10-Q

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 September 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 October 14, 2015, there were 669,983,631 shares of common stock, $5.00 par value, issued and outstanding.

Table of Contents

THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended September 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.
 
 
 

Table of Contents

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)
Nine months ended September 30
 
Three months ended September 30
  
2015

 
2014

 
2015


2014

Sales of products

$64,408

 

$58,920

 

$23,000



$21,378

Sales of services
8,133

 
7,374

 
2,849


2,406

Total revenues
72,541

 
66,294

 
25,849


23,784

 


 


 
 
 
 
Cost of products
(55,020
)
 
(50,023
)
 
(19,393
)

(18,091
)
Cost of services
(6,377
)
 
(5,965
)
 
(2,191
)

(1,966
)
Boeing Capital interest expense
(49
)
 
(53
)
 
(16
)

(18
)
Total costs and expenses
(61,446
)
 
(56,041
)
 
(21,600
)

(20,075
)
 
11,095

 
10,253

 
4,249


3,709

Income from operating investments, net
207

 
212

 
78


92

General and administrative expense
(2,594
)
 
(2,727
)
 
(889
)

(932
)
Research and development expense, net
(2,426
)
 
(2,292
)
 
(857
)

(750
)
Gain/(loss) on dispositions, net


 
2

 
(1
)
 


Earnings from operations
6,282

 
5,448

 
2,580


2,119

Other (loss)/income, net
(23
)
 
11

 
(26
)

(9
)
Interest and debt expense
(203
)
 
(252
)
 
(67
)

(79
)
Earnings before income taxes
6,056

 
5,207

 
2,487


2,031

Income tax expense
(1,906
)
 
(1,227
)
 
(783
)

(669
)
Net earnings

$4,150



$3,980

 

$1,704



$1,362

 
 
 
 
 
 
 
 
Basic earnings per share

$5.99

 

$5.43

 

$2.50



$1.88

 
 
 
 
 
 
 
 
Diluted earnings per share

$5.92

 

$5.36

 

$2.47



$1.86

 
 
 
 
 
 
 
 
Cash dividends paid per share

$2.73

 

$2.19

 

$0.91



$0.73

 
 
 
 
 
 
 
 
Weighted average diluted shares (millions)
700.9

 
742.3

 
689.0


731.9

See Notes to the Condensed Consolidated Financial Statements.

1
Table of Contents

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

 
2014

 
2015

 
2014

Net earnings

$4,150

 

$3,980

 

$1,704

 

$1,362

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Currency translation adjustments
(79
)
 
(34
)
 
(35
)
 
(72
)
Unrealized gain/(loss) on certain investments, net of tax ($5), ($1), ($2), and $1
5

 
2

 
1

 
(1
)
Unrealized (loss)/gain on derivative instruments:
 
 
 
 
 
 
 
Unrealized loss arising during period, net of tax of $78, $36, $41, and $50
(139
)
 
(64
)
 
(73
)
 
(89
)
Reclassification adjustment for gains/(losses) included in net earnings, net of tax of ($28), $1, ($12), and $1
52

 
(2
)
 
24

 
(3
)
Total unrealized loss on derivative instruments, net of tax
(87
)
 
(66
)
 
(49
)
 
(92
)
Defined benefit pension plans and other postretirement benefits:
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic pension cost, net of tax of ($16), ($9), ($5), and ($3)
29

 
16

 
10

 
5

Net actuarial gain/(loss) arising during the period, net of tax of ($2), ($348), $15, and ($1)
4

 
623

 
(27
)
 
1

Amortization of actuarial losses included in net periodic pension cost, net of tax of ($425), ($275), ($143), and ($90)
765

 
498

 
257

 
165

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

 
202

 

 

Total defined benefit pension plans and other postretirement benefits, net of tax
801

 
1,339

 
240

 
171

Other comprehensive income, net of tax
640

 
1,241

 
157

 
6

Comprehensive (loss)/income related to noncontrolling interests
(2
)
 
9

 
(1
)
 
3

Comprehensive income, net of tax

$4,788

 

$5,230

 

$1,860

 

$1,371

See Notes to the Condensed Consolidated Financial Statements.

2
Table of Contents

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

 
December 31
2014

Assets
 
 
 
Cash and cash equivalents

$9,383

 

$11,733

Short-term and other investments
474

 
1,359

Accounts receivable, net
8,854

 
7,729

Current portion of customer financing, net
227

 
190

Deferred income taxes
14

 
18

Inventories, net of advances and progress billings
48,624

 
46,756

Total current assets
67,576

 
67,785

Customer financing, net
3,231

 
3,371

Property, plant and equipment, net of accumulated depreciation of $16,188 and $15,689
11,614

 
11,007

Goodwill
5,122

 
5,119

Acquired intangible assets, net
2,706

 
2,869

Deferred income taxes
6,146

 
6,576

Investments
1,277

 
1,154

Other assets, net of accumulated amortization of $441 and $479
1,326

 
1,317

Total assets

$98,998

 

$99,198

Liabilities and equity
 
 
 
Accounts payable

$11,777

 

$10,667

Accrued liabilities
12,770

 
13,343

Advances and billings in excess of related costs
23,442

 
23,175

Deferred income taxes and income taxes payable
9,205

 
8,603

Short-term debt and current portion of long-term debt
614

 
929

Total current liabilities
57,808

 
56,717

Accrued retiree health care
6,746

 
6,802

Accrued pension plan liability, net
17,795

 
17,182

Non-current income taxes payable
378

 
358

Other long-term liabilities
1,083

 
1,208

Long-term debt
8,402

 
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
4,771

 
4,625

Treasury stock, at cost – 341,300,206 and 305,533,606 shares
(28,898
)
 
(23,298
)
Retained earnings
39,069

 
36,180

Accumulated other comprehensive loss
(13,263
)
 
(13,903
)
Total shareholders’ equity
6,740

 
8,665

Noncontrolling interests
46

 
125

Total equity
6,786

 
8,790

Total liabilities and equity

$98,998

 

$99,198

See Notes to the Condensed Consolidated Financial Statements.

3
Table of Contents

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


2014

Cash flows – operating activities:
 

 
Net earnings

$4,150



$3,980

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

 
Non-cash items – 
 

 
Share-based plans expense
141


152

Depreciation and amortization
1,349


1,378

Investment/asset impairment charges, net
124


140

Customer financing valuation benefit
(3
)

(26
)
Gain on dispositions, net


 
(2
)
Other charges and credits, net
230


145

Excess tax benefits from share-based payment arrangements
(139
)

(104
)
Changes in assets and liabilities – 
 

 
Accounts receivable
(1,202
)

(1,385
)
Inventories, net of advances and progress billings
(2,186
)

(4,425
)
Accounts payable
1,058


1,819

Accrued liabilities
(196
)

(1,054
)
Advances and billings in excess of related costs
270


1,100

Income taxes receivable, payable and deferred
824


887

Other long-term liabilities
40


(42
)
Pension and other postretirement plans
1,837


746

Customer financing, net
45


494

Other
(98
)

57

Net cash provided by operating activities
6,244


3,860

Cash flows – investing activities:
 
 
 
Property, plant and equipment additions
(1,827
)
 
(1,568
)
Property, plant and equipment reductions
24

 
27

Acquisitions, net of cash acquired
(23
)
 
(163
)
Contributions to investments
(1,341
)
 
(7,874
)
Proceeds from investments
2,169

 
10,608

Other
33

 
4

Net cash (used)/provided by investing activities
(965
)
 
1,034

Cash flows – financing activities:
 
 
 
New borrowings
761

 
105

Debt repayments
(864
)
 
(910
)
Repayments of distribution rights and other asset financing



(184
)
Stock options exercised
331

 
293

Excess tax benefits from share-based payment arrangements
139

 
104

Employee taxes on certain share-based payment arrangements
(93
)
 
(94
)
Common shares repurchased
(6,001
)
 
(5,000
)
Dividends paid
(1,882
)
 
(1,596
)
Other


 
(12
)
Net cash used by financing activities
(7,609
)
 
(7,294
)
Effect of exchange rate changes on cash and cash equivalents
(20
)
 
(33
)
Net decrease in cash and cash equivalents
(2,350
)
 
(2,433
)
Cash and cash equivalents at beginning of year
11,733

 
9,088

Cash and cash equivalents at end of period

$9,383

 

$6,655

See Notes to the Condensed Consolidated Financial Statements.

4
Table of Contents

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
 
 
 
3,980

 
9

3,989

Other comprehensive income, net of tax of ($709)
 
 
 
 
1,241

 
1,241

Share-based compensation and related dividend equivalents
 
159

 
(10
)
 
 
149

Excess tax pools
 
104

 
 
 
 
104

Treasury shares issued for stock options exercised, net
 
18

276

 
 
 
294

Treasury shares issued for other share-based plans, net
 
(124
)
46

 
 
 
(78
)
Common shares repurchased
 
 
(5,000
)
 
 
 
(5,000
)
Cash dividends declared ($1.46 per share)
 
 
 
(1,054
)
 
 
(1,054
)
Changes in noncontrolling interests
 
 
 
 
 
(5
)
(5
)
Balance at September 30, 2014

$5,061


$4,572


($22,349
)

$35,880


($8,653
)

$126


$14,637

 
 
 
 
 
 
 
 
Balance at January 1, 2015

$5,061


$4,625


($23,298
)

$36,180


($13,903
)

$125


$8,790

Net earnings
 
 
 
4,150

 
(2
)
4,148

Other comprehensive income, net of tax of ($400)
 
 
 
 
640

 
640

Share-based compensation and related dividend equivalents
 
154

 
(13
)
 
 
141

Excess tax pools
 
141

 
 
 
 
141

Treasury shares issued for stock options exercised, net
 
(19
)
350

 
 
 
331

Treasury shares issued for other share-based plans, net
 
(130
)
51

 
 
 
(79
)
Common shares repurchased
 
 
(6,001
)
 
 
 
(6,001
)
Cash dividends declared ($1.82 per share)
 
 
 
(1,248
)
 
 
(1,248
)
Changes in noncontrolling interests
 
 
 
 
 
(77
)
(77
)
Balance at September 30, 2015

$5,061


$4,771


($28,898
)

$39,069


($13,263
)

$46


$6,786

See Notes to the Condensed Consolidated Financial Statements.

5
Table of Contents

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

2015

 
2014

 
2015

 
2014

Revenues:
 
 
 
 



Commercial Airplanes

$49,950

 

$43,151

 

$17,692



$16,110

Defense, Space & Security:
 
 
 
 



Boeing Military Aircraft
10,283

 
10,509

 
4,051


3,534

Network & Space Systems
5,797

 
5,823

 
2,127


2,027

Global Services & Support
6,523

 
6,961

 
2,172


2,352

Total Defense, Space & Security
22,603

 
23,293

 
8,350


7,913

Boeing Capital
315

 
263

 
114


91

Unallocated items, eliminations and other
(327
)
 
(413
)
 
(307
)
 
(330
)
Total revenues

$72,541

 

$66,294

 

$25,849



$23,784

Earnings from operations:
 
 
 
 



Commercial Airplanes

$4,591

 

$4,849

 

$1,768



$1,797

Defense, Space & Security:
 
 
 
 



Boeing Military Aircraft
880

 
935

 
496


439

Network & Space Systems
563

 
507

 
245


189

Global Services & Support
868

 
774

 
281


228

Total Defense, Space & Security
2,311

 
2,216

 
1,022


856

Boeing Capital
41

 
66

 
10


(11
)
Unallocated items, eliminations and other
(661
)
 
(1,683
)
 
(220
)
 
(523
)
Earnings from operations
6,282

 
5,448

 
2,580


2,119

Other (loss)/income, net
(23
)
 
11

 
(26
)

(9
)
Interest and debt expense
(203
)
 
(252
)
 
(67
)

(79
)
Earnings before income taxes
6,056

 
5,207

 
2,487


2,031

Income tax expense
(1,906
)
 
(1,227
)
 
(783
)

(669
)
Net earnings

$4,150

 

$3,980

 

$1,704



$1,362

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

6
Table of Contents

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 September 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 was originally effective for reporting periods beginning after December 15, 2016 and early adoption was not permitted. On August 12, 2015, the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting 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. The Company is currently evaluating when to adopt the new standard, 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 nine months ended September 30, 2015 and 2014, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all contracts decreased Earnings from operations by $384 and $54 and diluted earnings per share by $0.38 and $0.06. For the three months ended September 30, 2015 and 2014, net favorable cumulative catch-up adjustments, including reach-forward losses, across all contracts increased Earnings from operations by $210 and $91 and diluted earnings per share by $0.21 and $0.08.

7
Table of Contents

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)
Nine months ended September 30
 
Three months ended September 30
 
2015

 
2014

 
2015

 
2014

Net earnings

$4,150

 

$3,980

 

$1,704

 

$1,362

Less: earnings available to participating securities
5

 
5

 
3

 
2

Net earnings available to common shareholders

$4,145

 

$3,975

 

$1,701

 

$1,360

Basic
 
 
 
 
 
 
 
Basic weighted average shares outstanding
692.9

 
733.3

 
681.3

 
722.8

Less: participating securities
1.1

 
1.3

 
1.2

 
1.3

Basic weighted average common shares outstanding
691.8

 
732.0

 
680.1

 
721.5

Diluted
 
 
 
 
 
 
 
Basic weighted average shares outstanding
692.9

 
733.3

 
681.3

 
722.8

Dilutive potential common shares(1)
8.0

 
9.0

 
7.7

 
9.1

Diluted weighted average shares outstanding
700.9

 
742.3

 
689.0

 
731.9

Less: participating securities
1.1

 
1.3

 
1.2

 
1.3

Diluted weighted average common shares outstanding
699.8

 
741.0

 
687.8

 
730.6

Net earnings per share:
 
 
 
 
 
 
 
Basic

$5.99

 

$5.43

 

$2.50

 

$1.88

Diluted
5.92

 
5.36

 
2.47

 
1.86

(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)
Nine months ended September 30
 
Three months ended September 30
 
2015

 
2014

 
2015

 
2014

Performance awards
5.9

 
5.3

 
5.9

 
4.6

Performance-based restricted stock units
2.3

 
1.3

 
2.3

 
1.3


8
Table of Contents

Note 3 – Income Taxes
Our effective income tax rates were 31.5% and 31.5% for the nine and three months ended September 30, 2015 and 23.6% and 32.9% for the same periods in the prior year. The effective tax rate for the nine months ended September 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 effective tax rate for the three months ended September 30, 2015 is lower than the comparable prior year period primarily due to 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 September 30, 2015, includes $108 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:
 
September 30
2015

 
December 31
2014

Long-term contracts in progress

$14,275

 

$13,381

Commercial aircraft programs
56,278

 
55,220

Commercial spare parts, used aircraft, general stock materials and other
6,506

 
7,421

Inventory before advances and progress billings
77,059

 
76,022

Less advances and progress billings
(28,435
)
 
(29,266
)
Total

$48,624

 

$46,756


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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 September 30, 2015, the inventory balance was $120 (net of advances of $317) and $154 (net of advances of $322) at December 31, 2014. At September 30, 2015, $222 of this inventory related to unsold launches. See Note 10.
Capitalized precontract costs of $664 and $1,281 at September 30, 2015 and December 31, 2014, are included in inventories.
At September 30, 2015 and December 31, 2014, commercial aircraft programs inventory included the following amounts related to the 787 program: $35,282 and $33,163 of work in process (including deferred production costs of $28,309 and $26,149), $2,267 and $2,257 of supplier advances, and $3,908 and $3,801 of unamortized tooling and other non-recurring costs. At September 30, 2015, $22,496 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 $9,721 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At September 30, 2015 and December 31, 2014, commercial aircraft programs inventory included the following amounts related to the 747 program: $1,891 and $1,741 of deferred production costs, net of previously recorded reach-forward losses, and $405 and $476 of unamortized tooling costs. At September 30, 2015, $739 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 $1,557 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 $3,109 and $3,341 at September 30, 2015 and December 31, 2014.
Used aircraft in inventories at Commercial Airplanes totaled $248 and $275 at September 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:
 
September 30
2015

 
December 31
2014

Financing receivables:
 
 
 
Investment in sales-type/finance leases

$1,659

 

$1,535

Notes
347

 
370

Total financing receivables
2,006

 
1,905

Operating lease equipment, at cost, less accumulated depreciation of $461 and $571
1,470

 
1,677

Gross customer financing
3,476

 
3,582

Less allowance for losses on receivables
(18
)
 
(21
)
Total

$3,458

 

$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 September 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.

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

 
December 31
2014

BBB

$990

 

$1,055

BB
555

 


B
272

 
633

CCC
100

 
131

Other
89

 
86

Total carrying value of financing receivables

$2,006

 

$1,905

At September 30, 2015, our allowance related to receivables with ratings of B, BB and BBB. We applied default rates that averaged 16%, 9% 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:
 
September 30
2015

 
December 31
2014

717 Aircraft ($405 and $421 accounted for as operating leases)

$1,473

 

$1,562

747 Aircraft (Accounted for as operating leases)
734

 
601

MD-80 Aircraft (Accounted for as sales-type finance leases)
327

 
358

757 Aircraft ($57 and $349 accounted for as operating leases)
285

 
370

767 Aircraft ($78 and $47 accounted for as operating leases)
182

 
158

737 Aircraft ($118 and $127 accounted for as operating leases)
118

 
156

MD-11 Aircraft (Accounted for as operating leases)
60

 
114


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

 
December 31
2014

Time deposits
406

 

$1,295

Pledged money market funds (1)
38

 
38

Available-for-sale investments
17

 
7

Equity method investments (2)
1,226

 
1,114

Restricted cash (3)
29

 
26

Other investments
35

 
33

Total

$1,751

 

$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 $186 and $62 for the nine and three months ended September 30, 2015 and $215 and $81 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.
Note 8 – Other Assets
Sea Launch
At September 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. On September 28, 2015, the district court granted summary judgment in Boeing’s favor on all claims against the other partners. Further proceedings will determine the final damage amount, including potential interest payments. If the partners decide to appeal or seek reconsideration of the district court’s ruling additional proceedings would ensue. 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.

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Note 9 – Commitments and Contingencies
Environmental
The following table summarizes environmental remediation activity during the nine months ended September 30, 2015 and 2014.
 
2015

 
2014

Beginning balance – January 1

$601

 

$649

Reductions for payments made
(52
)
 
(36
)
Changes in estimates
34

 
25

Ending balance – September 30

$583

 

$638

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 September 30, 2015 and December 31, 2014, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $845 and $874.
Product Warranties
The following table summarizes product warranty activity recorded during the nine months ended September 30, 2015 and 2014.
 
2015

 
2014

Beginning balance – January 1

$1,504

 

$1,570

Additions for current year deliveries
312

 
416

Reductions for payments made
(262
)
 
(336
)
Changes in estimates
(101
)
 
(167
)
Ending balance - September 30

$1,453

 

$1,483

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 September 30, 2015 have expiration dates from 2015 through 2026. At September 30, 2015, and December 31, 2014 total contractual trade-in commitments were $1,601 and $2,392. As of September 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 $345 and $446 and the fair value of the related trade-in aircraft was $345 and $446.

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Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled $17,858 and $16,723 as of September 30, 2015 and December 31, 2014. The estimated earliest potential funding dates for these commitments as of September 30, 2015 are as follows:
  
Total

October through December 2015

$214

2016
3,362

2017
3,814

2018
3,344

2019
3,353

Thereafter
3,771

 

$17,858

As of September 30, 2015, $17,842 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.
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 $4,735 and $3,985 as of September 30, 2015 and December 31, 2014.
Commitments to ULA
We and Lockheed Martin Corporation have each committed to provide ULA with additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. As of September 30, 2015, ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120. See Note 5.
C-17
We plan to end production of C-17 aircraft in the fourth quarter of 2015. At September 30, 2015, one aircraft remained unsold, while our backlog includes international orders for four C-17 aircraft that are scheduled for delivery in 2016. During the first nine 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 September 30, 2015, our backlog included 40 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.

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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 (FY). 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 raise the debt limit or pass appropriations bills in a timely manner, a government shutdown could result which may have impacts above and beyond those resulting from budget cuts, sequestration impacts or program-level appropriations. 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. The U.S. government is operating on a Continuing Resolution (CR) which funds discretionary activities from October 1, 2015 until December 11, 2015. Under the CR, funding rates are held at FY2015 enacted levels with restrictions on new starts, production rate increases and new multi-year procurements. If such restrictions remain throughout FY2016, it could negatively impact a number of our programs.
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.

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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 nine and three months ended September 30, 2015.
Lower-than-expected demand for large commercial passenger and freighter aircraft and slower-than- expected growth of global freight traffic 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.
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
 
September 30
2015

December 31
2014

 
September 30
2015

December 31
2014

 
September 30
2015

December 31
2014

Contingent repurchase commitments

$1,650


$1,375

 

$1,631


$1,364

 

$6


$5

Indemnifications to ULA:
 
 
 
 
 
 
 
 
Contributed Delta program launch inventory
107

114

 
 
 
 
 
 
Contract pricing
261

261

 
 
 
 
7

7

Other Delta contracts
231

150

 
 
 
 
5



Other indemnifications

63

 
 
 
 

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.

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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 $1,253 of the $1,360 of inventory that was contributed by us and has yet to consume $107. Under the inventory supply agreement, we have recorded revenues and cost of sales of $1,352 through September 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.
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 (GECC) related to the sale of BCC's Commercial Financial Services business, BCC was 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 $63 and our accrued liability under the loss sharing arrangement was $12 and $20. During the third quarter of 2015, BCC made a final payment of $12 to GECC to settle all claims under the arrangement.
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

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

 
2014

 
2015

 
2014

Service cost

$1,325

 

$1,244

 

$441

 

$415

Interest cost
2,242

 
2,300

 
748

 
758

Expected return on plan assets
(3,024
)
 
(3,125
)
 
(1,008
)
 
(1,042
)
Amortization of prior service costs
147

 
133

 
49

 
44

Recognized net actuarial loss
1,184

 
768

 
392

 
254

Settlement/curtailment/other losses
194

 
372

 
83

 
35

Net periodic benefit cost

$2,068

 

$1,692

 

$705

 

$464

Net periodic benefit cost included in Earnings from operations

$1,837

 

$2,443

 

$529

 

$715


 
Nine months ended September 30
 
Three months ended September 30
Other Postretirement Benefit Plans
2015

 
2014

 
2015

 
2014

Service cost

$105

 

$97

 

$35

 

$33

Interest cost
186

 
216

 
62

 
72

Expected return on plan assets
(6
)
 
(6
)
 
(2
)
 
(2
)
Amortization of prior service credits
(102
)
 
(108
)
 
(34
)
 
(36
)
Recognized net actuarial loss
23

 
6

 
8

 
2

Settlement and curtailment loss
9

 


 
4

 

Net periodic benefit cost

$215

 

$205

 

$73

 

$69

Net periodic benefit cost included in Earnings from operations

$226

 

$214

 

$65

 

$71

In the nine and three months ended September 30, 2015, we recorded charges of $194 and $83 related to curtailments and other benefit changes associated with certain of our defined benefit plans.

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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.
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 September 30, 2015, the minimum payout amount is $0 and the maximum amount we could be required to pay out is $348.

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Table of Contents

Note 14 – Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive income/(loss) (AOCI) by component for the nine and three months ended September 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
(34
)
 
2

 
(64
)
 
623

 
527

Amounts reclassified from AOCI

 

 
(2
)
 
716

(2) 
714

Net current period Other comprehensive income/(loss)
(34
)
 
2

 
(66
)
 
1,339

 
1,241

Balance at September 30, 2014

$116

 

($6
)
 

($72
)
 

($8,691
)
 

($8,653
)
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015

$53

 

($8
)
 

($136
)
 

($13,812
)
 

($13,903
)
Other comprehensive income/(loss) before reclassifications
(79
)
 
5

 
(139
)
 
4

 
(209
)
Amounts reclassified from AOCI

 

 
52

 
797

(2) 
849

Net current period Other comprehensive income/(loss)
(79
)
 
5

 
(87
)
 
801

 
640

Balance at September 30, 2015

($26
)
 

($3
)
 

($223
)
 

($13,011
)
 

($13,263
)
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2014

$188

 

($5
)
 

$20

 

($8,862
)
 

($8,659
)
Other comprehensive income/(loss) before reclassifications
(72
)
 
(1
)
 
(89
)
 
1

 
(161
)
Amounts reclassified from AOCI

 

 
(3
)
 
170

(2) 
167

Net current period Other comprehensive income/(loss)
(72
)
 
(1
)
 
(92
)
 
171

 
6

Balance at September 30, 2014

$116

 

($6
)
 

($72
)
 

($8,691
)
 

($8,653
)
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2015

$9

 

($4
)
 

($174
)
 

($13,251
)
 

($13,420
)
Other comprehensive income/(loss) before reclassifications
(35
)
 
1

 
(73
)
 
(27
)
 
(134
)
Amounts reclassified from AOCI

 

 
24

 
267

(2) 
291

Net current period Other comprehensive income/(loss)
(35
)
 
1

 
(49
)
 
240

 
157

Balance at September 30, 2015

($26
)
 

($3
)
 

($223
)
 

($13,011
)
 

($13,263
)
(1)     Net of tax.
(2) 
Primarily relates to amortization of actuarial gains/losses, settlements, and curtailments for the nine months ended September 30, 2014 totaling $700 (net of tax of $(388)) and to amortization of actuarial gains/losses for the three months ended September 30, 2014 totaling $165 (net of tax of $(90)) and the nine and three months ended September 30, 2015 totaling $768 and $257 (net of tax of $(427) and $(143)). These are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs. See Note 12.

20
Table of Contents

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 2021. 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
  
September 30
2015

December 31
2014

September 30
2015

December 31
2014

September 30
2015

December 31
2014

Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange contracts

$2,793


$2,586


$8


$9


($326
)

($204
)
Interest rate contracts
125

125

11

10




Commodity contracts
16

31


1

(14
)
(24
)
Derivatives not receiving hedge accounting treatment:
 
 
 
 
 
 
Foreign exchange contracts
399

319

6

21

(13
)
(5
)
Commodity contracts
790

3





 
 
Total derivatives

$4,123


$3,064

25

41

(353
)
(233
)
Netting arrangements
 
 
(9
)
(16
)
9

16

Net recorded balance
 
 

$16


$25


($344
)

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

21
Table of Contents

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: 
  
Nine months ended September 30
 
Three months ended September 30
  
2015

 
2014

 
2015

 
2014

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

($137
)
 

($65
)
 

($71
)
 

($85
)
Commodity contracts
(2
)
 
1

 
(2
)
 
(4
)
Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes:
 
 
 
 
 
 
 
Foreign exchange contracts
(44
)
 
14

 
(21
)
 
7

Commodity contracts
(8
)
 
(12
)
 
(3
)
 
(4
)
Forward points recognized in Other income, net:
 
 
 
 
 
 
 
Foreign exchange contracts
8

 
25

 
1

 
9

Undesignated derivatives recognized in Other income, net:
 
 
 
 
 
 
 
Foreign exchange contracts
(3
)
 
(5
)
 
(5
)
 
1

Based on our portfolio of cash flow hedges, we expect to reclassify losses of $161 (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 nine and three months ended September 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 September 30, 2015 was $48. At September 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. 
 
September 30, 2015
 
December 31, 2014
 
Total

 
Level 1

 
Level 2

 
Level 3
 
Total

 
Level 1

 
Level 2

 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds

$3,078

 

$3,078

 
 
 
 
 

$3,826

 

$3,826

 
 
 
 
Available-for-sale investments
17

 
17

 
 
 

 
7

 
7

 
 
 

Derivatives
16

 
 
 

$16

 
 
 
25

 
 
 

$25

 
 
Total assets

$3,111

 

$3,095

 

$16

 

 

$3,858

 

$3,833

 

$25

 

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives

($344
)
 
 
 

($344
)
 
 
 

($217
)
 
 
 

($217
)
 
 
Total liabilities

($344
)
 

 

($344
)
 

 

($217
)
 

 

($217
)
 


22
Table of Contents

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 nine months ended September 30 due to long-lived asset impairment and the fair value and asset classification of the related assets as of the impairment date: