19,247
)

(16,674
)
Cost of services
(4,186
)
 
(3,999
)
 
(2,086
)

(1,979
)
Boeing Capital interest expense
(33
)
 
(35
)
 
(17
)

(17
)
Total costs and expenses
(39,846
)
 
(35,966
)
 
(21,350
)

(18,670
)
 
6,846

 
6,544

 
3,193


3,375

Income from operating investments, net
129

 
120

 
50


61

General and administrative expense
(1,705
)
 
(1,795
)
 
(760
)

(918
)
Research and development expense, net
(1,569
)
 
(1,542
)
 
(800
)

(733
)
Gain on dispositions, net
1

 
2

 


 
2

Earnings from operations
3,702

 
3,329

 
1,683


1,787

Other income, net
3

 
20

 
15


11

Interest and debt expense
(136
)
 
(173
)
 
(75
)

(81
)
Earnings before income taxes
3,569

 
3,176

 
1,623


1,717

Income tax expense
(1,123
)
 
(558
)
 
(513
)

(64
)
Net earnings

$2,446



$2,618

 

$1,110



$1,653

 
 
 
 
 
 
 
 
Basic earnings per share

$3.50

 

$3.55

 

$1.61



$2.26

 
 
 
 
 
 
 
 
Diluted earnings per share

$3.46

 

$3.50

 

$1.59



$2.24

 
 
 
 
 
 
 
 
Cash dividends paid per share

$1.82

 

$1.46

 

$0.91



$0.73

 
 
 
 
 
 
 
 
Weighted average diluted shares (millions)
706.6

 
747.4

 
698.9


740.1

See Notes to the Condensed Consolidated Financial Statements.

1

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30
 
2015

 
2014

 
2015

 
2014

Net earnings

$2,446

 

$2,618

 

$1,110

 

$1,653

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Currency translation adjustments
(44
)
 
38

 
44

 
21

Unrealized gain on certain investments, net of tax ($3), ($2), ($2), and ($1)
4

 
3

 
3

 
1

Unrealized (loss)/gain on derivative instruments:
 
 
 
 
 
 
 
Unrealized (loss)/gain arising during period, net of tax of $37, ($14), ($14), and ($20)
(66
)
 
25

 
25

 
36

Reclassification adjustment for gains/(losses) included in net earnings, net of tax of ($16), $0, ($10), and $3
28

 
1

 
16

 
(4
)
Total unrealized (loss)/gain on derivative instruments, net of tax
(38
)
 
26

 
41

 
32

Defined benefit pension plans and other postretirement benefits:
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic pension cost, net of tax of ($11), ($6), ($6), and ($3)
19

 
11

 
9

 
5

Net actuarial gain arising during the period, net of tax of ($17), ($347), ($17), and ($1)
31

 
622

 
31

 
2

Amortization of actuarial losses included in net periodic pension cost, net of tax of ($282), ($185), ($145), and ($91)
508

 
333

 
264

 
164

Settlements and curtailments included in net income, net of tax of ($2), ($113), ($2), and $0
3

 
202

 
3

 
(1
)
Total defined benefit pension plans and other postretirement benefits, net of tax
561

 
1,168

 
307

 
170

Other comprehensive income, net of tax
483

 
1,235

 
395

 
224

Comprehensive (loss)/income related to noncontrolling interests
(1
)
 
6

 

 
3

Comprehensive income, net of tax

$2,928

 

$3,859

 

$1,505

 

$1,880

See Notes to the Condensed Consolidated Financial Statements.

2

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
(Dollars in millions, except per share data)
June 30
2015

 
December 31
2014

Assets
 
 
 
Cash and cash equivalents

$9,157

 

$11,733

Short-term and other investments
468

 
1,359

Accounts receivable, net
7,927

 
7,729

Current portion of customer financing, net
209

 
190

Deferred income taxes
17

 
18

Inventories, net of advances and progress billings
49,028

 
46,756

Total current assets
66,806

 
67,785

Customer financing, net
3,175

 
3,371

Property, plant and equipment, net of accumulated depreciation of $15,997 and $15,689
11,338

 
11,007

Goodwill
5,126

 
5,119

Acquired intangible assets, net
2,763

 
2,869

Deferred income taxes
6,264

 
6,576

Investments
1,256

 
1,154

Other assets, net of accumulated amortization of $419 and $479
1,374

 
1,317

Total assets

$98,102

 

$99,198

Liabilities and equity
 
 
 
Accounts payable

$11,531

 

$10,667

Accrued liabilities
13,226

 
13,343

Advances and billings in excess of related costs
23,373

 
23,175

Deferred income taxes and income taxes payable
8,894

 
8,603

Short-term debt and current portion of long-term debt
112

 
929

Total current liabilities
57,136

 
56,717

Accrued retiree health care
6,777

 
6,802

Accrued pension plan liability, net
17,537

 
17,182

Non-current income taxes payable
389

 
358

Other long-term liabilities
1,052

 
1,208

Long-term debt
8,904

 
8,141

Shareholders’ equity:
 
 
 
Common stock, par value $5.00 – 1,200,000,000 shares authorized; 1,012,261,159 shares issued
5,061

 
5,061

Additional paid-in capital
4,721

 
4,625

Treasury stock, at cost – 331,193,968 and 305,533,606 shares
(27,463
)
 
(23,298
)
Retained earnings
37,365

 
36,180

Accumulated other comprehensive loss
(13,420
)
 
(13,903
)
Total shareholders’ equity
6,264

 
8,665

Noncontrolling interests
43

 
125

Total equity
6,307

 
8,790

Total liabilities and equity

$98,102

 

$99,198

See Notes to the Condensed Consolidated Financial Statements.

3

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions)
Six months ended June 30
  
2015


2014

Cash flows – operating activities:
 

 
Net earnings

$2,446



$2,618

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
Non-cash items – 
 

 
Share-based plans expense
94


101

Depreciation and amortization
912


900

Investment/asset impairment charges, net
74


36

Customer financing valuation benefit
(5
)

(26
)
Gain on dispositions, net
(1
)
 
(2
)
Other charges and credits, net
140


87

Excess tax benefits from share-based payment arrangements
(124
)

(97
)
Changes in assets and liabilities – 
 

 
Accounts receivable
(313
)

(1,286
)
Inventories, net of advances and progress billings
(2,395
)

(3,402
)
Accounts payable
888


1,783

Accrued liabilities
(177
)

(913
)
Advances and billings in excess of related costs
195


1,217

Income taxes receivable, payable and deferred
482


394

Other long-term liabilities
(17
)

(88
)
Pension and other postretirement plans
1,244


1,118

Customer financing, net
19


466

Other
(77
)

15

Net cash provided by operating activities
3,385


2,921

Cash flows – investing activities:
 
 
 
Property, plant and equipment additions
(1,266
)
 
(946
)
Property, plant and equipment reductions
20

 
17

Acquisitions, net of cash acquired
(23
)
 
(163
)
Contributions to investments
(1,205
)
 
(5,657
)
Proceeds from investments
2,040

 
8,030

Other
22

 


Net cash (used)/provided by investing activities
(412
)
 
1,281

Cash flows – financing activities:
 
 
 
New borrowings
761

 
85

Debt repayments
(846
)
 
(854
)
Repayments of distribution rights and other asset financing



(184
)
Stock options exercised
276

 
261

Excess tax benefits from share-based payment arrangements
124

 
97

Employee taxes on certain share-based payment arrangements
(90
)
 
(88
)
Common shares repurchased
(4,501
)
 
(3,998
)
Dividends paid
(1,264
)
 
(1,071
)
Other


 
(12
)
Net cash used by financing activities
(5,540
)
 
(5,764
)
Effect of exchange rate changes on cash and cash equivalents
(9
)
 
7

Net decrease in cash and cash equivalents
(2,576
)
 
(1,555
)
Cash and cash equivalents at beginning of year
11,733

 
9,088

Cash and cash equivalents at end of period

$9,157

 

$7,533

See Notes to the Condensed Consolidated Financial Statements.

4

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
(Unaudited)
 
Boeing shareholders
 
 
(Dollars in millions, except per share data)
Common
Stock

Additional
Paid-In
Capital

Treasury Stock

Retained
Earnings

Accumulated Other Comprehensive Loss

Non-
controlling
Interests

Total

Balance at January 1, 2014

$5,061


$4,415


($17,671
)

$32,964


($9,894
)

$122


$14,997

Net earnings
 
 
 
2,618

 
6

2,624

Other comprehensive income, net of tax of ($667)
 
 
 
 
1,235

 
1,235

Share-based compensation and related dividend equivalents
 
108

 
(10
)
 
 
98

Excess tax pools
 
97

 
 
 
 
97

Treasury shares issued for stock options exercised, net
 
18

245

 
 
 
263

Treasury shares issued for other share-based plans, net
 
(114
)
43

 
 
 
(71
)
Common shares repurchased
 
 
(3,998
)
 
 
 
(3,998
)
Cash dividends declared ($1.46 per share)
 
 
 
(1,056
)
 
 
(1,056
)
Changes in noncontrolling interests
 
 
 
 
 
(5
)
(5
)
Balance at June 30, 2014

$5,061


$4,524


($21,381
)

$34,516


($8,659
)

$123


$14,184

 
 
 
 
 
 
 
 
Balance at January 1, 2015

$5,061


$4,625


($23,298
)

$36,180


($13,903
)

$125


$8,790

Net earnings
 
 
 
2,446

 
(1
)
2,445

Other comprehensive income, net of tax of ($294)
 
 
 
 
483

 
483

Share-based compensation and related dividend equivalents
 
106

 
(13
)
 
 
93

Excess tax pools
 
126

 
 
 
 
126

Treasury shares issued for stock options exercised, net
 
(11
)
287

 
 
 
276

Treasury shares issued for other share-based plans, net
 
(125
)
49

 
 
 
(76
)
Common shares repurchased
 
 
(4,501
)
 
 
 
(4,501
)
Cash dividends declared ($1.82 per share)
 
 
 
(1,248
)
 
 
(1,248
)
Changes in noncontrolling interests
 
 
 
 
 
(81
)
(81
)
Balance at June 30, 2015

$5,061


$4,721


($27,463
)

$37,365


($13,420
)

$43


$6,307

See Notes to the Condensed Consolidated Financial Statements.

5

The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues:
 
 
 
 



Commercial Airplanes

$32,258

 

$27,041

 

$16,877



$14,304

Defense, Space & Security:
 
 
 
 



Boeing Military Aircraft
6,232

 
6,975

 
3,488


3,520

Network & Space Systems
3,670

 
3,796

 
1,938


1,920

Global Services & Support
4,351

 
4,609

 
2,118


2,307

Total Defense, Space & Security
14,253

 
15,380

 
7,544


7,747

Boeing Capital
201

 
172

 
115


90

Unallocated items, eliminations and other
(20
)
 
(83
)
 
7

 
(96
)
Total revenues

$46,692

 

$42,510

 

$24,543



$22,045

Earnings from operations:
 
 
 
 



Commercial Airplanes

$2,823

 

$3,052

 

$1,206



$1,550

Defense, Space & Security:
 
 
 
 



Boeing Military Aircraft
384

 
496

 
123


164

Network & Space Systems
318

 
318

 
151


150

Global Services & Support
587

 
546

 
272


268

Total Defense, Space & Security
1,289

 
1,360

 
546


582

Boeing Capital
31

 
77

 
11


33

Unallocated items, eliminations and other
(441
)
 
(1,160
)
 
(80
)
 
(378
)
Earnings from operations
3,702

 
3,329

 
1,683


1,787

Other income, net
3

 
20

 
15


11

Interest and debt expense
(136
)
 
(173
)
 
(75
)

(81
)
Earnings before income taxes
3,569

 
3,176

 
1,623


1,717

Income tax expense
(1,123
)
 
(558
)
 
(513
)

(64
)
Net earnings

$2,446

 

$2,618

 

$1,110



$1,653

This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 18 for further segment results.

6

The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)
Note 1 – Basis of Presentation
The condensed consolidated interim financial statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing”, the “Company”, “we”, “us”, or “our”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended June 30, 2015 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2014 Annual Report on Form 10-K.
Standards Issued and Not Yet Implemented
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The new standard is effective for reporting periods beginning after December 15, 2017 and early adoption is not permitted. On July 9, 2015 the FASB voted to approve a one year delay of the effective date and to permit companies to voluntarily adopt the new standard as of the original effective date. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. Assuming issuance of a final rule delaying the effective date, for Boeing the new standard will be effective January 1, 2018 and the Company is currently evaluating the impacts of adoption and the implementation approach to be used.
Use of Estimates
Management makes assumptions and estimates to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. Those assumptions and estimates directly affect the amounts reported in the Condensed Consolidated Financial Statements. Significant estimates for which changes in the near term are considered reasonably possible and that may have a material impact on the financial statements are disclosed in these Notes to the Condensed Consolidated Financial Statements.
Contract accounting is used for development and production activities predominantly by Defense, Space & Security (BDS). Contract accounting involves a judgmental process of estimating total sales and costs for each contract resulting in the development of estimated cost of sales percentages. Changes in estimated revenues, cost of sales and the related effect on operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete. For the six and three months ended June 30, 2015, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all contracts decreased Earnings from operations by $594 and $724 and diluted earnings per share by $0.58 and $0.71. For the six and three months ended June 30, 2014, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all contracts decreased Earnings from operations by $145 and $312 and diluted earnings per share by $0.16 and $0.41.

7

Note 2 – Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.
The elements used in the computation of basic and diluted earnings per share were as follows:
(In millions - except per share amounts)
Six months ended June 30
 
Three months ended June 30
 
2015

 
2014

 
2015

 
2014

Net earnings

$2,446

 

$2,618

 

$1,110

 

$1,653

Less: earnings available to participating securities
2

 
3

 


 
1

Net earnings available to common shareholders

$2,444

 

$2,615

 

$1,110

 

$1,652

Basic
 
 
 
 
 
 
 
Basic weighted average shares outstanding
698.5

 
738.3

 
691.2

 
731.1

Less: participating securities
1.1

 
1.3

 
1.1

 
1.3

Basic weighted average common shares outstanding
697.4

 
737.0

 
690.1

 
729.8

Diluted
 
 
 
 
 
 
 
Basic weighted average shares outstanding
698.5

 
738.3

 
691.2

 
731.1

Dilutive potential common shares(1)
8.1

 
9.1

 
7.7

 
9.0

Diluted weighted average shares outstanding
706.6

 
747.4

 
698.9

 
740.1

Less: participating securities
1.1

 
1.3

 
1.1

 
1.3

Diluted weighted average common shares outstanding
705.5

 
746.1

 
697.8

 
738.8

Net earnings per share:
 
 
 
 
 
 
 
Basic

$3.50

 

$3.55

 

$1.61

 

$2.26

Diluted
3.46

 
3.50

 
1.59

 
2.24

(1) 
Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
The following table includes the number of shares that may be dilutive potential common shares in the future. These shares were not included in the computation of diluted earnings per share because the effect was either antidilutive or the performance condition was not met.
(Shares in millions)
Six months ended June 30
 
Three months ended June 30
 
2015

 
2014

 
2015

 
2014

Performance awards
6.0

 
5.6

 
6.0

 
5.1

Performance-based restricted stock units
2.3

 
1.3

 
2.3

 
1.3


8

Note 3 – Income Taxes
Our effective income tax rates were 31.5% and 31.6% for the six and three months ended June 30, 2015 and 17.6% and 3.7% for the same periods in the prior year. The effective tax rate for the six and three months ended June 30, 2015 is higher than the comparable prior year period primarily due to the tax benefits of $524 recorded in the second quarter of 2014 related to tax basis adjustments and settlement of the 2007-2008 and 2009-2010 federal tax audits. The 2015 tax rates include a higher U.S. manufacturing activity tax benefit than in 2014.
Due to the expiration of the U.S. research and development tax credit (research tax credit) at the end of 2014, no tax benefit has been recorded in 2015. If the research tax credit is reinstated there will be a favorable impact on our 2015 effective income tax rate.
Federal income tax audits have been settled for all years prior to 2011. The years 2011-2012 are currently being examined by the IRS. We are also subject to examination in major state and international jurisdictions for the 2001-2014 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next 12 months we will resolve the matters presently under consideration for the 2011-2012 tax years with the IRS. Depending on the timing and outcome of that audit settlement, unrecognized tax benefits could decrease by up to $125 based on current estimates.
Note 4 – Accounts Receivable, net
Accounts receivable, net as of June 30, 2015, includes $112 of unbillable receivables on a long-term contract with LightSquared, LP (LightSquared) related to the construction of two commercial satellites. One of the satellites has been delivered, and the other is substantially complete but remains in Boeing’s possession. On May 14, 2012, LightSquared filed for Chapter 11 bankruptcy protection. We believe that our rights in the second satellite and related ground-segment assets are sufficient to protect the value of our receivables in the event LightSquared fails to make payments as contractually required or rejects its contract with us. Given the uncertainties inherent in bankruptcy proceedings, it is reasonably possible that we could incur losses related to these receivables in connection with the LightSquared bankruptcy.
Note 5 – Inventories
Inventories consisted of the following:
 
June 30
2015

 
December 31
2014

Long-term contracts in progress

$14,872

 

$13,381

Commercial aircraft programs
56,867

 
55,220

Commercial spare parts, used aircraft, general stock materials and other
6,585

 
7,421

Inventory before advances and progress billings
78,324

 
76,022

Less advances and progress billings
(29,296
)
 
(29,266
)
Total

$49,028

 

$46,756

Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to United Launch Alliance (ULA) under an inventory supply agreement that terminates on March 31, 2021. At June 30, 2015, the inventory balance was $115 (net of advances of $338) and $154 (net of advances of $322) at December 31, 2014. At June 30, 2015, $227 of this inventory related to unsold launches. See Note 10.
Capitalized precontract costs of $439 and $1,281 at June 30, 2015 and December 31, 2014, are included in inventories.

9

At June 30, 2015 and December 31, 2014, commercial aircraft programs inventory included the following amounts related to the 787 program: $35,212 and $33,163 of work in process (including deferred production costs of $27,732 and $26,149), $2,294 and $2,257 of supplier advances, and $3,906 and $3,801 of unamortized tooling and other non-recurring costs. At June 30, 2015, $22,379 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $9,259 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At June 30, 2015 and December 31, 2014, commercial aircraft programs inventory included the following amounts related to the 747 program: $1,787 and $1,741 of deferred production costs, net of previously recorded reach-forward losses, and $426 and $476 of unamortized tooling costs. At June 30, 2015, $1,019 of 747 deferred production and unamortized tooling costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $1,194 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $3,327 and $3,341 at June 30, 2015 and December 31, 2014.
Used aircraft in inventories at Commercial Airplanes totaled $232 and $275 at June 30, 2015 and December 31, 2014.
Note 6 – Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following:
 
June 30
2015

 
December 31
2014

Financing receivables:
 
 
 
Investment in sales-type/finance leases

$1,451

 

$1,535

Notes
362

 
370

Total financing receivables
1,813

 
1,905

Operating lease equipment, at cost, less accumulated depreciation of $631 and $571
1,587

 
1,677

Gross customer financing
3,400

 
3,582

Less allowance for losses on receivables
(16
)
 
(21
)
Total

$3,384

 

$3,561

We determine a receivable is impaired when, based on current information and events, it is probable that we will be unable to collect amounts due according to the original contractual terms. At June 30, 2015 and December 31, 2014, we individually evaluated for impairment customer financing receivables of $89 and $86 and determined that none of these were impaired.
The adequacy of the allowance for losses is assessed quarterly. Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by the major credit rating agencies.

10

Our financing receivable balances by internal credit rating category are shown below. 
Rating categories
June 30
2015

 
December 31
2014

BBB

$1,009

 

$1,055

B
612

 
633

CCC
103

 
131

Other
89

 
86

Total carrying value of financing receivables

$1,813

 

$1,905

At June 30, 2015, our allowance related to receivables with ratings of B and BBB. We applied default rates that averaged 15% and 2% to the exposure associated with those receivables.
Customer Financing Exposure
Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and overall market conditions and may be subject to reduced valuation with market decline. Declines in collateral values are also a significant driver of our allowance for losses. Generally, out-of-production aircraft have experienced greater collateral value declines than in-production aircraft. Our customer financing portfolio is primarily collateralized by out-of-production 717, 757 and MD-80 aircraft. The majority of customer financing carrying values are concentrated in the following aircraft models:
 
June 30
2015

 
December 31
2014

717 Aircraft ($410 and $421 accounted for as operating leases)

$1,502

 

$1,562

747 Aircraft (Accounted for as operating leases)
569

 
601

757 Aircraft ($335 and $349 accounted for as operating leases)
339

 
370

MD-80 Aircraft (Accounted for as sales-type finance leases)
324

 
358

767 Aircraft ($73 and $47 accounted for as operating leases)
179

 
158

737 Aircraft ($120 and $127 accounted for as operating leases)
120

 
156

MD-11 Aircraft (Accounted for as operating leases)
62

 
114

Note 7 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
 
June 30
2015

 
December 31
2014

Time deposits
400

 

$1,295

Pledged money market funds (1)
38

 
38

Available-for-sale investments
14

 
7

Equity method investments (2)
1,208

 
1,114

Restricted cash (3)
29

 
26

Other investments
35

 
33

Total

$1,724

 

$2,513

(1) 
Reflects amounts pledged in lieu of letters of credit as collateral in support of our workers’ compensation programs. These funds can become available within 30 days notice upon issuance of letters of credit.
(2) 
Dividends received were $124 and $45 for the six and three months ended June 30, 2015 and $134 and $75 during the same periods in the prior year.
(3) 
Restricted to pay certain claims related to workers' compensation and life insurance premiums for certain employees.

11

Note 8 – Other Assets
Sea Launch
At June 30, 2015 and December 31, 2014, Other assets included $356 of receivables related to our former investment in the Sea Launch venture which became payable by certain Sea Launch partners following Sea Launch’s bankruptcy filing in June 2009. The $356 includes $147 related to a payment made by us under a bank guarantee on behalf of Sea Launch and $209 related to loans (partner loans) we made to Sea Launch. The net amounts owed to Boeing by each of the partners are as follows: S.P. Koroley Rocket and Space Corporation Energia of Russia – $223, PO Yuzhnoye Mashinostroitelny Zavod of Ukraine – $89 and KB Yuzhnoye of Ukraine – $44.
Although each partner is contractually obligated to reimburse us for its share of the bank guarantee, the Russian and Ukrainian partners have raised defenses to enforcement and contested our claims. On October 19, 2009, we filed a Notice of Arbitration with the Stockholm Chamber of Commerce seeking reimbursement from the other Sea Launch partners of the $147 bank guarantee payment. On October 7, 2010, the arbitrator ruled that the Stockholm Chamber of Commerce lacked jurisdiction to hear the matter but did not resolve the merits of our claim. We filed a notice appealing the arbitrator’s ruling on January 11, 2011. On April 11, 2014, the appellate court entered a ruling that the decision of the arbitrator is not appealable. On May 9, 2014, we filed a brief with the Supreme Court of Sweden appealing the appellate court's April 11, 2014 ruling. On February 1, 2013, we filed an action in the United States District Court for the Central District of California seeking reimbursement from the other Sea Launch partners of the $147 bank guarantee payment and the $209 partner loan obligations. A trial in the United States District Court for the Central District of California is scheduled to commence in November 2015. We believe the partners have the financial wherewithal to pay and intend to pursue vigorously all of our rights and remedies. In the event we are unable to secure reimbursement of $147 related to our payment under the bank guarantee and $209 related to partner loans made to Sea Launch, we could incur additional charges. Our current assessment as to the collectability of these receivables takes into account the current economic conditions in Russia and Ukraine, although we will continue to monitor the situation.
Note 9 – Commitments and Contingencies
Environmental
The following table summarizes environmental remediation activity during the six months ended June 30, 2015 and 2014.
 
2015

 
2014

Beginning balance – January 1

$601

 

$649

Reductions for payments made
(35
)
 
(16
)
Changes in estimates
27

 
16

Ending balance – June 30

$593

 

$649

The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios that includes the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At June 30, 2015 and December 31, 2014, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $864 and $874.

12

Product Warranties
The following table summarizes product warranty activity recorded during the six months ended June 30, 2015 and 2014.
 
2015

 
2014

Beginning balance – January 1

$1,504

 

$1,570

Additions for current year deliveries
219

 
314

Reductions for payments made
(155
)
 
(209
)
Changes in estimates
(90
)
 
45

Ending balance - June 30

$1,478

 

$1,720

Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.
Trade-in commitment agreements at June 30, 2015 have expiration dates from 2015 through 2026. At June 30, 2015, and December 31, 2014 total contractual trade-in commitments were $2,031 and $2,392. As of June 30, 2015 and December 31, 2014, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $407 and $446 and the fair value of the related trade-in aircraft was $407 and $446.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $17,755 and $16,723 as of June 30, 2015 and December 31, 2014. The estimated earliest potential funding dates for these commitments as of June 30, 2015 are as follows:
  
Total

July through December 2015

$998

2016
2,406

2017
3,581

2018
3,345

2019
3,666

Thereafter
3,759

 

$17,755

As of June 30, 2015, $17,727 of these financing commitments related to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.

13

Standby Letters of Credit and Surety Bonds
We have entered into standby letters of credit and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately $4,074 and $3,985 as of June 30, 2015 and December 31, 2014.
Commitments to ULA
We and Lockheed Martin Corporation have each committed to provide ULA with up to $527 of additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. See Note 5.
C-17
We plan to end production of C-17 aircraft in 2015. At June 30, 2015, one aircraft remained unsold, while our backlog includes international orders for six C-17 aircraft that are scheduled for delivery in 2015 and 2016. During the first six months of 2015 we received orders for six C-17 aircraft and we believe it is probable that we will receive an order for the remaining unsold aircraft from an international customer. Should an order not materialize we could incur charges to write-down inventory.

F/A-18
At June 30, 2015, our backlog included 48 F/A-18 aircraft under contract with the U.S. Navy. The orders in backlog, combined with anticipated orders for 15 aircraft funded in the Consolidated and Further Continuing Appropriations Act, 2015, would complete production in 2017. The President’s Fiscal Year 2016 (FY 2016) budget request submitted in February 2015 did not include F/A-18 aircraft. However, in March 2015, the Navy included 12 F/A-18s in its unfunded priorities list and subsequently all four congressional defense oversight committees have included these aircraft in their proposed FY 2016 budgets. We are also continuing to pursue additional orders from international customers. Should additional orders not materialize, it is reasonably possible that we will decide in the next twelve months to end production of the F/A-18 at a future date. We are still evaluating the full financial impact of a potential production shutdown, including any recovery that may be available from the U.S. government.
United States Government Defense Environment Overview
U.S. government appropriation levels remain subject to significant uncertainty. In August 2011, the Budget Control Act (The Act) established limits on U.S. government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012 and 2021 U.S. government fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period to the extent that discretionary spending limits are exceeded. While the impact of sequestration cuts was reduced with respect to FY2014 and FY2015 following the enactment of The Bipartisan Budget Act in December 2013, significant uncertainty remains with respect to overall levels of defense spending. It is likely that U.S. government discretionary spending levels for FY2016 and beyond will continue to be subject to significant pressure, including risk of future sequestration cuts.
Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies, including the National Aeronautics and Space Administration, within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization and appropriations process could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company's operations, financial position and/or cash flows.
In addition to the risks described above, if Congress is unable to pass appropriations bills in a timely manner, a government shutdown could result which may have impacts above and beyond those resulting from budget

14

cuts or sequestration impacts. For example, requirements to furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.
KC-46A Tanker and BDS Fixed-Price Development Contracts

Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Commercial Crew, India P-8I, Saudi F-15, USAF KC-46A Tanker and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, during the second quarter of 2015, higher estimated costs to complete the KC-46A Tanker contract for the U.S. Air Force (USAF) resulted in a reach-forward loss of $835 of which the Commercial Airplanes segment recorded $513 and the Boeing Military Aircraft segment recorded $322.
Recoverable Costs on Government Contracts  
Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S government to assess the merits of claims and where appropriate reserve for amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.
Russia/Ukraine
We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.
747 and 787 Commercial Airplane Programs
The development and initial production of new commercial airplanes and new commercial airplane derivatives, which include the 747 and 787, entail significant commitments to customers and suppliers as well as substantial investments in working capital, infrastructure and research and development. The 747 and 787 programs had gross margins that were breakeven or near breakeven during the six and three months ended June 30, 2015.
Lower-than-expected demand for large commercial passenger and freighter aircraft have resulted in ongoing pricing pressures and fewer 747 orders than anticipated. We continue to have a number of unsold 747 production positions. If market, production, and other risks cannot be mitigated, the program could face a reach-forward loss that may be material.
The combination of production challenges, change incorporation, schedule delays and customer and supplier impacts has created significant pressure on 787 program profitability. If risks related to this program, including risks associated with planned production rate increases or introducing and manufacturing the 787-10 derivative as scheduled cannot be mitigated, the program could face additional customer claims and/or supplier assertions, as well as a reach-forward loss that may be material.

15

Note 10 – Arrangements with Off-Balance Sheet Risk
We enter into arrangements with off-balance sheet risk in the normal course of business, primarily in the form of guarantees.
The following table provides quantitative data regarding our third party guarantees. The maximum potential payments represent a “worst-case scenario,” and do not necessarily reflect amounts that we expect to pay. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under guarantees. The carrying amount of liabilities represents the amount included in Accrued liabilities.
  
Maximum
Potential Payments
 
Estimated Proceeds from
Collateral/Recourse
 
Carrying Amount of
 Liabilities
 
June 30
2015

December 31
2014

 
June 30
2015

December 31
2014

 
June 30
2015

December 31
2014

Contingent repurchase commitments

$1,386


$1,375

 

$1,381


$1,364

 

$5


$5

Indemnifications to ULA:
 
 
 
 
 
 
 
 
Contributed Delta program launch inventory
112

114

 
 
 
 
 
 
Contract pricing
261

261

 
 
 
 
7

7

Other Delta contracts
231

150

 
 
 
 
5



Other indemnifications
44

63

 
 
 
 
12

20

Credit guarantees
30

30

 
27

27

 
2

2

Contingent Repurchase Commitments The repurchase price specified in contingent repurchase commitments is generally lower than the expected fair value at the specified repurchase date. Estimated proceeds from collateral/recourse in the table above represent the lower of the contracted repurchase price or the expected fair value of each aircraft at the specified repurchase date.
Indemnifications to ULA In 2006, we agreed to indemnify ULA through December 31, 2020 against potential non-recoverability and non-allowability of $1,360 of Boeing Delta launch program inventory included in contributed assets plus $1,860 of inventory subject to an inventory supply agreement which ends on March 31, 2021. Since inception, ULA has consumed $1,248 of the $1,360 of inventory that was contributed by us and has yet to consume $112. Under the inventory supply agreement, we have recorded revenues and cost of sales of $1,331 through June 30, 2015. ULA has made payments of $1,740 to us under the inventory supply agreement and we have made $71 of indemnification payments to ULA.
We agreed to indemnify ULA against potential losses that ULA may incur in the event ULA is unable to obtain certain additional contract pricing from the USAF for four satellite missions. We believe ULA is entitled to additional contract pricing. In December 2008, ULA submitted a claim to the USAF to re-price the contract value for two satellite missions. In March 2009, the USAF issued a denial of that claim. In June 2009, ULA filed a notice of appeal, and in October 2009, ULA filed a complaint before the Armed Services Board of Contract Appeals (ASBCA) for a contract adjustment for the price of the two satellite missions. In September 2009, the USAF exercised its option for a third satellite mission. During the third quarter of 2010, ULA submitted a claim to the USAF to re-price the contract value of the third mission. The USAF did not exercise an option for a fourth mission prior to the expiration of the contract. In March 2011, ULA filed a notice of appeal before the ASBCA, seeking to re-price the third mission. On November 20, 2013, the ASBCA denied USAF motions for summary judgment against ULA in large part, leaving ULA's claims against the USAF substantially intact. The hearing before the ASBCA concluded on December 20, 2013. The parties filed their final post-hearing briefs in May 2014. The ASBCA may now issue a decision at any time. If ULA is ultimately unsuccessful in obtaining additional pricing, we may be responsible for an indemnification payment up to $261 and may record up to $278 in pre-tax losses associated with the three missions.

16

Potential payments for Other Delta contracts include $85 related to deferred support costs and $91 related to deferred production costs. In June 2011, the Defense Contract Management Agency (DCMA) notified ULA that it had determined that $271 of deferred support costs are not recoverable under government contracts. In December 2011, the DCMA notified ULA of the potential non-recoverability of an additional $114 of deferred production costs. ULA and Boeing believe that all costs are recoverable and in November 2011, ULA filed a certified claim with the USAF for collection of deferred support and production costs. The USAF issued a final decision denying ULA’s certified claim in May 2012. On June 14, 2012, Boeing and ULA filed a suit in the Court of Federal Claims seeking recovery of the deferred support and production costs from the U.S. government. On November 9, 2012, the U.S. government filed an answer to our claim and asserted a counterclaim for credits that it alleges were offset by deferred support cost invoices. We believe that the U.S. government’s counterclaim is without merit, and have filed an answer challenging it on multiple grounds. The litigation is in the discovery phase, and the Court has not yet set a trial date. If, contrary to our belief, it is determined that some or all of the deferred support or production costs are not recoverable, we could be required to record pre-tax losses and make indemnification payments to ULA for up to $317 of the costs questioned by the DCMA.
Other Indemnifications As part of the 2004 sale agreement with General Electric Capital Corporation related to the sale of BCC's Commercial Financial Services business, BCC is involved in a loss sharing arrangement for losses on transferred portfolio assets, such as asset sales, provisions for loss or asset impairment charges offset by gains from asset sales. At June 30, 2015 and December 31, 2014, our maximum future cash exposure to losses associated with the loss sharing arrangement was $44 and our accrued liability under the loss sharing arrangement was $12 and $20.
In conjunction with our sales of Electron Dynamic Devices, Inc. and Rocketdyne Propulsion and Power businesses and our Commercial Airplanes facilities in Wichita, Kansas and Tulsa and McAlester, Oklahoma, we agreed to indemnify, for an indefinite period, the buyers for costs relating to pre-closing environmental conditions and certain other items. It is impossible to assess the potential number of future claims that may be asserted under these indemnifications, nor the amounts thereof (if any). As a result, we cannot estimate the maximum potential amount of future payments under these indemnities and therefore, no liability has been recorded. To the extent that claims have been made under these indemnities and/or are probable and reasonably estimable, liabilities associated with these indemnities are included in the environmental liability disclosure in Note 9.
Credit Guarantees We have issued credit guarantees, principally to facilitate the sale and/or financing of commercial aircraft. Under these arrangements, we are obligated to make payments to a guaranteed party in the event that lease or loan payments are not made by the original lessee or debtor or certain specified services are not performed. A substantial portion of these guarantees has been extended on behalf of original lessees or debtors with less than investment-grade credit. Our commercial aircraft credit guarantees are collateralized by the underlying commercial aircraft and certain other assets. Current outstanding credit guarantees expire within the next six years.
Note 11 – Debt
On February 20, 2015, we issued $750 of fixed rate senior notes consisting of $250 due March 1, 2025 that bear an annual interest rate of 2.5%, $250 due March 1, 2035 that bear an annual interest rate of 3.3%, and $250 due March 1, 2045 that bear an annual interest rate of 3.5%. The notes are unsecured senior obligations and rank equally in right of payment with our existing and future unsecured and unsubordinated indebtedness. The net proceeds of the issuance totaled $722, after deducting underwriting discounts, commissions and offering expenses.

17

Note 12 – Postretirement Plans
The components of net periodic benefit cost were as follows:
  
Six months ended June 30
 
Three months ended June 30
Pension Plans
2015

 
2014

 
2015

 
2014

Service cost

$884

 

$829

 

$442

 

$415

Interest cost
1,494

 
1,542

 
747

 
758

Expected return on plan assets
(2,016
)
 
(2,083
)
 
(1,008
)
 
(1,042
)
Amortization of prior service costs
98

 
89

 
49

 
44

Recognized net actuarial loss
792

 
514

 
396

 
253

Settlement/curtailment/other losses/(gains)
111

 
337

 
73

 
(1
)
Net periodic benefit cost

$1,363

 

$1,228

 

$699

 

$427

Net periodic benefit cost included in Earnings from operations

$1,308

 

$1,728

 

$523

 

$693


 
Six months ended June 30
 
Three months ended June 30
Other Postretirement Benefit Plans
2015

 
2014

 
2015

 
2014

Service cost

$70

 

$64

 

$35

 

$32

Interest cost
124

 
144

 
62

 
72

Expected return on plan assets
(4
)
 
(4
)
 
(2
)
 
(2
)
Amortization of prior service credits
(68
)
 
(72
)
 
(34
)
 
(36
)
Recognized net actuarial loss
15

 
4

 
11

 
2

Settlement and curtailment loss
5

 


 
3

 

Net periodic benefit cost

$142

 

$136

 

$75

 

$68

Net periodic benefit cost included in Earnings from operations

$161

 

$143

 

$69

 

$72

In the second quarter of 2015, we recorded charges of $73 related to curtailments and other benefit changes associated with certain of our defined benefit plans.
Note 13 – Share-Based Compensation and Other Compensation Arrangements
Restricted Stock Units
On February 23, 2015, we granted to our executives 590,778 restricted stock units (RSUs) as part of our long-term incentive program with a grant date fair value of $154.64 per unit. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date.
Performance-Based Restricted Stock Units
On February 23, 2015, we granted to our executives 556,203 performance-based restricted stock units (PBRSUs) as part of our long-term incentive program with a grant date fair value of $164.26 per unit. Compensation expense for the award is recognized over the three-year performance period based upon the grant date fair value estimated using a Monte-Carlo simulation model. The model used the following assumptions: expected volatility of 20.35% based upon historical stock volatility, a risk-free interest rate of 1.03%, and no expected dividend yield because the units earn dividend equivalents.

18

Performance Awards
On February 23, 2015, we granted to our executives performance awards as part of our long-term incentive program with a payout based on the achievement of financial goals for the three-year period ending December 31, 2017. At June 30, 2015, the minimum payout amount is $0 and the maximum amount we could be required to pay out is $352.
Note 14 – Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive income/(loss) (AOCI) by component for the six and three months ended June 30, 2015 and 2014 were as follows:
 
Currency Translation Adjustments

 
Unrealized Gains and Losses on Certain Investments

 
Unrealized Gains and Losses on Derivative Instruments

 
Defined Benefit Pension Plans & Other Postretirement Benefits

 
Total (1)

Balance at January 1, 2014

$150

 

($8
)
 

($6
)
 

($10,030
)
 

($9,894
)
Other comprehensive income/(loss) before reclassifications
38

 
3

 
25

 
622

 
688

Amounts reclassified from AOCI

 

 
1

 
546

(2) 
547

Net current period Other comprehensive income/(loss)
38

 
3

 
26

 
1,168

 
1,235

Balance at June 30, 2014

$188

 

($5
)
 

$20

 

($8,862
)
 

($8,659
)
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015

$53

 

($8
)
 

($136
)
 

($13,812
)
 

($13,903
)
Other comprehensive income/(loss) before reclassifications
(44
)
 
4

 
(66
)
 
31

 
(75
)
Amounts reclassified from AOCI

 

 
28

 
530

(2) 
558

Net current period Other comprehensive income/(loss)
(44
)
 
4

 
(38
)
 
561

 
483

Balance at June 30, 2015

$9

 

($4
)
 

($174
)
 

($13,251
)
 

($13,420
)
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2014

$167

 

($6
)
 

($12
)
 

($9,032
)
 

($8,883
)
Other comprehensive income/(loss) before reclassifications
21

 
1

 
36

 
2

 
60

Amounts reclassified from AOCI

 

 
(4
)
 
168

(2) 
164

Net current period Other comprehensive income/(loss)
21

 
1

 
32

 
170

 
224

Balance at June 30, 2014

$188

 

($5
)
 

$20

 

($8,862
)
 

($8,659
)
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2015

($35
)
 

($7
)
 

($215
)
 

($13,558
)
 

($13,815
)
Other comprehensive income/(loss) before reclassifications
44

 
3

 
25

 
31

 
103

Amounts reclassified from AOCI

 

 
16

 
276

(2) 
292

Net current period Other comprehensive income/(loss)
44

 
3

 
41

 
307

 
395

Balance at June 30, 2015

$9

 

($4
)
 

($174
)
 

($13,251
)
 

($13,420
)
(1)     Net of tax.
(2) 
Primarily relates to amortization of actuarial gains/losses, settlements, and curtailments for the six and three months ended June 30, 2014 totaling $535 and $163 (net of tax of $(298) and $(91)) and to amortization of actuarial gains/losses for the six and three months ended June 30, 2015 totaling $511 and $267 (net of tax of $(284) and $(147)). These are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs. See Note 12.

19

Note 15 – Derivative Financial Instruments
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts, commodity swaps, and commodity purchase contracts. We use foreign currency forward contracts to manage currency risk associated with certain transactions, specifically forecasted sales and purchases made in foreign currencies. Our foreign currency contracts hedge forecasted transactions through 2019. We use commodity derivatives, such as swaps and fixed-price purchase commitments to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through 2017.
Fair Value Hedges
Interest rate swaps under which we agree to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and the hedged items is reported in Boeing Capital interest expense.
Derivative Instruments Not Receiving Hedge Accounting Treatment
We have entered into agreements to purchase and sell aluminum to address long-term strategic sourcing objectives and international business requirements. These agreements are derivative instruments for accounting purposes. The quantities of aluminum in these agreements offset and are priced at prevailing market prices. We also hold certain foreign currency forward contracts which do not qualify for hedge accounting treatment.

Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the Condensed Consolidated Statements of Financial Position were as follows:
  
Notional amounts (1)
Other assets
Accrued liabilities
  
June 30
2015

December 31
2014

June 30
2015

December 31
2014

June 30
2015

December 31
2014

Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange contracts

$2,368


$2,586


$10


$9


($251
)

($204
)
Interest rate contracts
125

125

10

10




Commodity contracts
25

31

1

1

(15
)
(24
)
Derivatives not receiving hedge accounting treatment:
 
 
 
 
 
 
Foreign exchange contracts
428

319

13

21

(7
)
(5
)
Commodity contracts
884

3





 
 
Total derivatives

$3,830


$3,064

34

41

(273
)
(233
)
Netting arrangements
 
 
(15
)
(16
)
15

16

Net recorded balance
 
 

$19


$25


($258
)

($217
)
(1) 
Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

20

Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effect on Other comprehensive income/(loss) and Net earnings were as follows: 
  
Six months ended June 30
 
Three months ended June 30
  
2015

 
2014

 
2015

 
2014

Effective portion recognized in Other comprehensive income/(loss), net of taxes:
 
 
 
 
 
 
 
Foreign exchange contracts

($66
)
 

$20

 

$24

 

$32

Commodity contracts


 
5

 
1

 
4

Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes:
 
 
 
 
 
 
 
Foreign exchange contracts
(23
)
 
7

 
(14
)
 
9

Commodity contracts
(5
)
 
(8
)
 
(2
)
 
(5
)
Forward points recognized in Other income, net:
 
 
 
 
 
 
 
Foreign exchange contracts
7

 
16

 
2

 
9

Undesignated derivatives recognized in Other income, net:
 
 
 
 
 
 
 
Foreign exchange contracts
2

 
(6
)
 
3

 
(2
)
Based on our portfolio of cash flow hedges, we expect to reclassify losses of $131 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges recognized in Other income was insignificant for the six and three months ended June 30, 2015 and 2014.
We have derivative instruments with credit-risk-related contingent features. For foreign exchange contracts with original maturities of at least five years, our derivative counterparties could require settlement if we default on our five-year credit facility. For certain commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. The fair value of foreign exchange and commodity contracts that have credit-risk-related contingent features that are in a net liability position at June 30, 2015 was $32. At June 30, 2015, there was no collateral posted related to our derivatives.
Note 16 – Fair Value Measurements
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. 
 
June 30, 2015
 
December 31, 2014
 
Total

 
Level 1

 
Level 2

 
Level 3
 
Total

 
Level 1

 
Level 2

 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds

$3,164

 

$3,164

 
 
 
 
 

$3,826

 

$3,826

 
 
 
 
Available-for-sale investments
14

 
14

 
 
 

 
7

 
7

 
 
 

Derivatives
19

 
 
 

$19

 
 
 
25

 
 
 

$25

 
 
Total assets

$3,197

 

$3,178

 

$19

 

 

$3,858

 

$3,833

 

$25

 

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives

($258
)
 
 
 

($258
)
 
 
 

($217
)
 
 
 

($217
)
 
 
Total liabilities

($258
)
 

 

($258
)
 

 

($217
)
 

 

($217
)
 


21

Money market funds and available-for-sale equity securities are valued using a market approach based on the quoted market prices of identical instruments. Available-for-sale debt investments are primarily valued using an income approach based on benchmark yields, reported trades and broker/dealer quotes.
Derivatives include foreign currency, commodity and interest rate contracts. Our foreign currency forward contracts are valued using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the present value of the commodity index prices less the contract rate multiplied by the notional amount. The fair value of our interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve.
Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents the nonrecurring losses recognized for the six months ended June 30 due to long-lived asset impairment and the fair value and asset classification of the related assets as of the impairment date:
  
2015
 
2014
 
Fair
Value

 
Total
Losses

 
Fair
Value

 
Total
Losses

Operating lease equipment

$84

 

($67
)
 

$27

 

($6
)
Property, plant and equipment
8

 
(5
)
 
2

 
(10
)
Total

$92

 

($72
)
 

$29

 

($16
)
The fair value of the impaired operating lease equipment is derived by calculating a median collateral value from a consistent group of third party aircraft value publications. The values provided by the third party aircraft publications are derived from their knowledge of market trades and other market factors. Management reviews the publications quarterly to assess the continued appropriateness and consistency with market trends. Under certain circumstances, we adjust values based on the attributes and condition of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by third party publications, or on the expected net sales price for the aircraft. Property, plant and equipment was primarily valued using an income approach based on the discounted cash flows associated with the underlying assets.
For Level 3 assets that were measured at fair value on a nonrecurring basis during the six months ended June 30, 2015, the following table presents the fair value of those assets as of the measurement date, valuation techniques and related unobservable inputs of those assets.
 
Fair
Value
 
Valuation
Technique(s)
 
Unobservable Input
 
Range
Median or Average
Operating lease equipment
$84
 
Market approach
 
Aircraft value publications
 
$93 - $178(1)
Median $156
 
 
Aircraft condition adjustments
 
($75) - $3(2)
Net ($72)
(1) 
The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process.
(2) 
The negative amount represents the sum for all aircraft subject to fair value measurement, of all downward adjustments based on consideration of individual aircraft attributes and condition. The positive amount represents the sum of all such upward adjustments.

22

Fair Value Disclosures
The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the Condensed Consolidated Statements of Financial Position were as follows:
 
June 30, 2015
 
Carrying
Amount

Total Fair
Value

Level 1
Level 2

Level 3

Assets
 
 
 
 
 
Accounts receivable, net

$7,927


$8,000

 

$8,000

 
Notes receivable, net
360

386

 
386

 
Liabilities
 
 
 
 
 
Debt, excluding capital lease obligations
(8,862
)
(10,309
)
 
(10,136
)
(173
)
 
December 31, 2014
 
Carrying
Amount

Total Fair
Value

Level 1
Level 2
Level 3
Assets
 
 
 
 
 
Accounts receivable, net

$7,729


$7,845

 

$7,845

 
Notes receivable, net
366

395

 
395

 
Liabilities
 
 
 
 
 
Debt, excluding capital lease obligations
(8,909
)
(10,686
)
 
(10,480
)

($206
)
The fair value of Accounts receivable is based on current market rates for loans of the same risk and maturities. The fair values of our variable rate notes receivable that reprice frequently approximate their carrying amounts. The fair values of fixed rate notes receivable are estimated with discounted cash flow analysis using interest rates currently offered on loans with similar terms to borrowers of similar credit quality. The fair value of our debt that is traded in the secondary market is classified as Level 2 and is based on current market yields. For our debt that is not traded in the secondary market, the fair value is classified as Level 2 and is based on our indicative borrowing cost derived from dealer quotes or discounted cash flows. The fair values of our debt classified as Level 3 are based on discounted cash flow models using the implied yield from similar securities. With regard to other financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of our indemnifications and financing commitments because the amount and timing of those arrangements are uncertain. Items not included in the above disclosures include cash, restricted cash, time deposits and other deposits, commercial paper, money market funds, Accounts payable and long-term payables. The carrying values of those items, as reflected in the Condensed Consolidated Statements of Financial Position, approximate their fair value at June 30, 2015 and December 31, 2014. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash (Level 1).
Note 17 – Legal Proceedings
Various legal proceedings, claims and investigations related to products, contracts, employment and other matters are pending against us. Potentially material contingencies are discussed below.
We are subject to various U.S. government investigations, from which civil, criminal or administrative proceedings could result or have resulted in the past. Such proceedings involve or 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. We believe, based upon current information, that the outcome of any such government disputes and investigations will not have a material effect on our financial position, results of operations, or cash flows, except as set forth below. Where it is reasonably possible that we will incur losses in excess of

23

recorded amounts in connection with any of the matters set forth below, we will disclose either the amount or range of reasonably possible losses in excess of such amounts or, where no such amount or range can be reasonably estimated, the reasons why no such estimate can be made.
Employment, Labor and Benefits Litigation
In connection with the 2005 sale of the former Wichita facility to Spirit AeroSystems, Inc. (Spirit), on February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was filed in the U.S. District Court for the District of Kansas, alleging collective bargaining agreement breaches and Employee Retirement Income Security Act (ERISA) violations in connection with alleged failures to provide benefits to certain former employees of the Wichita facility. During the second quarter of 2014, the plaintiffs and Boeing agreed to settle the matter subject to a fairness hearing currently scheduled for August 19, 2015. If the proposed settlement of $90 is approved by the district court, we expect that payment would be made in 2015. Spirit is obligated to indemnify Boeing for settlement of this matter and we intend to pursue full indemnification from Spirit. During the fourth quarter of 2014, Boeing filed a complaint against Spirit in Delaware Superior Court seeking to enforce our rights to indemnification and to recover from Spirit amounts incurred by Boeing for pension and retiree medical obligations. We expect to fully recover from Spirit and do not expect to incur any losses due to this settlement.

On October 13, 2006, we were named as a defendant in a lawsuit filed in the U.S. District Court for the Southern District of Illinois. Plaintiffs, seeking to represent a class of similarly situated participants and beneficiaries in The Boeing Company Voluntary Investment Plan (the VIP), alleged that fees and expenses incurred by the VIP were and are unreasonable and excessive, not incurred solely for the benefit of the VIP and its participants, and were undisclosed to participants. The plaintiffs further alleged that defendants breached their fiduciary duties in violation of §502(a)(2) of ERISA, and sought injunctive and equitable relief pursuant to §502(a)(3) of ERISA. Our motion for summary judgment was denied on December 30, 2014. We expect trial in this matter to begin in August 2015. We cannot reasonably estimate the range of loss, if any, that may result from this matter given the current procedural status of the litigation.
Note 18 – Segment Information
Our primary profitability measurements to review a segment’s operating results are Earnings from operations and operating margins. See page 6 for a Summary of Business Segment Data, which is an integral part of this note.
Intersegment revenues, eliminated in Unallocated items, eliminations and other, are shown in the following table.
 
Six months ended June 30
 
Three months ended June 30
 
2015

 
2014

 
2015

 
2014

Commercial Airplanes

$548

 

$552

 

$271

 

$278

Boeing Capital
8

 
11

 
3

 
4

Total

$556

 

$563

 

$274

 

$282


24

Unallocated Items, Eliminations and other
Unallocated items, eliminations and other includes costs not attributable to business segments as well as intercompany profit eliminations. We generally allocate costs to business segments based on the U.S. federal cost accounting standards. Components of Unallocated items, eliminations and other are shown in the following table.
 
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Share-based plans

($37
)
 

($44
)
 

($16
)
 

($20
)
Deferred compensation
(48
)
 
(19
)
 
10

 
(26
)
Amortization of previously capitalized interest
(49
)
 
(36
)
 
(20
)
 
(18
)
Eliminations and other unallocated items
(164
)
 
(304
)
 
(24
)
 
(110
)
Sub-total
(298
)
 
(403
)
 
(50
)
 
(174
)
Pension
(209
)
 
(804
)
 
(57
)
 
(228
)
Postretirement
66

 
47

 
27

 
24

Pension and Postretirement
(143
)
 
(757
)
 
(30
)
 
(204
)
Total

($441
)
 

($1,160
)
 

($80
)
 

($378
)
Unallocated Pension and Other Postretirement Benefit Expense
Unallocated pension and other postretirement benefit expense represent the portion of pension and other postretirement benefit costs that are not recognized by business segments for segment reporting purposes. Pension costs, comprising Generally Accepted Accounting Principles in the United States of America (GAAP) service and prior service costs, are allocated to Commercial Airplanes. Pension costs are allocated to BDS using U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. These costs are allocable to government contracts. Other postretirement benefit costs are allocated to business segments based on CAS, which is generally based on benefits paid.

25

Assets
Segment assets are summarized in the table below:
 
June 30
2015

 
December 31
2014

Commercial Airplanes

$58,010

 

$55,149

Defense, Space & Security:
 
 
 
Boeing Military Aircraft
7,170

 
7,229

Network & Space Systems
6,064

 
5,895

Global Services & Support
4,605

 
4,589

Total Defense, Space & Security
17,839

 
17,713

Boeing Capital
3,352

 
3,525

Unallocated items, eliminations and other
18,901

 
22,811

Total

$98,102

 

$99,198

Assets included in Unallocated items, eliminations and other primarily consist of Cash and cash equivalents, Short-term and other investments, Deferred tax assets, capitalized interest and assets held by Shared Services Group as well as intercompany eliminations.

26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Boeing Company
Chicago, Illinois
We have reviewed the accompanying condensed consolidated statement of financial position of The Boeing Company and subsidiaries (the “Company”) as of June 30, 2015, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2015 and 2014, and the related condensed consolidated statements of cash flows and equity for the six-month periods ended June 30, 2015 and 2014. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of the Company as of December 31, 2014, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 12, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2014 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

/s/ Deloitte & Touche LLP

Chicago, Illinois
July 22, 2015

27

FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates” and similar expressions are used to identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact.
 
 
Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to:
 
 
(1)
general conditions in the economy and our industry, including those due to regulatory changes;
 
 
(2)
our reliance on our commercial airline customers;
 
 
(3)
the overall health of our aircraft production system, planned production rate increases across multiple commercial airline programs, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards;
 
 
(4)
changing budget and appropriation levels and acquisition priorities of the U.S. government;
 
 
(5)
our dependence on U.S. government contracts;
 
 
(6)
our reliance on fixed-price contracts;
 
 
(7)
our reliance on cost-type contracts;
 
 
(8)
uncertainties concerning contracts that include in-orbit incentive payments;
 
 
(9)
our dependence on our subcontractors and suppliers as well as the availability of raw materials;
 
 
(10)
changes in accounting estimates;
 
 
(11)
changes in the competitive landscape in our markets;
 
 
(12)
our non-U.S. operations, including sales to non-U.S. customers;
 
 
(13)
potential adverse developments in new or pending litigation and/or government investigations;
 
 
(14)
customer and aircraft concentration in Boeing Capital’s customer financing portfolio;
 
 
(15)
changes in our ability to obtain debt on commercially reasonable terms and at competitive rates in order to fund our operations and contractual commitments;
 
 
(16)
realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures;
 
 
(17)
the adequacy of our insurance coverage to cover significant risk exposures;

28

(18)
potential business disruptions, including those related to physical security threats, information technology or cyber attacks, epidemics, sanctions or natural disasters;
 
 
(19)
work stoppages or other labor disruptions;
 
 
(20)
significant changes in discount rates and actual investment return on pension assets;
 
 
(21)
potential environmental liabilities; and
 
 
(22)
threats to the security of our or our customers’ information.
 
 
Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including the “Risk Factors” on pages 6 through 15 of our most recent Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 9, 10, and 17 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and Current Reports on Form 8-K. Any forward-looking information speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law.
 
 
 
 
 
 
 
 
 
 

29

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Results of Operations and Financial Condition
Earnings From Operations and Core Operating Earnings (Non-GAAP) The following table summarizes key indicators of consolidated results of operations:
(Dollars in millions, except per share data)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$46,692

 

$42,510

 

$24,543

 

$22,045

 
 
 
 
 
 
 
 
GAAP
 
 
 
 
 
 
 
Earnings from operations

$3,702

 

$3,329

 

$1,683

 

$1,787

Operating margins
7.9
%
 
7.8
%
 
6.9
%
 
8.1
%
Effective income tax rate
31.5
%
 
17.6
%
 
31.6
%
 
3.7
%
Net earnings

$2,446

 

$2,618

 

$1,110

 

$1,653

Diluted earnings per share

$3.46

 

$3.50

 

$1.59

 

$2.24

 
 
 
 
 
 
 
 
Non-GAAP (1)
 
 
 
 
 
 
 
Core operating earnings

$3,845

 

$4,086

 

$1,713

 

$1,991

Core operating margin
8.2
%
 
9.6
%
 
7.0
%
 
9.0
%
Core earnings per share

$3.59

 

$4.16

 

$1.62

 

$2.42

(1) 
These measures exclude certain components of pension and other postretirement benefit expense. See page 47 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.
Revenues
The following table summarizes Revenues:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Commercial Airplanes

$32,258

 

$27,041

 

$16,877

 

$14,304

Defense, Space & Security
14,253

 
15,380

 
7,544

 
7,747

Boeing Capital
201

 
172

 
115

 
90

Unallocated items, eliminations and other
(20
)
 
(83
)
 
7

 
(96
)
Total

$46,692

 

$42,510

 

$24,543

 

$22,045

Revenues for the six and three months ended June 30, 2015 increased by $4,182 million and $2,498 million, or 10% and 11% compared with the same periods in 2014. Commercial Airplanes revenues increased by $5,217 million and $2,573 million, or 19% and 18% due to higher airplane deliveries and mix. Defense, Space & Security (BDS) revenues for the six months ended June 30, 2015 decreased by $1,127 million, or 7% compared with the same period in 2014 due to lower revenues in all three segments. BDS revenues for the three months ended June 30, 2015 decreased by $203 million, or 3% compared with the same period in 2014 due to lower revenues in Global Services & Support (GS&S) and Boeing Military Aircraft (BMA) segments, partially offset by higher revenues in the Network & Space Systems (N&SS) segment.

30

Earnings From Operations
The following table summarizes Earnings from operations:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Commercial Airplanes

$2,823

 

$3,052

 

$1,206

 

$1,550

Defense, Space & Security
1,289

 
1,360

 
546

 
582

Boeing Capital
31

 
77

 
11

 
33

Unallocated pension and other postretirement benefit expense
(143
)
 
(757
)
 
(30
)
 
(204
)
Other unallocated items and eliminations
(298
)
 
(403
)
 
(50
)
 
(174
)
Earnings from operations (GAAP)

$3,702

 

$3,329

 

$1,683

 

$1,787

Unallocated pension and other postretirement benefit expense
143

 
757

 
30

 
204

Core operating earnings (Non-GAAP)

$3,845

 

$4,086

 

$1,713

 

$1,991

Earnings from operations for the six months ended June 30, 2015 increased by $373 million compared with the same period in 2014 primarily reflecting lower unallocated pension and other postretirement benefit expense of $614 million, offset by higher charges of $410 million related to the USAF KC-46A Tanker recorded by Commercial Airplanes and our BMA segment and the change in other unallocated items and eliminations. Earnings from operations for the three months ended June 30, 2015 decreased by $104 million compared with the same period in 2014 primarily reflecting the higher USAF KC-46A Tanker charges, partially offset by lower unallocated pension and other postretirement benefit expense of $174 million and the change in other unallocated items and eliminations.
During the three months ended June 30, 2015 and 2014, we recorded reach-forward losses of $835 million and $425 million on the USAF KC-46A Tanker contract. $513 million of the 2015 charge was recorded at Commercial Airplanes and $322 million at our BMA segment. $238 million of the 2014 charge was recorded at Commercial Airplanes and $187 million at our BMA segment.
Core operating earnings for the six and three months ended June 30, 2015 decreased by $241 million and $278 million compared with the same periods in 2014 primarily due to lower earnings at Commercial Airplanes and BDS as a result of the higher 2015 USAF KC-46A Tanker charges, partially offset by the change in other unallocated items and eliminations.

31

Unallocated Items, Eliminations and Other The most significant items included in Unallocated items, eliminations and other are shown in the following table:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Share-based plans

($37
)
 

($44
)
 

($16
)
 

($20
)
Deferred compensation
(48
)
 
(19
)
 
10

 
(26
)
Eliminations and other unallocated items
(213
)
 
(340
)
 
(44
)
 
(128
)
Sub-total (included in core operating earnings*)
(298
)
 
(403
)
 
(50
)
 
(174
)
Pension
(209
)
 
(804
)
 
(57
)
 
(228
)
Postretirement
66

 
47

 
27

 
24

Pension and other postretirement benefit expense
(excluded from core operating earnings*)
(143
)
 
(757
)
 
(30
)
 
(204
)
Total

($441
)
 

($1,160
)
 

($80
)
 

($378
)
* Core operating earnings is a Non-GAAP measure that excludes certain components of pension and postretirement benefit expense. See page 47.
Deferred compensation expense for the six months ended June 30, 2015 increased by $29 million and decreased by $36 million for the three months ended June 30, 2015 compared with the same periods in 2014 primarily driven by changes in our stock price.
Eliminations and other unallocated loss for the six and three months ended June 30, 2015 decreased by $127 million and $84 million compared with the same periods in 2014 primarily due to the timing of the elimination of profit on intercompany aircraft deliveries and expense allocations.
We recorded net periodic benefit cost related to pension of $1,363 million and $699 million for the six and three months ended June 30, 2015 compared with $1,228 million and $427 million for the same periods in 2014. The components of net periodic benefit cost are shown in the following table:
  
Six months ended June 30
 
Three months ended June 30
Pension Plans
2015

 
2014

 
2015

 
2014

Service cost

$884

 

$829

 

$442

 

$415

Interest cost
1,494

 
1,542

 
747

 
758

Expected return on plan assets
(2,016
)
 
(2,083
)
 
(1,008
)
 
(1,042
)
Amortization of prior service costs
98

 
89

 
49

 
44

Recognized net actuarial loss
792

 
514

 
396

 
253

Settlement/curtailment/other losses/(gains)
111

 
337

 
73

 
(1
)
Net periodic benefit cost

$1,363

 

$1,228

 

$699

 

$427

The increase in net periodic pension benefit cost for the six months ended June 30, 2015 of $135 million is primarily due to $278 million of higher amortization of actuarial losses which more than offset $226 million of lower curtailment charges. For the three months ended June 30, 2015 net periodic pension benefit cost increased by $272 million over the same period in 2014 reflecting $143 million of higher actuarial losses and $74 million of higher curtailment charges.

32

A portion of net periodic benefit cost is recognized as product costs in Earnings from operations in the period incurred and the remainder is included in inventory at the end of the reporting period and recorded in Earnings from operations in subsequent periods. Costs are allocated to the business segments as described in Note 18. Net periodic pension benefit costs included in Earnings from operations were as follows:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30
Pension Plans
2015

 
2014

 
2015

 
2014

Allocated to business segments

($1,099
)
 

($924
)
 

($466
)
 

($465
)
Other unallocated items and eliminations
(209
)
 
(804
)
 
(57
)
 
(228
)
Total

($1,308
)
 

($1,728
)
 

($523
)
 

($693
)
Unallocated pension expense recognized in earnings in 2015 decreased by $595 million and $171 million for the six and three months ended June 30, 2015 when compared with the corresponding periods in 2014. The six month decrease is primarily due to lower amortization of pension costs capitalized as inventory in prior years and lower curtailment charges in 2015. The three month decrease reflects lower amortization of pension costs capitalized as inventory in prior years partially offset by higher curtailment charges in second quarter 2015.
Other Earnings Items 
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Earnings from operations

$3,702

 

$3,329

 

$1,683

 

$1,787

Other (loss)/income, net
3

 
20

 
15

 
11

Interest and debt expense
(136
)
 
(173
)
 
(75
)
 
(81
)
Earnings before income taxes
3,569

 
3,176

 
1,623

 
1,717

Income tax expense
(1,123
)
 
(558
)
 
(513
)
 
(64
)
Net earnings from continuing operations

$2,446

 

$2,618

 

$1,110

 

$1,653

Our effective income tax rates were 31.5% and 31.6% for the six and three months ended June 30, 2015 and 17.6% and 3.7% for the same periods in the prior year. The effective tax rates for the six and three months ended June 30, 2015 are higher than 2014 primarily due to tax benefits of $524 million recorded in the second quarter of 2014 relating to tax basis adjustments and settlement of the 2007 - 2010 federal tax audits. The 2015 tax rates include a higher U.S. manufacturing activity tax benefit than in 2014.
For additional discussion related to Income Taxes, see Note 3 to our Condensed Consolidated Financial Statements.

33

Total Costs and Expenses (“Cost of Sales”)
Cost of sales, for both products and services, consists primarily of raw materials, parts, sub-assemblies, labor, overhead and subcontracting costs. Our Commercial Airplanes segment predominantly uses program accounting to account for cost of sales and BDS predominantly uses contract accounting. Under program accounting, cost of sales for each commercial airplane program equals the product of (i) revenue recognized in connection with customer deliveries and (ii) the estimated cost of sales percentage applicable to the total remaining program. Under contract accounting, the amount reported as cost of sales is determined by applying the estimated cost of sales percentage to the amount of revenue recognized. The following table summarizes cost of sales:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30
 

2015

 
2014

Change

2015

 
2014

Change

Cost of sales

$39,846

 

$35,966


$3,880


$21,350

 

$18,670


$2,680

Cost of sales as a % of Revenues
85.3
%
 
84.6
%
0.7
%
87.0
%
 
84.7
%
2.3
%
Cost of sales for the six months ended June 30, 2015 increased by $3,880 million, or 11% compared with the same period in 2014 primarily driven by the $4,182 million, or 10%, increase in revenues. Cost of sales at Commercial Airplanes increased by $5,283 million and cost of sales at BDS decreased by $798 million. Cost of sales as a percentage of revenue was approximately 85.3% in the six months ended June 30, 2015 compared with 84.6% in the same period in 2014 primarily driven by the higher KC-46A Tanker charges, partially offset by lower pension settlement and curtailment charges.
Cost of sales for the three months ended June 30, 2015 increased by $2,680 million, or 14%, compared with the same period in 2014 driven by a $2,498 million, or 11%, increase in revenues. Cost of sales as a percentage of revenue was approximately 87.0% for the three months ended June 30, 2015 compared with 84.7% in the same period in 2014, primarily reflecting the higher USAF KC-46A Tanker charges.
Research and Development The following table summarizes our Research and development expense:
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Commercial Airplanes

$1,097

 

$970

 

$554

 

$441

Defense, Space & Security
474

 
577

 
250

 
297

Other
(2
)
 
(5
)
 
(4
)
 
(5
)
Total

$1,569

 

$1,542

 

$800

 

$733

Research and development expense for the six and three months ended June 30, 2015 increased by $27 million and $67 million compared with the same period in 2014 primarily due to higher spending on the 777X, which more than offset decreased 787-9 and BDS spending.

34

Backlog
(Dollars in millions)
June 30
2015

 
December 31
2014

Total contractual backlog

$479,172

 

$487,092

Unobligated backlog
9,588

 
15,299

Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed, and unobligated U.S. and non-U.S. government contract funding. The decrease in contractual backlog during the six months ended June 30, 2015 compared with December 31, 2014 was primarily due to deliveries in excess of orders.
Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has not been authorized. The unobligated backlog of $9,588 million at June 30, 2015 decreased from December 31, 2014 primarily due to reclassifications to contractual backlog related to incremental funding for BDS contracts, partially offset by contract awards.
Additional Considerations
KC-46A Tanker In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. The KC-46A Tanker is a derivative of our 767 commercial aircraft. This Engineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. We have also begun work on low rate initial production (LRIP) aircraft for the USAF. The USAF is expected to authorize low rate initial production lots in 2016 for 7 and 12 aircraft, respectively, subject to satisfactory progress being made on the EMD contract.
In second quarter 2014, we recorded a reach-forward loss of $425 million on the EMD contract. In second quarter 2015, we recorded an additional reach-forward loss of $835 million. $513 million of this loss was recorded at our Commercial Airplanes segment and the remaining $322 million was recorded in our BMA segment. The $835 million loss includes $670 million related to the EMD contract and $165 million related to LRIP aircraft. The reach-forward loss on the EMD contract was driven primarily by design changes required in the aircraft fuels and aerial refueling systems which were identified as we prepared for and conducted ground and flight testing. Other costs include additional qualification and certification testing as well as investments that will enable us to meet our delivery commitments in 2017. The reach-forward loss related to LRIP aircraft is primarily driven by increased manufacturing complexity resulting from design changes. As with any development program, this program remains subject to additional reach-forward losses if we experience technical or quality issues, schedule delays or increased costs.
We continue to expect to meet our commitment to deliver 18 fully operational aircraft to the customer by August 2017. The contract contains production options for both LRIP aircraft and full rate production aircraft. If all options under the contract are exercised, we expect to deliver 179 aircraft for a total expected contract value of approximately $30 billion.
Russia/Ukraine We continue to monitor political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any significant disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.

35

Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment
The long-term outlook for the industry remains positive due to the fundamental drivers of air travel growth: economic growth and the increasing propensity to travel due to increased trade, globalization and improved airline services driven by liberalization of air traffic rights between countries. Our 20-year forecast, published in the second quarter of 2015, projects a long-term average growth rate of 5% per year for passenger and cargo traffic, based on a projected average annual worldwide real economic growth rate of 3%. Based on long-term global economic growth projections, and factoring in increased utilization of the worldwide airplane fleet and requirements to replace older airplanes, we project a $5.6 trillion market for approximately 38,000 new airplanes over the next 20 years.
Many of our non-U.S. customers finance aircraft purchases through the Export-Import Bank of the United States. The bank’s charter expired on June 30, 2015, leaving the bank unable to provide new commitments in respect of U.S. exports, including commercial aircraft. While the bank may continue to honor commitments made on or prior to June 30, if the bank’s charter is not reauthorized in a timely fashion, or if the bank’s future funding authority is insufficient to meet our customers’ needs, we may fund additional commitments and/or enter into new financing arrangements with customers. Certain of our non-U.S. customers also may seek to delay aircraft purchases if they cannot obtain financing at reasonable costs, and there may be further impacts with respect to future sales campaigns involving non-U.S. customers. We continue to work with our customers to mitigate these risks and assist with alternative third party financing sources.
Results of Operations
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$32,258

 

$27,041

 

$16,877



$14,304

Earnings from operations

$2,823

 

$3,052

 

$1,206



$1,550

Operating margins
8.8
%
 
11.3
%
 
7.1
%
 
10.8
%
(Dollars in millions)
June 30
2015

 
December 31
2014

Contractual backlog

$430,739

 

$440,118

Unobligated backlog


 
360

Revenues
Revenues for the six and three months ended June 30, 2015 increased by $5,217 million and $2,573 million or 19% and 18% compared with the same periods in 2014 primarily due to higher airplane deliveries and mix.

36

Commercial airplane deliveries, including intercompany deliveries, were as follows:

737

*
747

 
767

 
777

 
787

 
Total

Deliveries during the first six months of 2015
249

(6)
9

 
9

 
50

 
64

 
381

Deliveries during the first six months of 2014
239

(6)
6

 
1

 
48

 
48

 
342

Deliveries during the second quarter of 2015
128

(3)
5

 
4

 
26

 
34

 
197

Deliveries during the second quarter of 2014
124

(3)
2

 
1

 
24

 
30

 
181

Cumulative deliveries as of 6/30/2015
5,467

 
1,510

 
1,076

 
1,313

 
292

 
9,658

Cumulative deliveries as of 12/31/2014
5,218

 
1,501

 
1,067

 
1,263

 
228

 
9,277

(*) Intercompany deliveries identified by parentheses

Earnings From Operations
Earnings from operations for the six and three months ended June 30, 2015 decreased by $229 million and $344 million compared with the same periods in 2014 primarily due to a reach-forward loss of $513 million related to the USAF KC-46A Tanker contract recorded in the second quarter of 2015 and higher research and development expense on the 777X. Earnings for the three months ended June 30, 2014 included a reach-forward loss of $238 million related to the USAF KC-46A Tanker contract. Decreased earnings were partially offset by an increase in new airplane deliveries. Operating margins decreased primarily due to the dilutive impact of 787 and 747 deliveries and the reach-forward loss.
Backlog
The decrease in contractual backlog during the six months ended June 30, 2015 was due to deliveries in excess of orders.
Accounting Quantity
The following table provides details of the accounting quantities and firm orders by program. Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders.
 
Program
As of 6/30/2015
737

 
747

 
767

 
777

 
777X

 
787

Program accounting quantities
8,000

 
1,574

 
1,113

 
1,650

 
*

 
1,300

Undelivered units under firm orders
4,253

 
31

 
39

 
257

 
306

 
803

Cumulative firm orders
9,720

 
1,541

 
1,115

 
1,570

 
306

 
1,095

 
Program
As of 12/31/2014
737

 
747

 
767

 
777

 
777X

 
787

Program accounting quantities
7,800

 
1,574

 
1,113

 
1,600

 
*

 
1,300

Undelivered units under firm orders
4,299

 
36

 
47

 
278

 
286

 
843

Cumulative firm orders
9,517

 
1,537

 
1,114

 
1,541

 
286

 
1,071

* The accounting quantity for the 777X will be determined in the year of first airplane delivery, targeted for 2020.
Program Highlights
737 Program The accounting quantity for the 737 program increased by 200 units during the three months ended June 30, 2015 due to the program’s normal progress of obtaining additional orders and delivering airplanes. We are currently producing at a rate of 42 per month and plan an additional increase to 47 per month in 2017. We plan to further increase the rate to 52 per month in 2018. First delivery of the 737 MAX is expected in 2017.

37

747 Program Lower-than-expected demand for large commercial passenger and freighter aircraft has resulted in ongoing pricing pressures and fewer orders than anticipated. We are currently producing at a rate of 1.5 per month with plans to reduce the rate to 1.3 per month in September 2015. During the second quarter, we announced that the production rate for 747 aircraft will be reduced to 1.0 per month beginning in March 2016. We have a number of unsold 747 production positions and we remain focused on obtaining additional orders and implementing cost-reduction efforts. If market, production and other risks cannot be mitigated, the program could face a reach-forward loss that may be material.
767 Program The 767 assembly line includes a 767 derivative to support the tanker program. We are currently producing at a combined tanker and commercial production rate of 1.5 per month and plan to increase to 2 per month in 2016.
777 Program The accounting quantity for the 777 program increased by 50 units during the first quarter of 2015 due to the program’s normal progress of obtaining additional orders and delivering airplanes. We are currently producing at a rate of 8.3 per month. In the fourth quarter of 2013, we launched the 777X, which features a new composite wing, new engines and folding wing-tips. The 777X will have a separate program accounting quantity, which will be determined in the year of first airplane delivery, targeted for 2020.
787 Program We continue to produce at a rate of 10 per month and plan for rate increases to 12 per month in 2016 and 14 per month by the end of the decade. First delivery of the 787-10 derivative aircraft is targeted for 2018. The accounting quantity of 1,300 units remains unchanged.
We remain focused on stabilizing production rates at 10 per month while improving aircraft reliability and satisfying customer mission and performance requirements. We continue to monitor and address challenges associated with aircraft production and assembly for both the 787-8 and 787-9, including management of our manufacturing operations and extended global supply chain, completion and integration of traveled work, as well as incorporating changes identified during 787-8 flight testing to already completed aircraft. In addition, we continue to work with our customers and suppliers to assess the specific impacts of schedule changes, including requests for contractual relief related to delivery delays and supplier assertions.
During 2009, we concluded that the first three flight-test 787 aircraft could not be sold as previously anticipated due to the inordinate amount of rework and unique and extensive modifications made to those aircraft. As a result, costs associated with these airplanes were included in research and development expense. Based on sales activity and market interest we continue to believe that the remaining 787 flight-test aircraft are commercially saleable and we continue to include costs related to these aircraft in program inventory. If we determine that any of the remaining flight test aircraft cannot be sold, we may incur additional charges related to the reclassification of costs associated with those aircraft to research and development expense.
The combination of production challenges, change incorporation, schedule delays and customer and supplier impacts has created significant pressure on program profitability. If risks related to these challenges, together with risks associated with planned production rate increases, or introducing the 787-10 derivative as scheduled cannot be mitigated, the program could face additional customer claims and/or supplier assertions, further pressures on program profitability and/or a reach-forward loss. We continue to implement mitigation plans and cost-reduction efforts to improve program profitability and address program risks.
Additional Considerations
The development and ongoing production of commercial aircraft is extremely complex, involving extensive coordination and integration with suppliers and highly-skilled labor from thousands of employees and other partners. Meeting or exceeding our performance and reliability standards, as well as those of customers and regulators, can be costly and technologically challenging. In addition, the introduction of new aircraft and derivatives, such as the 787-10, 737 MAX and 777X, involves increased risks associated with meeting development, production and certification schedules. As a result, our ability to deliver aircraft on time, satisfy performance and reliability standards and achieve or maintain, as applicable, program profitability is subject to significant risks. Factors that could result in lower margins (or a material charge if an airplane program has or is determined to have reach-forward losses) include the following: changes to the program accounting

38

quantity, customer and model mix, production costs and rates, changes to price escalation factors due to changes in the inflation rate or other economic indicators, performance or reliability issues involving completed aircraft, capital expenditures and other costs associated with increasing or adding new production capacity, learning curve, additional change incorporation, anticipated cost reductions, flight test and certification schedules, costs, schedule and demand for new airplanes and derivatives and status of customer claims, supplier assertions and other contractual negotiations. While we believe the cost and revenue estimates incorporated in the consolidated financial statements are appropriate, the technical complexity of our airplane programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, order cancellations or other financially significant exposure.
Defense, Space & Security
Business Environment and Trends
United States Government Defense Environment Overview U.S. government appropriation levels remain subject to significant uncertainty. In August 2011, the Budget Control Act (The Act) established limits on U.S. government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012 and 2021 U.S. government fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period to the extent that discretionary spending limits are exceeded. While the impact of sequestration cuts was reduced with respect to FY2014 and FY2015 following the enactment of The Bipartisan Budget Act in December 2013, significant uncertainty remains with respect to overall levels of defense spending. It is likely that U.S. government discretionary spending levels for FY2016 and beyond will continue to be subject to significant pressure, including risk of future sequestration cuts.
Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (U.S. DoD) and other government agencies, including the National Aeronautics and Space Administration, within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization and appropriations process could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company's operations, financial position and/or cash flows.
In addition to the risks described above, if Congress is unable to pass appropriations bills in a timely manner, a government shutdown could result which may have impacts above and beyond those resulting from budget cuts or sequestration impacts. For example, requirements to furlough employees in the U.S. DoD or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.
Results of Operations
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$14,253

 

$15,380

 

$7,544

 

$7,747

Earnings from operations

$1,289

 

$1,360

 

$546

 

$582

Operating margins
9.0
%
 
8.8
%
 
7.2
%
 
7.5
%
(Dollars in millions)
June 30
2015

 
December 31
2014

Contractual backlog

$48,433

 

$46,974

Unobligated backlog
9,588

 
14,939


39

Since our operating cycle is long-term and involves many different types of development and production contracts with varying delivery and milestone schedules, the operating results of a particular year, or year-to-year comparisons of revenues, earnings and backlog may not be indicative of future operating results. In addition, depending on the customer and their funding sources, our orders might be structured as annual follow-on contracts, or as one large multi-year order or long-term award. As a result, period-to-period comparisons of backlog are not necessarily indicative of future workloads. The following discussions of comparative results among periods should be viewed in this context.
Deliveries of units for new-build production aircraft, including remanufactures and modifications, were as follows:
 
Six months ended June 30
 
Three months ended June 30

2015
 
2014
 
2015
 
2014
F/A-18 Models
20
 
23
 
9
 
12
F-15 Models
5
 
8
 
4
 
4
C-17 Globemaster III
3
 
5
 
2
 
2
CH-47 Chinook (New)
21
 
32
 
15
 
15
CH-47 Chinook (Renewed)
5
 

 
1
 

AH-64 Apache (New)
12
 
19
 
6
 
9
AH-64 Apache (Remanufactured)
23
 
25
 
13
 
11
P-8 Models
6
 
2
 
4
 
2
AEW&C

 
2
 

 
1
C-40A
1
 

 

 
 
Total
96
 
116
 
54
 
56
Revenues
BDS revenues for the six months ended June 30, 2015 decreased by $1,127 million compared with the same period in 2014 due to lower revenues in all three segments.
BDS revenues for the three months ended June 30, 2015 decreased by $203 million compared with the same period in 2014 due to lower revenues of $189 million and $32 million in the GS&S and BMA segments, offset by higher revenues of $18 million in the N&SS segment.
Earnings From Operations
BDS earnings from operations for the six months ended June 30, 2015 decreased by $71 million compared with the same period in 2014 due to lower earnings of $112 million in the BMA segment, offset by higher earnings of $41 million in the GS&S segment.
BDS earnings from operations for the three months ended June 30, 2015 decreased by $36 million compared to the same period in 2014 primarily due to lower earnings of $41 million in the BMA segment.
Backlog
BDS total backlog was $58,021 million at June 30, 2015, reflecting a decrease of 6% from December 31, 2014. For further details on the changes between periods, refer to the discussions of the individual segments below.
Additional Considerations
Our BDS business includes a variety of development programs which have complex design and technical challenges. Many of these programs have cost-type contracting arrangements. In these cases, the associated

40

financial risks are primarily in reduced fees, lower profit rates or program cancellation if cost, schedule or technical performance issues arise. Examples of these programs include Ground-based Midcourse Defense (GMD), Proprietary and Space Launch System (SLS) programs. Some of our development programs are contracted on a fixed-price basis. Many of these programs have highly complex designs. As technical or quality issues arise during development, we may experience schedule delays and cost impacts, which could increase our estimated cost to perform the work or reduce our estimated price, either of which could result in a material charge or otherwise adversely affect our financial condition. These programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, the loss of satellite in-orbit incentive payments, or other financially significant exposure. These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues. Examples of significant fixed-price development programs include India P-8I, Saudi F-15, USAF KC-46A Tanker, Commercial Crew and commercial and military satellites.
Revenue and cost estimates for all significant contracts are reviewed and reassessed quarterly. Changes in these estimates could result in recognition of cumulative catch-up adjustments to the contract’s inception to date revenues, cost of sales and profit, in the period in which such changes are made. Changes in revenue and cost estimates could also result in a reach-forward loss or an adjustment to a reach-forward loss, which would be recorded immediately in earnings. For the six months ended June 30, 2015, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all BDS contracts decreased Earnings from operations by $81 million. For the six months ended June 30, 2014 net favorable cumulative catch-up adjustments, including reach-forward losses, across all BDS contracts increased Earnings from operations by $93 million. For the three months ended June 30, 2015 and 2014, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all BDS contracts decreased Earnings from operations by $211 million and $74 million.
Boeing Military Aircraft
Results of Operations
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$6,232

 

$6,975

 

$3,488

 

$3,520

Earnings from operations

$384

 

$496

 

$123

 

$164

Operating margins
6.2
%
 
7.1
%
 
3.5
%
 
4.7
%
(Dollars in millions)
June 30
2015

 
December 31
2014

Contractual backlog

$22,843

 

$21,119

Unobligated backlog
4,360

 
8,020

Revenues
BMA revenues for the six months ended June 30, 2015 decreased by $743 million compared with the same period in 2014 primarily due to the reductions of $1,050 million related to timing and mix of deliveries on the F-15, Apache, CH-47 Chinook, F/A-18 and V-22 programs as well as the wind down of the C-17 program. These decreases were partially offset by higher revenues of $303 million on the P-8 programs due to higher deliveries.
BMA revenues for the three months ended June 30, 2015 decreased by $32 million when compared with the same period in 2014 primarily due to a decrease of $332 million related to fewer deliveries on the F/A-18 program and lower milestone revenue on the F-15 and KC-46A Tanker programs. These decreases were

41

offset by increases of $272 million due to higher deliveries on the P-8 programs and timing and mix of deliveries on the C-17 program.
Earnings From Operations
BMA earnings from operations for the six months ended June 30, 2015 decreased by $112 million, or 23%, compared with the same period in 2014, primarily due to higher charges on the KC-46A Tanker contract of $135 million and lower milestone revenue on the F-15 program. These decreases were partially offset by increases related to higher deliveries on the P-8 program. BMA recorded charges of $322 million in the second quarter of 2015 and $187 million in the second quarter of 2014 related to the KC-46A Tanker contract. In addition, BMA recorded a charge of $48 million in the first quarter of 2014 to write-off inventory and accrue termination liabilities as a result of our decision to produce three fewer C-17 aircraft in 2015 than previously planned. Net unfavorable cumulative contract catch-up adjustments were $116 million higher in the six months ended June 30, 2015 than in the same period in 2014 primarily due to the increased reach-forward loss on the KC-46A Tanker contract.
BMA earnings from operations for the three months ended June 30, 2015 decreased by $41 million, or 25%, compared to the same period in 2014 primarily due to higher charges of $135 million on the KC-46A Tanker contract offset by higher earnings of $98 million due to favorable delivery mix on the C-17 and CH-47 Chinook programs. Net unfavorable cumulative contract catch-up adjustments were $85 million higher in the three months ended June 30, 2015 than in the same period in 2014 primarily driven by unfavorable adjustments on the KC-46A Tanker contract.
Backlog
BMA total backlog of $27,203 million at June 30, 2015 decreased by 7% from December 31, 2014, reflecting revenue recognized on contracts awarded in prior years, partially offset by current year contract awards for the C-17 and Apache programs.
Additional Considerations
C-17 and F/A-18 See the discussions of the C-17 and F/A-18 programs in Note 9 to our Condensed Consolidated Financial Statements.
KC-46A Tanker See the discussion of the KC-46A Tanker program on page 34.
Network & Space Systems
Results of Operations 
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$3,670

 

$3,796

 

$1,938

 

$1,920

Earnings from operations

$318

 

$318

 

$151

 

$150

Operating margins
8.7
%
 
8.4
%
 
7.8
%
 
7.8
%
(Dollars in millions)
June 30
2015

 
December 31
2014

Contractual backlog

$9,061

 

$8,935

Unobligated backlog
4,198

 
5,987

Revenues
N&SS revenues for the six months ended June 30, 2015 decreased by $126 million compared with the same period in 2014 primarily due to lower milestone revenue and volume on various programs and our United

42

Launch Alliance (ULA) joint venture, partially offset by increased revenues of $425 million related to higher initial volume on the Commercial Crew program.
N&SS revenues for the three months ended June 30, 2015 increased by $18 million compared with the same period in 2014 primarily due to increased revenues of $224 million related to higher initial volume on the Commercial Crew program, partially offset by lower volume and milestone revenue on various programs.
Earnings From Operations
N&SS earnings from operations for the six months ended June 30, 2015 were unchanged compared with the same period in 2014 primarily due to higher initial volume on the Commercial Crew program and higher earnings related to our ULA joint venture, offset by reductions of $62 million related to lower performance on various satellite programs. Net unfavorable cumulative contract catch-up adjustments were $32 million in the six months ended June 30, 2015 primarily due to unfavorable adjustments on commercial satellite programs. Net favorable cumulative contract catch-up adjustments were $57 million in the six months ended June 30, 2014.
N&SS earnings from operations for the three months ended June 30, 2015 were consistent with the same period in 2014 primarily due to higher revenues on the Commercial Crew program, partially offset by reductions of $40 million related to lower performance on commercial satellite programs and our ULA joint venture. Net unfavorable cumulative contract catch-up adjustments were $25 million in the three months ended June 30, 2015 primarily due to unfavorable adjustments on commercial satellite programs. Net favorable cumulative contract catch-up adjustments were $39 million in the three months ended June 30, 2014.
N&SS earnings from operations include equity earnings of $86 million and $26 million for the six and three months ended June 30, 2015 compared to $89 million and $43 million for the same periods in 2014 primarily from our ULA joint venture.
Backlog
N&SS total backlog was $13,259 million at June 30, 2015, reflecting a decrease of 11% from December 31, 2014 primarily due to revenue recognized on contracts awarded in prior years, partially offset by current year contract awards, including an order from NASA for Post Certification Mission 1 on the Commercial Crew program.
Additional Considerations
United Launch Alliance See the discussion of Indemnifications to ULA and Financing Commitments in Notes 5, 9 and 10 of our Condensed Consolidated Financial Statements.
Sea Launch See the discussion of the Sea Launch receivables in Note 8 to our Condensed Consolidated Financial Statements.
LightSquared See the discussion of the LightSquared, LP receivables in Note 4 to our Condensed Consolidated Financial Statements.

43

Global Services & Support
Results of Operations
(Dollars in millions)
Six months ended June 30
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$4,351

 

$4,609

 

$2,118

 

$2,307

Earnings from operations

$587

 

$546

 

$272

 

$268

Operating margins
13.5
%
 
11.8
%
 
12.8
%
 
11.6
%
(Dollars in millions)
June 30
2015


December 31
2014

Contractual backlog

$16,529

 

$16,920

Unobligated backlog
1,030

 
932

Revenues
GS&S revenues for the six months ended June 30, 2015 decreased by $258 million compared with the same period in 2014 primarily due to reductions of $353 million related to fewer Airborne Early Warning and Control (AEW&C) deliveries and lower volume in several Aircraft Modernization & Sustainment (AM&S) and Training Systems & Government Services (TSGS) programs, partially offset by higher volume on several Integrated Logistics (IL) programs.
GS&S revenues for the three months ended June 30, 2015 decreased by $189 million compared with the same period in 2014 primarily due to reductions of $327 million related to fewer AEW&C deliveries, lower volume in several AM&S and TSGS programs, partially offset by higher volume in several IL programs.
Earnings From Operations
GS&S earnings from operations for the six months ended June 30, 2015 increased by $41 million compared with the same period in 2014 primarily due to an increase of $38 million related to higher volume in several IL and TSGS programs. Net favorable cumulative contract catch-up adjustments were $31 million higher in the six months ended June 30, 2015 than in the same period in 2014.
GS&S earnings from operations for the three months ended June 30, 2015 increased by $4 million compared with the same period in 2014. Net favorable cumulative contract catch-up adjustments were $12 million higher in the three months ended June 30, 2015 than in the same period in 2014.
Backlog
GS&S total backlog was $17,559 million at June 30, 2015, reflecting a decrease of 2% from December 31, 2014 primarily due to revenues recognized on contracts awarded in prior years, partially offset by current year contract awards, including Advanced Surveillance Command & Control and F-15 support programs.

44

Boeing Capital
Results of Operations
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$201

 

$172

 

$115

 

$90

Earnings from operations

$31

 

$77

 

$11

 

$33

Operating margins
15
%
 
45
%
 
10
%
 
37
%
Revenues
Boeing Capital (BCC) segment revenues consist principally of lease income from equipment under operating lease, interest income from financing receivables and notes and other income. BCC’s revenues for the six and three months ended June 30, 2015 increased by $29 million and $25 million compared with the same periods in 2014 primarily due to higher other income driven by higher intercompany early lease settlement payments and aircraft return condition payments.
Earnings From Operations
BCC’s earnings from operations are presented net of interest expense, provision for/(recovery) of losses, asset impairment expense, depreciation on leased equipment and other operating expenses. Earnings from operations for the six and three months ended June 30, 2015 decreased by $46 million and $22 million compared to the same periods in 2014 primarily due to higher asset impairment expense, which more than offset the impact of higher settlement and condition payments. In addition, earnings from operations for the six months ended June 30, 2015 decreased due to a reduction in the allowance for losses on receivables in the first quarter of 2014 driven by a change to a customer credit rating.
Financial Position
The following table presents selected financial data for BCC:
(Dollars in millions)
June 30
2015

 
December 31
2014

Customer financing and investment portfolio, net

$3,311

 

$3,493

Other assets, primarily cash and short-term investments
671

 
615

Total assets

$3,982

 

$4,108

 
 
 
 
Other liabilities, primarily deferred income taxes

$1,137

 

$1,212

Debt, including intercompany loans
2,371

 
2,412

Equity
474

 
484

Total liabilities and equity

$3,982

 

$4,108

 
 
 
 
Debt-to-equity ratio
5.0-to-1

 
5.0-to-1

BCC’s customer financing and investment portfolio at June 30, 2015 decreased from December 31, 2014 primarily due to normal portfolio run-off. At June 30, 2015 and December 31, 2014, BCC had $83 million and $48 million of assets that were held for sale or re-lease, of which $30 million in 2015 had either signed preliminary agreements with deposits or firm contracts to be sold or placed on lease. In addition, aircraft subject to leases with a carrying value of approximately $266 million are scheduled to be returned off lease in the next 12 months. We are seeking to remarket these aircraft or have the leases extended.

45

BCC enters into certain transactions with Boeing, reflected in the Unallocated items, eliminations and other, in the form of intercompany guarantees and other subsidies that mitigate the effects of certain credit quality or asset impairment issues on the BCC segment.
Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Six months ended June 30
 
2015

 
2014

Net earnings

$2,446

 

$2,618

Non-cash items
1,090

 
999

Changes in working capital
(151
)
 
(696
)
Net cash provided by operating activities
3,385

 
2,921

Net cash (used)/provided by investing activities
(412
)
 
1,281

Net cash used by financing activities
(5,540
)
 
(5,764
)
Effect of exchange rate changes on cash and cash equivalents
(9
)
 
7

Net decrease in cash and cash equivalents
(2,576
)
 
(1,555
)
Cash and cash equivalents at beginning of year
11,733

 
9,088

Cash and cash equivalents at end of period

$9,157

 

$7,533

Operating Activities Net cash provided by operating activities was $3.4 billion during the six months ended June 30, 2015 compared with $2.9 billion in the same period in 2014, an increase of $0.5 billion primarily due to lower growth in working capital. Our investment in gross inventories increased by $2.3 billion during the six months ended June 30, 2015 reflecting continued investment in commercial airplane program inventory, primarily 787 inventory, compared with an increase of $6.3 billion for the same period in 2014. Advances and progress billings has remained consistent during the six months ended June 30, 2015 compared with an increase of $4.2 billion for the same period in 2014 primarily due to payments from Commercial Airplanes customers.
Investing Activities Cash used by investing activities totaled $0.4 billion during the six months ended June 30, 2015 compared with $1.3 billion of cash provided by investing activities during the same period in 2014, largely due to lower net proceeds from investments in time deposits. Net proceeds from investments were $0.8 billion in 2015 compared with net proceeds from investments of $2.4 billion for the same period in 2014. In 2015, capital expenditures totaled $1.3 billion, compared with $0.9 billion for the same period in the prior year. We expect capital expenditures to be higher in 2015 than 2014 due to continued investment to support growth.
Financing Activities Cash used by financing activities was $5.5 billion during the six months ended June 30, 2015 compared with $5.8 billion in the same period in 2014, a decrease primarily due to higher new borrowings and lower repayments of distribution rights, partially offset by higher share repurchases and higher dividend payments. During the six months ended June 30, 2015, we issued $0.8 billion of debt compared with $0.1 billion in the same period in 2014. At June 30, 2015, the recorded balance of debt was $9.0 billion of which $0.1 billion was classified as short-term. This includes $2.4 billion of debt attributable to BCC, of which $0.1 billion was classified as short-term.
During the six months ended June 30, 2015, we repurchased 30.5 million shares totaling $4.5 billion through our open market share repurchase program. In addition, 0.6 million shares were transferred to us from employees for tax withholdings. At June 30, 2015, the amount available under the share repurchase plan, announced on December 15, 2014, totaled $7.5 billion.

46

Capital Resources We have substantial borrowing capacity. Any future borrowings may affect our credit ratings and are subject to various debt covenants as described below. We have a commercial paper program that continues to serve as a significant potential source of short-term liquidity. Throughout the six months ended June 30, 2015, we had no commercial paper borrowings outstanding. Currently, we have $5.0 billion of unused borrowing capacity on revolving credit line agreements. We anticipate that these credit lines will primarily serve as backup liquidity to support our general corporate borrowing needs.
Financing commitments totaled $17.8 billion and $16.7 billion at June 30, 2015 and December 31, 2014. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. Historically, we have not been required to fund significant amounts of outstanding commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required. In addition, many of our non-U.S. customers finance aircraft purchases through the Export-Import Bank of the United States. The bank’s charter expired on June 30, 2015. If the bank’s charter is not reauthorized or if the bank’s future funding authority is insufficient to meet our customers’ needs, we may fund additional commitments and/or enter into new financing arrangements with customers.
In the event we require additional funding to support strategic business opportunities, our commercial aircraft financing commitments, unfavorable resolution of litigation or other loss contingencies, or other business requirements, we expect to meet increased funding requirements by issuing commercial paper or term debt. We believe our ability to access external capital resources should be sufficient to satisfy existing short-term and long-term commitments and plans, and also to provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise within the next year. However, there can be no assurance of the cost or availability of future borrowings, if any, under our commercial paper program, in the debt markets or our credit facilities.
At June 30, 2015, we were in compliance with the covenants for our debt and credit facilities. The most restrictive covenants include a limitation on mortgage debt and sale and leaseback transactions as a percentage of consolidated net tangible assets (as defined in the credit agreements), and a limitation on consolidated debt as a percentage of total capital (as defined). When considering debt covenants, we continue to have substantial borrowing capacity.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 10 to our Condensed Consolidated Financial Statements.
Contingent Obligations
We have significant contingent obligations that arise in the ordinary course of business, which include the following:
Legal Various legal proceedings, claims and investigations are pending against us. Legal contingencies are discussed in Note 17 to our Condensed Consolidated Financial Statements.
Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $593 million at June 30, 2015. For additional information, see Note 9 to our Condensed Consolidated Financial Statements.
Income Taxes As of June 30, 2015 our net liability for income taxes payable, including uncertain tax positions, was $1,380 million. For further discussion of income taxes, see Note 3 to our Condensed Consolidated Financial Statements.

47

Non-GAAP Measures
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Our unaudited condensed consolidated interim financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Core operating earnings, core operating margin and core earnings per share exclude the impact of unallocated pension and other postretirement benefit expenses which represent costs not attributable to business segments - see Note 18 to our Condensed Consolidated Financial Statements. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as unallocated pension and other postretirement benefit cost, primarily represent costs driven by market factors and costs not allocable to U.S. government contracts.
Reconciliation of GAAP Measures to Non-GAAP Measures
The table below reconciles the non-GAAP financial measures of core operating earnings, core operating margin and core earnings per share with the most directly comparable GAAP financial measures of earnings from operations, operating margins and diluted earnings per share.
(Dollars in millions, except per share data)
Six months ended June 30
 
Three months ended June 30

2015

 
2014

 
2015

 
2014

Revenues

$46,692

 

$42,510

 

$24,543

 

$22,045

Earnings from operations, as reported

$3,702

 

$3,329

 

$1,683

 

$1,787

Operating margins
7.9
%
 
7.8
%
 
6.9
%
 
8.1
%
 
 
 
 
 
 
 
 
Unallocated pension and other postretirement benefit expense

$143

 

$757

 

$30

 

$204

Core operating earnings (non-GAAP)

$3,845

 

$4,086

 

$1,713

 

$1,991

Core operating margins (non-GAAP)
8.2
%
 
9.6
%
 
7.0
%
 
9.0
%
 
 
 
 
 
 
 
 
Diluted earnings per share, as reported

$3.46

 

$3.50

 

$1.59

 

$2.24

Unallocated pension and other postretirement benefit expense (1)

$0.13

 

$0.66

 

$0.03

 

$0.18

Core earnings per share (non-GAAP)

$3.59

 

$4.16

 

$1.62

 

$2.42

Weighted average diluted shares (in millions)
706.6

 
747.4

 
698.9

 
740.1

(1) 
Earnings per share impact is presented net of the federal statutory rate of 35.0%.

48

Other
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities Exchange Act of 1934, as amended (the “Act”), require disclosure of certain activities, transactions or dealings relating to Iran that occurred during the period covered by this report. Disclosure is required even if the activities, transactions or dealings were conducted in compliance with applicable law. During the second quarter of 2015, we provided updates to aircraft maintenance manuals to Iran Air. These updates were authorized by a license from the U.S. Office of Foreign Assets Control (“OFAC”). Boeing applied for the OFAC license consistent with guidance from the U.S. Government in connection with ongoing negotiations between the “P5+1” nations and Iran related to, among other things, the safety of Iran’s civil aviation industry. We generated no revenues or net profits from these activities. We may engage in additional activities pursuant to this license, which may require additional disclosure pursuant to Section 13(r) of the Act.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our market risk since December 31, 2014.
Item 4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of June 30, 2015 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in Internal Control Over Financial Reporting.
There were no changes that occurred during the second quarter of 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

49

Part II. Other Information
Item 1. Legal Proceedings
Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 17 to our Condensed Consolidated Financial Statements, which is hereby incorporated by reference.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about purchases we made during the quarter ended June 30, 2015 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
(Dollars in millions, except per share data)
 
(a)
 
(b)
 
(c)
 
(d)
 
Total Number
of Shares
Purchased (1)

 
Average
Price
Paid per
Share

 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

 
Approximate Dollar
Value of Shares That
May Yet be Purchased
Under the Plans or
Programs (2)

4/1/2015 thru 4/30/2015
7,305,095

 

$150.72

 
7,299,316

 

$8,400

5/1/2015 thru 5/31/2015
2,777,659

 
145.02

 
2,758,590

 
8,000

6/1/2015 thru 6/30/2015
3,517,199

 
142.36

 
3,512,589

 
7,500

Total
13,599,953

 

$147.39

 
13,570,495

 
 
(1) 
We purchased an aggregate of 13,570,495 shares of our common stock in the open market pursuant to our repurchase program and 29,458 shares transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock units during the period. We did not purchase shares in swap transactions.
(2) 
On December 15, 2014, we announced a new repurchase plan for up to $12 billion of common stock, replacing the plan previously authorized in 2013.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.

50

Item 6. Exhibits
3.2
By-Laws of The Boeing Company, as amended and restated effective July 1, 2015 (Exhibit 3.2 to the Company's Current Report on Form 8-K dated June 22, 2015).
 
 
10.1
Transition and Retirement Agreement dated June 22, 2015 (Exhibit 10.1 to the Company's Current Report on Form 8-K dated June 22, 2015).
 
 
10.2
Notice of Terms of Restricted Stock Units (Exhibit 10.2 to the Company's Current Report on Form 8-K dated June 22, 2015).
 
 
10.3
The Boeing Company 2003 Incentive Stock Plan, as amended and restated effective April 27, 2015.
 
 
10.4
The Boeing Company Elected Officer Annual Incentive Plan, as amended and restated effective April 27, 2015.
 
 
10.5
Incentive Compensation Plan for Employees of The Boeing Company and Subsidiaries, as amended and restated effective April 27, 2015.
 
 
12
Computation of Ratio of Earnings to Fixed Charges.
 
 
15
Letter from Independent Registered Public Accounting Firm regarding unaudited interim financial information.
 
 
31(i)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31(ii)
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32(i)
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32(ii)
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.


51

Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
THE BOEING COMPANY
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
July 22, 2015
 
/s/ Robert E. Verbeck
(Date)
 
Robert E. Verbeck – Senior Vice President, Finance and Corporate Controller

52




EXHIBIT 10(iii)
The Boeing Company 2003 Incentive Stock Plan
(As Amended and Restated Effective April 27, 2015)
Section 1. Purpose of the Plan
The purpose of The Boeing Company 2003 Incentive Stock Plan, as amended and restated (the “Plan”), is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of The Boeing Company (the “Company”) and to align their interests and efforts to the long-term interests of the Company’s shareholders.
Section 2. Definitions
As used in the Plan,
“Adjusted Operating Cash Flow” means the net cash provided by operating activities of the Company as reported in the Company’s consolidated statements of cash flows included in its Annual Report on Form 10-K, adjusted to eliminate the effect on operating cash flows of net customer financing cash flows, as reported in the Company’s consolidated statements of cash flows included in its Annual Report on Form 10-K.
“Authorized Officer” means the Company’s senior vice president of human resources, the Company’s vice president of compensation and benefits or any other officer of the Company as may be designated by the Committee.
“Award” means an award or grant made to a Participant under Sections 7, 8, 9, 10, 11 and/or 12 of the Plan, including awards or grants made prior to the Shareholder Approval Effective Date.
“Board” means the Board of Directors of the Company.
“Corporate Transaction” has the meaning set forth in Section 15.3.
“Corporate Transaction Price” has the meaning set forth in Section 15.3.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Committee” has the meaning set forth in Section 3.2.
“Common Stock” means the common stock, par value $5.00 per share, of the Company.
“Covered Employee” means a “covered employee” as that term is defined in Section 162(m)(3) of the Code or any successor provision.
“Disability” means “Disability” as defined by the Committee or an Authorized Officer for purposes of the Plan or an Award or in the instrument evidencing the Award or in a written employment or services agreement between the Participant and the Company or a Related Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
“Fair Market Value” means the average of the high and low per share trading prices (or the average of the opening and closing prices, or the closing price, if so determined by the Committee) for the Common Stock on the New York Stock Exchange during regular session trading as reported by The Wall Street Journal or such other source the Committee deems reliable for a single trading day. The Committee may vary its determination of the Fair Market Value as provided in this Section 2 depending on whether Fair Market Value is in reference to the grant, exercise, vesting, settlement or payout of an Award and, for Awards subject to Section 409A, as provided in Section 409A.
“Grant Date” means the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.
“Incentive Stock Option” means an Option granted with the intention that it qualify as an “incentive stock option” as that term is defined in Section 422 of the Code or any successor provision.

1


“Layoff” means “Layoff” as defined by the Committee or an Authorized Officer for purposes of the Plan or an Award or in the instrument evidencing the Award or in a written employment or services agreement between the Participant and the Company or a Related Company.
“Nonqualified Stock Option” means an Option other than an Incentive Stock Option.
“Nonrecurring Items” means nonrecurring items deemed not reflective of the Company’s core operating performance, including, but not limited to, exogenous events, acquisitions, divestitures, changes in accounting principles or “extraordinary items” determined under generally accepted accounting principles.
“Old Plan” means The Boeing Company 1997 Incentive Stock Plan, as amended effective May 1, 2000 and as further amended effective January 1, 2008.
“Option” means a right to purchase Common Stock granted under Section 7.
“Other Cash-Based Award” means an Award granted pursuant to Section 12 and payable in cash at such time or times and subject to such terms and conditions as determined by the Committee in its sole discretion.
“Participant” means any eligible person as set forth in Section 5 to whom an Award is granted.
“Performance-Based Compensation” means any Award that is intended to constitute “performance-based compensation” within the meaning of Section 162(m)(4)(C).
“Performance Criteria” has the meaning set forth in Section 11.2.
“Performance Goals” has the meaning set forth in Section 11.1.
“Performance Period” means any period of at least 12 consecutive months as determined by the Committee in its sole discretion. The Committee may establish different Performance Periods for different Participants, and the Committee may establish concurrent or overlapping Performance Periods.
“Performance Share,” “Performance Restricted Stock” or “Performance Restricted Stock Unit” has the meaning set forth in Section 10.1.
“Performance Unit” has the meaning set forth in Section 10.2.
“Related Company” means any corporation in which the Company owns, directly or indirectly, at least 50% of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least 50% of the combined equity thereof. Notwithstanding the foregoing, for purposes of determining whether any individual may be a Participant for purposes of any grant of Incentive Stock Options, the term “Related Company” shall have the meaning ascribed to the term “subsidiary” in Section 424(f) of the Code, and for purposes of determining whether any individual may be a Participant for purposes of any grant of Options or Stock Appreciation Rights, the term “Related Company” shall mean any “Service Recipient” as that term is defined for purposes of Section 409A.
“Restricted Stock” means an Award of shares of Common Stock granted under Section 9, the rights of ownership of which may be subject to restrictions prescribed by the Committee.
“Retirement” means “Retirement” as defined by the Committee or an Authorized Officer for purposes of the Plan or an Award or in the instrument evidencing the Award or in a written employment or services agreement between the Participant and the Company or a Related Company.
“Section 162(m)” means Section 162(m) of the Code, or any successor provision, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
“Section 409A” means Section 409A of the Code, or any successor provision, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
“Securities Act” means the Securities Act of 1933, as amended from time to time.

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“Shareholder Approval Effective Date” means April 28, 2014, the date the Plan was approved by the holders of shares of Common Stock entitled to vote at the 2014 annual meeting of shareholders of the Company.
“Stock Appreciation Right” or “SAR” has the meaning set forth in Section 8.1.
“Stock Unit” means an Award granted under Section 9 denominated in units of Common Stock.
“Substitute Awards” means Awards granted or shares of Common Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted by a company acquired by the Company or any Related Company or with which the Company or any Related Company combines.
“Termination of Service,” unless otherwise defined by the Committee, an Authorized Officer or in the instrument evidencing the Award or in a written employment or services agreement between the Participant and the Company or a Related Company, means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability, Retirement or Layoff. Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by an Authorized Officer or by the Committee with respect to officers subject to the reporting requirements of Section 16(a) of the Exchange Act, and any such determination shall be final. Transfer of a Participant’s employment or service relationship between wholly owned subsidiaries of the Company, or between the Company and any wholly owned subsidiary of the Company, shall not be considered a Termination of Service for purposes of an Award. Unless the Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant’s employment or service relationship is with an entity that has ceased to be a Related Company.
Section 3. Administration
3.1 Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board; provided, however, that with respect to nonemployee directors, the Plan shall be administered by the Governance, Organization and Nominating Committee of the Board unless otherwise determined by the Board. Each such committee shall be comprised of at least three directors, each of whom shall qualify as an “outside director” as defined by Section 162(m), an “independent director” as defined under the New York Stock Exchange listing standards and a “nonemployee director” as defined in Rule 16b-3 promulgated under the Exchange Act. However, the fact that a Committee member shall fail to qualify under the foregoing requirements shall not invalidate any Award made by the Committee which is otherwise validly made under the Plan.
3.2 Delegation by Committee
Notwithstanding the foregoing, the Board or the Committee may delegate responsibility for administering the Plan with respect to designated classes of eligible persons to different committees consisting of one or more members of the Board, subject to such limitations as the Board or the Compensation Committee deems appropriate, except with respect to benefits to nonemployee directors and to officers subject to Section 16 of the Exchange Act or officers who are or may be Covered Employees. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board or the Committee may authorize one or more officers of the Company to grant Awards to designated classes of eligible persons, within limits specifically prescribed by the Board or the Committee; provided, however, that no such officer shall have or obtain authority to grant Awards to himself or herself or to any officer subject to Section 16 of the Exchange Act. All references in the Plan to the “Committee” shall be, as applicable, to the Compensation Committee, the Governance, Organization and Nominating Committee or any other committee or any officer to whom the Board or the Compensation Committee has delegated authority to administer the Plan.
3.3 Administration and Interpretation by Committee
Except for the terms and conditions explicitly set forth in the Plan, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to (a) select the eligible persons as set forth in Section 5 to whom Awards may from time to time be granted under the Plan; (b) determine the type or types of Award to be granted under the Plan; (c) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (d) determine the terms and conditions of any Award granted under the Plan; (e) approve the forms of agreements for use under the Plan; (f) determine whether, to what extent and under what circumstances Awards

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may be settled in cash, shares of Common Stock or other property or canceled or suspended; (g) determine whether, to what extent and under what circumstances cash, shares of Common Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant, subject to Section 409A and in accordance with Section 6.3; (h) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (i) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (j) delegate ministerial duties to such of the Company’s officers as it so determines; (k) amend Section 17.1 in order to comply with Section 10D of the Exchange Act (as determined by the applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission); and (l) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any shareholder and any eligible person. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings.
Section 4. Shares Subject to the Plan
4.1 Authorized Number of Shares
(a) The aggregate number of shares of Common Stock in respect of which Awards (or dividends or dividend equivalents pursuant to Awards) may be granted or paid out under the Plan, subject to adjustment as provided in Section 4.2 and Section 15, shall not exceed 80.0 million shares, plus the aggregate number of shares of Common Stock described in Section 4.1(b).
(b) Shares of Common Stock that as of the Shareholder Approval Effective Date have not been issued under the Old Plan, and are not covered by outstanding awards under such plan granted on or before the Shareholder Approval Effective Date, shall be available for Awards under the Plan in an amount not to exceed 7.0 million shares of Common Stock in the aggregate.
(c) Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open-market or in private transactions) and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan, and the Committee shall determine the manner in which fractional share value shall be treated.
(d) In the event of a change in the Common Stock of the Company that is limited to a change in the designation thereof to “Capital Stock” or other similar designation, or to a change in the par value thereof, or from par value to no par value, without increase or decrease in the number of issued shares, the shares resulting from any such change shall be deemed to be Common Stock for purposes of the Plan.
4.2 Share Usage
(a) Shares of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued and delivered to a Participant. Any shares of Common Stock that are subject to Awards that expire or lapse or are forfeited, surrendered, cancelled, terminated, settled in cash in lieu of Common Stock or are issued and thereafter reacquired by the Company shall again be available for Awards under the Plan, to the extent of such expiration, lapse, forfeiture, surrender, cancellation, termination, settlement or reacquisition of such Awards (as may be adjusted pursuant to Section 15). The following shares of Common Stock shall not be treated as having been issued under the Plan: (i) shares tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy any minimum statutorily required taxes that the Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award (“tax withholding obligations”), (ii) shares covered by an Award that is settled in cash, (iii) the number of shares subject to a SAR in excess of the number of shares that are delivered to the Participant upon exercise of the SAR, or (iv) shares issued pursuant to Substitute Awards.
(b) The Committee shall have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.
4.3 Maximum Awards
The maximum Common Stock amounts in this Section 4.3 are subject to adjustment under Section 15 and are subject to the Plan maximum set forth in Section 4.1.

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(a) Options and Stock Appreciation Rights. The aggregate number of shares of Common Stock that may be subject to Options or Stock Appreciation Rights granted to any Participant in any calendar year under the Plan shall not exceed 2.0 million shares of Common Stock.
(b) Performance Shares and Performance Restricted Stock or Units; Performance Units. The aggregate number of shares of Common Stock that may be subject to Performance Shares, Performance Restricted Stock, Performance Restricted Stock Units or Performance Units intended in each case to be Performance-Based Compensation granted to any Participant in any calendar year shall not exceed 1.0 million shares of Common Stock.
(c) Performance Units and Other Cash-Based Awards. The aggregate cash amount that may be paid under any Performance Unit or Other Cash-Based Award intended in each case to be Performance-Based Compensation to any Participant for any calendar year shall not exceed (i) 0.50% of the cumulative Adjusted Operating Cash Flow for the specific Performance Period for which the Award is granted for a Participant who is the Company’s Chief Executive Officer or (ii) 0.20% of the cumulative Adjusted Operating Cash Flow for the specific Performance Period for which the Award is granted for any other Participant.
(d) Limits on Awards to Nonemployee Directors. The aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards granted to any nonemployee director in any calendar year (excluding Awards made pursuant to deferred compensation arrangements in lieu of all or a portion of cash retainers) shall not exceed $1.0 million.
(e) Awards with No Restrictions. The aggregate number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan (other than Awards of Options or Stock Appreciation Rights or dividends or dividend equivalents credited in connection with vested Awards) that contain no restrictions or restrictions based solely on continuous employment or services for less than three years (except where Termination of Service occurs by reason of death, Retirement, Disability or Layoff) shall not exceed 4.0 million shares of Common Stock.
(f) Incentive Stock Options. The aggregate number of shares of Common Stock that may be subject to Incentive Stock Options granted under the Plan shall not exceed 2.0 million shares of Common Stock.
Section 5. Eligibility
An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor who is a natural person and who provides bona fide services to the Company or any Related Company. The above are “eligible persons.”
Section 6. Awards
6.1 Form and Grant of Awards
The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone, in addition to or in tandem with any other type of Award.
6.2 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan.
6.3 Deferrals
The Committee may permit a Participant to defer receipt of the payment of any Award. If any such deferral election is permitted, the Committee, in its sole discretion, shall establish rules and procedures for such payment deferrals, which may include the grant of additional Awards or provisions for the payment or crediting of interest or dividend equivalents, including converting such credits to deferred stock unit equivalents. The value of the payment so deferred may be allocated to a deferred account established for a Participant under any deferred compensation plan of the Company designated by the Committee. Notwithstanding the foregoing, any deferral made under this Section 6.3 will be made under a deferred compensation plan of the Company or pursuant to the terms of an

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employment agreement, either of which satisfies the requirements for exemption from or complies with Section 409A.
6.4 Dividends and Distributions
Participants holding Awards may, if the Committee so determines, be credited with dividends paid with respect to the underlying shares or dividend equivalents while the Awards are so held in a manner determined by the Committee in its sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Stock Units. Dividends and dividend equivalents that may be paid under any awards outstanding under the Old Plan as of the Shareholder Approval Effective Date shall be granted pursuant to Section 12 below. Notwithstanding the foregoing, (a) the right to any dividends or dividend equivalents declared and paid on the number of shares underlying an Option or a Stock Appreciation Right may not be contingent, directly or indirectly on the exercise of the Option or a Stock Appreciation Right, and an Award providing a right to dividends or dividend equivalents declared and paid on the number of shares underlying an Option or a Stock Appreciation Right, the payment of which is not contingent upon, or otherwise payable on, the exercise of the Option or a Stock Appreciation Right, must comply with or qualify for an exemption under Section 409A and (b) dividend equivalents credited in connection with an Award that vests based on the achievement of Performance Goals shall be subject to restrictions and risk of forfeiture to the same extent as the Award with respect to which such dividend equivalents have been credited.
Section 7. Options
7.1 Grant of Options
The Committee may grant Options designated as Incentive Stock Options or Nonqualified Stock Options.
7.2 Option Exercise Price; Repricing Prohibition
The exercise price for shares purchased under an Option shall be as determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock for the Grant Date, except in the case of Substitute Awards. In no event shall the Committee, without the prior approval of the Company’s shareholders, (a) cancel any outstanding Option for the purpose of reissuing the Option to the Participant at a lower exercise price, (b) exchange any outstanding Option for cash, another Award, or an Option or Stock Appreciation Right with an exercise or grant price that is less than the exercise price of the cancelled Option, (c) reduce the exercise price of an outstanding Option, or (d) take any other action that would be a “repricing” of the Option.
7.3 Term of Options
Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date.
7.4 Exercise of Options
The Committee shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, any of which provisions may be waived or modified by the Committee at any time.
To the extent an Option has vested and become exercisable, the Option may be exercised in whole or from time to time in part by delivery as directed by the Company to the Company or a brokerage firm designated or approved by the Company of a written stock option exercise agreement or notice, in a form and in accordance with procedures established by the Committee, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement, if any, and such representations and agreements as may be required by the Committee, accompanied by payment in full as described in Section 7.5. An Option may be exercised only for whole shares and may not be exercised for less than a reasonable number of shares at any one time, as determined by the Committee.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in full as directed by the Company to the Company or a brokerage firm designated or approved by the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid before

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the Company will issue the shares being purchased and must be in a form or a combination of forms acceptable to the Committee for that purchase, which forms may include: (a) check; (b) wire transfer; (c) tendering by attestation shares of Common Stock already owned by the Participant that on the day prior to the exercise date have a Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (d) to the extent permitted by applicable law, delivery of a properly executed exercise notice, together with irrevocable instructions to a brokerage firm designated or approved by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any tax withholding obligations that may arise in connection with the exercise, all in accordance with the regulations of the Federal Reserve Board; or (e) such other consideration as the Committee may permit in its sole discretion.
7.6 Post-Termination Exercise
The Committee shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time, provided that any such waiver or modification shall satisfy the requirements for exemption under Section 409A.
7.7 Incentive Stock Options
The terms of any Incentive Stock Options shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. Individuals who are not employees of the Company or one of its parent or subsidiary corporations (as such terms are defined for purposes of Section 422 of the Code) may not be granted Incentive Stock Options. To the extent that the aggregate Fair Market Value of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year exceeds $100,000 or, if different, the maximum limitation in effect at the time of grant under the Code (the Fair Market Value being determined as of the Grant Date for the Option), such portion in excess of $100,000 shall be treated as Nonqualified Stock Options. No Incentive Stock Options may be granted more than ten years after the adoption in February 2014 of this amended and restated Plan by the Board.
Section 8. Stock Appreciation Rights
8.1 Grant of Stock Appreciation Rights; SAR Grant Price
The Committee may grant stock appreciation rights (“Stock Appreciation Rights” or “SARs”). A SAR may be granted in tandem with an Option or alone (“freestanding”). The grant price of a tandem SAR shall be equal to the exercise price of the related Option, and the grant price of a freestanding SAR shall be equal to the Fair Market Value of the Common Stock for the Grant Date, except for Substitute Awards. A SAR may be exercised upon such terms and conditions and for the term as the Committee determines in its sole discretion; provided, however, that, subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the SAR, the term of a freestanding SAR shall be a term not to exceed ten years from the Grant Date as established for that SAR by the Committee or, if not so established, shall be ten years, and in the case of a tandem SAR, (a) the term shall not exceed the term of the related Option and (b) the tandem SAR may be exercised for all or part of the shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option, except that the tandem SAR may be exercised only with respect to the shares for which its related Option is then exercisable.
8.2 Payment of SAR Amount
Upon the exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the Fair Market Value of the Common Stock for the date of exercise over the grant price by (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon exercise of a SAR may be in cash, in shares of equivalent value, in some combination thereof or in any other manner approved by the Committee in its sole discretion.
8.3 Post-Termination Exercise
The Committee shall establish and set forth in each instrument that evidences a freestanding SAR whether the SAR shall continue to be exercisable, and the terms and conditions of such exercise, after a Termination of Service, any of which provisions may be waived or modified by the Committee at any time, provided that any such waiver or modification shall satisfy the requirements for exemption under Section 409A.

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8.4 Repricing Prohibition
In no event shall the Committee, without the prior approval of the Company’s shareholders, (a) cancel any outstanding SAR for the purpose of reissuing the SAR to the Participant at a lower grant price, (b) exchange any outstanding SAR for cash, another Award, or an Option or Stock Appreciation Right with an exercise or grant price that is less than the grant price of the cancelled SAR, (c) reduce the grant price of an outstanding SAR, or (d) take any other action that would be a “repricing” of the SAR.
Section 9. Restricted Stock and Stock Units
9.1 Grant of Restricted Stock and Stock Units
The Committee may grant Restricted Stock and Stock Units on such terms and conditions and subject to such forfeiture restrictions, if any (which may be based on continuous service with the Company or a Related Company or the achievement of any Performance Goals), as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant’s release from any terms, conditions and restrictions of Restricted Stock or Stock Units, as determined by the Committee, (a) the shares of Restricted Stock covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in cash, shares of Common Stock or a combination of cash and shares of Common Stock as the Committee shall determine in its sole discretion.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.
Section 10. Performance Shares, Performance Restricted Stock or Units, and Performance Units
10.1 Grant of Performance Shares and Performance Restricted Stock or Units
The Committee may grant Awards of performance shares, performance restricted stock and performance restricted stock units (“Performance Shares, “Performance Restricted Stock” or “Performance Restricted Stock Units”, as the case may be) and designate the Participants to whom Performance Shares or Performance Restricted Stock or Units are to be awarded and determine the number of Performance Shares or Performance Restricted Stock or Units, the length of the Performance Period and the other terms and conditions of each such Award. Each Award of Performance Shares or Performance Restricted Stock or Units shall entitle the Participant to a payment in the form of shares of Common Stock upon the achievement of Performance Goals and other terms and conditions specified by the Committee. Notwithstanding the achievement of any Performance Goals, the number of shares issued under an Award of Performance Shares or Performance Restricted Stock or Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. The Committee, in its sole discretion, may make a cash payment equal to the Fair Market Value of the Common Stock otherwise required to be issued to a Participant pursuant to an Award of Performance Shares or Performance Restricted Stock or Units.
10.2 Grant of Performance Units
The Committee may grant Awards of performance units (“Performance Units”) and designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units, the length of the Performance Period and the other terms and conditions of each such Award. Each Award of Performance Units shall entitle the Participant to a payment in cash upon the achievement of Performance Goals and other terms and conditions specified by the Committee. Notwithstanding the achievement of any Performance Goals, the amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion. The Committee, in its sole discretion, may substitute shares of Common Stock for the cash payment otherwise required to be made to a Participant pursuant to a Performance Unit.

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Section 11. Section 162(m) Awards
11.1 Terms of Section 162(m) Awards Generally
In addition to any other Awards under the Plan, the Committee may, at the time of grant of an Award (other than an Option or a Stock Appreciation Right) to a Participant who is then a Covered Employee or is likely to be a Covered Employee as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, specify that all or any portion of such Award is intended to be Performance-Based Compensation. With respect to each such Award, the Committee shall establish, in writing, that the vesting and/or payment pursuant to the Award shall be conditioned on the achievement for the specified Performance Period of specified performance targets or goals (“Performance Goals”) related to designated Performance Criteria for such period selected by the Committee. Such action shall be taken no later than the earlier of (a) the date 90 days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain.
11.2 Performance Criteria
The term “Performance Criteria” shall mean Adjusted Operating Cash Flow or any one or more of the following performance criteria: profits (including, but not limited to, profit growth, net operating profit or economic profit); profit-related return ratios; return measures (including, but not limited to, return on assets, capital, equity or sales); cash flow (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); earnings (including, but not limited to, net earnings, earnings per share, or earnings before or after taxes); net sales growth; net income (before or after taxes, interest, depreciation and/or amortization); gross or operating margins; productivity ratios; share price (including, but not limited to, growth measures and total shareholder return); expense targets; margins; operating efficiency; customer satisfaction; and working capital targets.
11.3 Use and Calculation of Performance Criteria and Performance Goals
Any Performance Criteria and Performance Goals may be used to measure the performance of the Company as a whole or with respect to one or more business units, divisions, acquired businesses, minority investments, partnerships or joint ventures. Performance Criteria and Performance Goals may be stated in absolute terms or relative to comparison companies or indices to be achieved during a period of time. Performance Criteria and Performance Goals shall be calculated in accordance with the Company’s financial statements or generally accepted accounting principles, or under a methodology established by the Committee prior to the issuance of an Award that is consistently applied. The Committee shall have the right to specify, at the time the Performance Criteria and Performance Goals are established in accordance with this Section 11, that any Performance Criteria and Performance Goals may be adjusted to exclude the impact of any Nonrecurring Item.
11.4 Committee Certification and Authority
After the completion of each Performance Period, the Committee shall certify the extent to which any Performance Goal has been achieved, and the amount payable as a result thereof, prior to payment, settlement or vesting of any Award subject to this Section 11. Notwithstanding any provision of the Plan other than Section 11, with respect to any Award subject to this Section 11, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award.
The Committee shall have the power to impose such other restrictions on Awards subject to this Section 11 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m).
Section 12. Other Stock or Cash-Based Awards
In addition to the Awards described in Sections 7 through 11, and subject to the terms of the Plan, the Committee may grant other incentives payable in cash or in shares of Common Stock under the Plan as it determines to be in the best interests of the Company and subject to such other terms and conditions as it deems appropriate, including dividends and dividend equivalents that may be paid under any awards outstanding under the Old Plan as of the Shareholder ApprovalEffective Date.
Section 13. Withholding
The Company may require a Participant to pay to the Company the amount of (a) any tax withholding obligations and (b) any amounts due from the Participant to the Company or to any Related Company (“other obligations”). The

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Company shall not be required to issue any shares of Common Stock under the Plan until such tax withholding obligations and other obligations are satisfied.
The Committee may permit or require a Participant to satisfy all or part of his or her tax withholding obligations and other obligations by (a) paying cash to the Company, (b) having the Company withhold an amount from any cash amounts otherwise due or to become due from the Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested in the case of Restricted Stock or Performance Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, or (d) surrendering a number of shares of Common Stock the Participant already owns having a value equal to the tax withholding obligations and other obligations.
Section 14. Assignability
No Award or Award agreement, and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a Participant or any beneficiary(ies) of any Participant, except (a) by testamentary disposition by the Participant or the laws of intestate succession and (b) that to the extent permitted by the Committee, in its sole discretion, a Participant may designate one or more beneficiaries on a Company-approved form who may receive payment under an Award after the Participant’s death. No such interest shall be subject to execution, attachment or similar legal process, including, without limitation, seizure for the payment of the Participant’s debts, judgments, alimony, or separate maintenance. Except as provided in this Section 14, during the lifetime of a Participant, Awards are exercisable only by the Participant or his or her legal representative in the case of physical or mental incapacitation of the Participant as evidenced by legal order.
Section 15. Adjustments
15.1 No Corporate Action Restriction
The existence of the Plan, any Award agreement and/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company’s or any subsidiary’s capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company’s or any subsidiary’s capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any subsidiary, (e) any sale or transfer of all or any part of the Company’s or any subsidiary’s assets or business, or (f) any other corporate act or proceeding by the Company or any subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any subsidiary, or any employees, officers, shareholders or agents of the Company or any subsidiary, as a result of any such action.
15.2 Recapitalization Adjustments
In the event of a dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property) other than regular cash dividends, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, change in control or exchange of Common Stock or other securities of the Company, or other corporate transaction or event affects the Common Stock such that an adjustment is necessary or appropriate in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Plan, the Board shall equitably adjust (a) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (b) the maximum share limitation applicable to each type of Award that may be granted to any individual Participant in any calendar year, (c) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, and (d) the exercise price with respect to any Option or the grant price with respect to any Stock Appreciation Right.
15.3 Corporate Transactions
If the Company enters into or is involved in any Corporate Transaction, the Board may, prior to such Corporate Transaction and effective upon such Corporate Transaction, take such action as it deems appropriate, including, but not limited to, replacing outstanding Awards with Substitute Awards in respect of the shares, other securities or other property of the surviving corporation or any affiliate of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which shall substantially preserve the value, rights and benefits of any affected Awards granted hereunder as of the date of the consummation of the Corporate Transaction.

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Notwithstanding anything to the contrary in the Plan, if any Corporate Transaction occurs, the Company shall have the right, but not the obligation, to cancel each Participant’s Options and/or Stock Appreciation Rights and to pay to each affected Participant in connection with the cancellation of such Participant’s Options and/or Stock Appreciation Rights, an amount equal to the excess (if any) of the Corporate Transaction Price (as defined below), as determined by the Board, of the Common Stock underlying any unexercised Options or Stock Appreciation Rights (whether then exercisable or not) over the aggregate exercise price of such unexercised Options and/or Stock Appreciation Rights, and make additional adjustments and/or settlements of other outstanding Awards as it determines to be fair and equitable to affected Participants. Upon receipt by any affected Participant of any such Substitute Award (or payment) as a result of any such Corporate Transaction, such Participant’s affected Awards for which such Substitute Awards (or payment) were received shall be thereupon cancelled without the need for obtaining the consent of any such affected Participant.
Subject to the provisions of the preceding paragraph, the Board shall not take any further action that causes any Awards, which are not then exercisable and vested, to automatically become vested and exercisable in connection with a Corporate Transaction under this Section 15.3.
For purposes of the Plan,
(a) “Corporate Transaction” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then-outstanding voting securities; (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation or (iv) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) “Corporate Transaction Price” means the highest price per share of Common Stock paid in any transaction related to a Corporate Transaction. To the extent that the consideration paid in any Corporate Transaction consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the good-faith discretion of the Board consistent with provisions of Section 409A and/or other applicable law.
Section 16. Amendment and Termination
16.1 Amendment, Suspension or Termination of the Plan
The Board or the Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, shareholder approval shall be required for any amendment to the Plan.
Notwithstanding the foregoing, an amendment that constitutes a “material revision,” as defined by the rules of the New York Stock Exchange shall be submitted to the Company’s shareholders for approval. In addition, any revision that deletes or limits the scope of the provisions in Sections 7.2 and 8.4 prohibiting repricing of Options or SARs without shareholder approval and any revision that increases the number of shares stated in Section 4.1 as available for issuance under the Plan shall be considered material revisions that require shareholder approval.
16.2 Term of the Plan
Unless sooner terminated as provided herein, the Plan shall terminate ten years from the Shareholder Approval Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall

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remain outstanding in accordance with their applicable terms and conditions and the Plan’s terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten years after the adoption in February 2014 of this amended and restated Plan by the Board.
16.3 Consent of Participant
The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant’s consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Participant, be made in a manner so as to constitute a “modification” that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments made pursuant to Section 15 shall not be subject to these restrictions.
Section 17. General
17.1 Clawback Policy
Awards under the Plan shall be subject to the Clawback Policy as adopted by the Board and as amended from time to time. .
17.2 No Individual Rights
No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause.
17.3 Issuance of Shares
Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company’s counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal, state and foreign securities laws. The Company may also require such other action or agreement by the Participants as may from time to time be necessary to comply with applicable securities laws.
To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.
17.4 Indemnification
Each person who is or shall have been a member of the Board, or a committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3 shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against

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him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend such claim, action, suit or proceeding before he or she undertakes to handle and defend the same on his or her own behalf, unless such loss, cost, liability or expense is a result of his or her own willful misconduct or except as expressly provided by statute.
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s certificate of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify them or hold them harmless.
17.5 No Rights as a Shareholder
Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment or services agreement, no Option or Award denominated in units shall entitle the Participant to any cash dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.
17.6 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Participants who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Participants. With respect to officers and directors subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Exchange Act.
Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an “incentive stock option” within the meaning of Section 422 of the Code or any successor provision.
Additionally, notwithstanding anything contained in the Plan to the contrary, it is the Company’s intention that any and all Awards and compensation payable under the Plan shall satisfy the requirements for exemption under Section 409A and that all terms and provisions shall be interpreted to satisfy such requirements. If the Committee determines that an Award, payment, distribution, deferral election, transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a Participant to become subject to Section 409A, the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right , but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or compliance with Section 409A. Awards not deferred under Section 6.3 and not otherwise exempt from the requirements of Section 409A are intended to qualify for the short-term deferral exemption to Section 409A, and payment shall be made as soon as administratively feasible after the Award became vested, but in no event shall such payment be made later than 2-1/2 months after the end of the calendar year in which the Award became vested unless otherwise permitted under the exemption provisions of Section 409A. Notwithstanding the foregoing, with respect to any Award made under the Plan that is determined to be “deferred compensation” (within the meaning of Section 409A), (a) references to Termination of Service will mean the Participant’s “separation from service” (within the meaning of Section 409A) with the Company or any applicable Related Company, and (b) any payment to be made with respect to such Award in connection with the Participant’s Termination of Service that would be subject to the limitations in Section 409A(a)(2)(b) of the Code shall be delayed until six months after the Participant’s separation from service (or earlier death) in accordance with the requirements of Section 409A.
17.7 Participants in Other Countries
The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of other countries in which the Company or any Related Company may operate to ensure the viability of the benefits from Awards granted to Participants employed in such countries, to comply with applicable foreign laws and to meet the objectives of the Plan.
Notwithstanding the provisions of Sections 7.2 and 8.1, where applicable foreign law requires that compensatory stock right be priced based upon a specific price averaging method and period, a stock right granted in accordance with such applicable foreign law will be treated as meeting the requirements of Sections 7.2 or 8.1, provided that the averaging period does not exceed 30 days.

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17.8 No Trust or Fund
The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
17.9 Successors
All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
17.10 Severability
If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
17.11 Choice of Law
The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof.
Section 18. Restatement Effective Date
This amendment and restatement of the Plan shall be effective April 27, 2015.


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EXHIBIT 10(iv)
The Boeing Company Elected Officer Annual Incentive Plan
(As Amended and Restated April 27, 2015)
 
The Board of Directors of The Boeing Company (the “Company”) has adopted this Elected Officer Annual Incentive Plan (the “Plan”), subject to shareholder approval as described in Section 10.
 
1. PURPOSE
 
The purpose of the Plan is two-fold: first, to enhance the ability of the Company and its affiliates to attract, motivate and retain executives and thereby promote the sustained progress, growth and profitability of the Company; and second, to obtain for federal income tax purposes the deductibility of bonus awards made under the Plan. Accordingly, the bonus awards are intended to constitute “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code.
 
2. DEFINITIONS
 
“Adjusted Operating Cash Flow” means the net cash provided by operating activities of the Company as reported in the Company’s consolidated statement of cash flows included in its Annual Report on Form 10-K, adjusted to eliminate the effect on operating cash flows of net customer financing cash flows, as reported in the Company’s consolidated statement of cash flows included in its Annual Report on Form 10-K.
 
“Award” means the amount granted to a Participant by the Committee for a Performance Period.
 
“Board” means the Board of Directors of the Company.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Committee” means the Compensation Committee of the Board, which shall be comprised of at least three members of the Board who are “outside directors” within the meaning of Section 162(m).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Officer” means any elected “officer” of the Company as the term “officer” is defined for purposes of Section 16(a) of the Exchange Act.
 
“Participant” means, for each Performance Period, each Officer who is a “covered employee” (as defined in Section 162(m)) for that Performance Period, unless otherwise determined by the Committee in its sole discretion.
 
“Performance Period” means the period with respect to which the Awards are to be measured. Each Performance Period shall consist of one fiscal year of the Company or any shorter period designated by the Committee with respect to which an Award may be granted.
 
“Plan” means The Boeing Company Elected Officer Annual Incentive Plan, as amended from time to time.
 
“Related Company” means any corporation in which the Company owns, directly or indirectly, at least 50% of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least 50% of the combined equity thereof.
 
“Section 162(m)” means Code Section 162(m), including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
 
“Section 409A” means Code Section 409A, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
 
“Stock Plans” means The Boeing Company 2003 Incentive Stock Plan and any successor stock plans adopted or assumed by the Company.
 

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3. ADMINISTRATION
 
The Plan shall be administered by the Committee. Except for the terms and conditions explicitly set forth in the Plan, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to (a) select Participants; (b) determine the maximum Awards and the amounts of any Awards; (c) determine the terms and conditions of any Awards granted under the Plan; (d) approve the forms of agreements, if any, for use under the Plan; (e) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (f) determine whether, to what extent and under what circumstances cash, shares of Common Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant; (g) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (h) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (i) delegate ministerial duties to such of the Company’s officers as it so determines; and (j) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any shareholder and any Officer, former Officer and their respective successors and assigns.
 
4. PERFORMANCE GOAL; MAXIMUM AWARDS
 
The performance goal for a Performance Period shall require positive Adjusted Operating Cash Flow. The maximum Award for an individual Participant for a Performance Period shall not exceed (a) 0.40% of the Adjusted Operating Cash Flow for the specific Performance Period for which the Award is granted for a Participant who is the Company’s Chief Executive Officer and (b) 0.15% of the Adjusted Operating Cash Flow for the specific Performance Period for which the Award is granted for any other Participant. The Committee may decrease, but shall not increase, such maximum Award pursuant to Section 5.

 5. COMMITTEE CERTIFICATION
 
After completion of each Performance Period, the Committee shall determine, in accordance with the terms of Section 4 and Company and individual performance and competitive pay levels, the amounts to be awarded to each Participant under the Plan for the Performance Period. The Committee’s determinations shall be final and binding on the Company and all Participants, and their respective successors and beneficiaries. These determinations must be certified in writing before Awards for such period are paid, which requirement may be satisfied by approved minutes of the Committee meeting or such other document prepared by the secretary of the meeting. The Committee shall have the discretion to pay less, but shall not have discretion to pay more, than the maximum Award specified under Section 4.
 
6. PAYMENT OF AWARDS
 
(a) Form and Timing. As soon as administratively feasible after the certification pursuant to Section 5, each Participant will receive payment (i) in cash, (ii) in an award of stock, restricted stock rights, stock options, other stock-based or stock-denominated units granted under the Stock Plans, or (iii) in any combination thereof as determined by the Committee in its sole discretion. In no event shall the payments or awards made under this Section 6(a) that are intended to be exempt from the requirements of Section 409A be made later than 2-1/2 months after the end of the calendar year in which the award became vested unless (i) deferred pursuant to Section 6(b) or (ii) otherwise permitted under the exemption provisions of Section 409A.
 
(b) Deferral Opportunity. Notwithstanding the provisions of Section 6(a), the Committee may permit or require a Participant to defer receipt of the payment of an Award to the extent provided under any deferred compensation plan of the Company or pursuant to the terms of an employment agreement, either of which satisfies the requirements for exemption from or complies with Section 409A.
 
7. AMENDMENTS
 
The Board may amend the Plan at any time in accordance with applicable law; provided, however, that to the extent it would cause the Plan to fail to constitute “qualified performance-based compensation” under Section 162(m) with respect to any Participant, the Committee shall not have the power to change the material terms of the performance goals unless (a) the modified performance goals are established by the Committee no later than the deadline

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established under Section 162(m) and (b) no Awards are paid under the modified performance goals until after the material terms of the modified performance goals are disclosed to and approved by the Company’s shareholders to the extent required by Section 162(m). No amendment that adversely affects a Participant’s right to or interest in an Award granted by the Committee prior to the date of the amendment shall be effective unless the Participant agrees to the amendment in writing.
 
8. TERMINATION
 
The Board may terminate this Plan at any time and for any reason in accordance with applicable law. In no event shall the termination of the Plan adversely affect the rights of any Participant to deferred amounts previously awarded such Participant, plus any earnings thereon. Participants shall be provided with written notice of the Plan’s termination as soon as practicable following such termination.

 9. GENERAL PROVISIONS
(a) Clawback Policy. All Awards under the Plan shall be subject to the Clawback Policy as adopted by the Board and as amended from time to time.

(b) No Individual Rights. No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.
 
Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause.
 
(c) No Rights as a Shareholder. Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment or services agreement, no Award shall entitle the Participant to any dividend, voting or other right of a shareholder.
 
(d) Tax Withholding. The Company shall have the right to withhold from the payment of any Award under the Plan any federal, state or local taxes in accordance with applicable law.
 
(e) Other Plans. Nothing contained in the Plan shall prevent the Company or any Related Company from making awards or payments to a Participant under any other incentive plan or arrangement, whether generally or specifically applicable to such Participant, including any award or payment that does not qualify as performance-based compensation under Section 162(m).
 
(f) Indemnification. Each person who is or shall have been a member of the Board or the Committee shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf, unless such loss, cost, liability or expense is a result of his or her own willful misconduct or except as expressly provided by statute.
 
The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s certificate of incorporation or by-laws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify them or hold them harmless.
 
(g) Compliance With Section 409A. Notwithstanding the provisions of Section 6(b) to the contrary, it is the Company’s intention that any and all compensation payable under the Plan shall satisfy the requirements for exemption under Section 409A, and all terms and provisions shall be interpreted to satisfy such requirements.

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(h) No Trust or Fund. The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of common stock of the Company, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
 
(i) Successors. All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
 
(j) Severability. If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
 
(k) Choice of Law. The Plan, all Awards granted under the Plan and all determinations made and actions taken pursuant to the Plan, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Illinois without giving effect to principles of conflicts of law.
 
10. RESTATEMENT EFFECTIVE DATE
 
The Plan is amended and restated effective April 27, 2015.
 



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EXHIBIT 10(v)
INCENTIVE COMPENSATION PLAN FOR EMPLOYEES
OF THE BOEING COMPANY AND SUBSIDIARIES
(As Amended and Restated April 27, 2015)
1.    Definitions
As used in this plan (the “Plan”), the following terms have the meanings set forth below:
“Board of Directors” means the Board of Directors of The Boeing Company;
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” means The Boeing Company;
“Committee” means the Compensation Committee of the Board of Directors;
“Section 162(m)” means Code Section 162(m), including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
“Section 409A” means Code Section 409A, including any proposed and final regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service.
“Subsidiary” means any corporation or association more than 50% of the voting securities of which are owned directly or indirectly by the Company or by one or more of its other Subsidiaries and the accounts of which are customarily consolidated with those of the Company for the purpose of reporting to stockholders.
2.    Committee
The Committee shall have full power and authority to administer the Plan, and to construe and interpret its terms and provisions. Decisions of the Committee shall be final and binding upon all parties.
3.    Eligibility
3.1
Certain Employees. Officers and employees of the Company and its Subsidiaries who hold executive, administrative, managerial, supervisory, technical or other key positions shall be eligible for participation under the Plan, and participants shall for the most part be selected from among members of this group. None of the members of the Committee and no director of the Company or of a Subsidiary who is not also an officer or employee of the Company or of a Subsidiary shall be eligible for participation under the Plan.
3.2
Special Contributors; Former Employees. Awards may also be made under the Plan to employees not holding executive, administrative, supervisory, technical or other key positions who have, nevertheless, made a substantial contribution to the success of the Company and its Subsidiaries. In addition, a former employee who has either
(a)    retired under the employee retirement plan of the Company or of a Subsidiary or
(b)    left the service of the Company or of a Subsidiary to enter the armed services
and who would have been eligible for an award but for such retirement or termination of service, may be eligible for an award for the year in which such employee retires or so leaves the service of the Company or of a Subsidiary. In the case of a former employee who would have been eligible for an award but for death, an award may be granted to the surviving spouse or children or to the estate of such former employee, as the Committee may determine in its sole discretion.
3.3
Covered Employees. In no event shall any individual who is a “covered employee” (as defined in Section 162(m)) be eligible to receive an award under the Plan that is intended to meet the qualification requirements of Section 162(m).

4.    Making Awards
4.1
Committee Authority. The Committee shall make awards, subject to the limitations herein, to such individuals within the eligible group and in such amounts and at such times as, in the Committee’s judgment, shall best serve the interest of the Company and its Subsidiaries at that time, taking into account each individual’s job performance and contributions to the success of the Company and its Subsidiaries.

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Except as provided in Section 4.2, the Committee shall have complete discretion in determining to whom awards under the Plan shall be made; provided, however, in making awards the Committee shall request and consider the recommendations of the Chief Executive Officer of the Company and others whom it may designate.
4.2
Delegation of Award-Making Authority and Award Recommendations. The Committee may, at such time or times as it may elect, authorize the Chief Executive Officer of the Company who in turn may authorize other executives of the Company to make additional awards subject to the limitations herein provided, in amounts not exceeding an aggregate amount and under conditions determined by the Committee. In making recommendations to the Committee and in making awards authorized by the Committee, the Chief Executive Officer of the Company shall request and consider the recommendations of other officers and supervisory employees of the Company and its Subsidiaries.
4.3
Forms of Awards. Awards under this Plan will be made entirely in cash.
4.4
Boeing Stock Units. Boeing Stock Units granted under the Plan prior to the May 1, 2006 shall continue to be subject to the provisions of the Plan as in effect immediately prior to such date.
4.5
Limits on Awards. Unless approved by two-thirds of the members of the Board of Directors, no participant shall receive an award under the Plan in any one calendar year that has a maximum target of more than two (2) times the participant’s base salary for the year for which the award is made, and a maximum payout of more than two (2) times the target established by the Committee for the year for which the award is made.

5.
Distribution of Awards

5.1
Terms; Timing. Distribution of awards shall be governed by the terms and conditions applicable to such awards, as determined by the Committee or its delegate. Notwithstanding the foregoing, with respect to any award intended to be exempt from the requirements of Section 409A which is to be paid out when vested and qualify for the short-term deferral exemption to Section 409A, such payment shall be made as soon as administratively feasible after the award became vested, but in no event shall such payment be made later than 2-1/2 months after the end of the calendar year in which the award became vested unless (i) deferred pursuant to Section 5.2 or (ii) otherwise permitted under the exemption provisions of Section 409A.
 
5.2
Deferred Payment. Notwithstanding the provisions of Section 5.1, the Committee may permit or require a participant to defer receipt of the payment of an award to the extent provided under any deferred compensation plan of the Company or pursuant to the terms of an employment agreement, either of which satisfies the requirements for exemption from or complies with Section 409A.
5.3
Deductions. The Company shall deduct from the payment of each award any withholdings required by law; and the Company may deduct any amounts due from the recipient to the Company or a Subsidiary.
5.4
Notice; Distribution Date. The Committee or its delegates shall advise participants of their awards under the Plan, and shall fix the distribution date or dates for such awards. Awards shall be paid on the distribution date or as soon thereafter as reasonably possible.
6.
Repeal; Amendments. The Plan and any and all provisions hereof may be repealed or amended by the affirmative vote of a majority of the Board of Directors at any meeting if the notice of such meetings sets forth the form of the proposal for such repeal or amendment or a summary thereof. No repeal or amendment of the Plan shall operate to annul or modify any award previously made under the Plan.
7.
Nonassignability. No awards authorized or made pursuant to the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, execution, attachment, garnishment or any other legal process, and any attempt to subject an award to any of the foregoing shall be void.
8.
Compliance with Section 409A. Notwithstanding the provisions of Section 5.2 to the contrary, it is the Company’s intention that any and all compensation payable under the Plan shall satisfy the requirements

2


for exemption under Section 409A, and all terms and provisions shall be interpreted to satisfy such requirements.
9.
Clawback Policy. Awards under the Plan are subject to the Clawback Policy as adopted by the Board of Directors and as amended from time to time.
10.
No Individual Rights. No individual shall have any claim to be granted any award under the Plan, and the Company has no obligation for uniformity of treatment of participants under the Plan. Furthermore, nothing in the Plan or any award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Subsidiary or limit in any way the right of the Company or any Subsidiary to terminate a participant’s employment or other relationship at any time, with or without cause.
11.
No Trust or Fund. The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property or shares of Common Stock, or to create any trusts, or make any special deposits for any immediate or deferred amounts payable to any participant, and no participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
12.
Successors. All obligations of the Company under the Plan with respect to awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
13.
Severability. If any provision of the Plan or any award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the award, such provision shall be stricken as to such jurisdiction, person or award, and the remainder of the Plan and any such award shall remain in full force and effect.


3




EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
The Boeing Company and Subsidiaries
(Dollars in millions)
 
Six months ended

Years ended December 31,
 
June 30, 2015

2014

2013

2012

2011

Earnings before income taxes
3,569

7,137

6,232

5,910

5,393

Fixed charges excluding capitalized interest
194

455

514

603

677

Amortization of previously capitalized interest
49

72

74

75

64

Net adjustment for earnings from affiliates
(4
)
7

13

69

(38
)
Earnings available for fixed charges

$3,808


$7,671


$6,833


$6,657


$6,096

Fixed charges:
 
 
 
 
 
Interest and debt expense(1)

$169


$402


$461


$551


$626

Interest capitalized during the period
79

102

87

74

57

Rentals deemed representative of an interest factor
25

53

53

52

51

Total fixed charges

$273


$557


$601


$677


$734

Ratio of earnings to fixed charges
13.9

13.8

11.4

9.8

8.3

(1) 
Amount does not include tax-related interest expense which is reported as a component of Income tax expense in our Condensed Consolidated Statements of Operations.






EXHIBIT 15
Letter from Independent Registered Public Accounting Firm Regarding
Unaudited Interim Financial Information
LETTER IN LIEU OF CONSENT FOR REVIEW REPORT
July 22, 2015
To the Board of Directors and Shareholders of
The Boeing Company
Chicago, Illinois
We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of The Boeing Company and subsidiaries for the periods ended June 30, 2015 and 2014, as indicated in our report dated July 22, 2015; because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, is incorporated by reference in Registration Statement Nos. 33-25332, 33-31434, 33-43854, 33-58798, 33-52773, 333-16363, 333-26867, 333-32461, 333-32491, 333-32499, 333-32567, 333-41920, 333-54234, 333-73252, 333-107677, 333-140837, 333-156403, 333-160752, 333-163637, and 333-195777 on Form S-8, and Registration Statement No. 333-202311 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP


Chicago, Illinois






EXHIBIT 31(i)
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis A. Muilenburg, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of The Boeing Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 22, 2015
 
 
 
 
/s/ Dennis A. Muilenburg
 
Dennis A. Muilenburg – President and Chief Executive Officer
 






EXHIBIT 31(ii)
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory D. Smith, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of The Boeing Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 22, 2015
 
 
 
 
/s/ Gregory D. Smith
 
Gregory D. Smith – Chief Financial Officer and Executive Vice President, Business Development and Strategy
 






EXHIBIT 32(i)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Boeing Company (the “Company”) on Form 10-Q for the period ending June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis A. Muilenburg, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
/s/ Dennis A. Muilenburg
 
Dennis A. Muilenburg – President and Chief Executive Officer
 
July 22, 2015






EXHIBIT 32(ii)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Boeing Company (the “Company”) on Form 10-Q for the period ending June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory D. Smith, Chief Financial Officer and Executive Vice President, Business Development and Strategy of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
/s/ Gregory D. Smith
 
Gregory D. Smith – Chief Financial Officer and Executive Vice President, Business Development and Strategy
 
July 22, 2015


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