Boeing 2012 Annual Report Download - page 58

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Postretirement Plans
The majority of our employees are covered by defined benefit pension plans. All nonunion and some union
employees hired after December 31, 2008 are not covered by defined benefit plans. We also have other
postretirement benefits consisting principally of healthcare coverage for eligible retirees and qualifying
dependents. Accounting rules require an annual measurement of our projected obligations and plan assets.
These measurements are based upon several assumptions, including the discount rate, the expected
long-term rate of asset return, and medical trend rate (rate of growth for medical costs). Future changes
in assumptions or differences between actual and expected outcomes can significantly affect our future
annual expense, projected benefit obligations and Shareholders’ equity.
The following table shows the sensitivity of our pension and other postretirement benefit plan liabilities
and net periodic cost to a 25 basis point change in the discount rate as of December 31, 2012.
(Dollars in millions)
Change in discount rate
Increase 25 bps
Change in discount rate
Decrease 25 bps
Pension plans
Projected benefit obligation ($2,444) $3,112
Net periodic pension cost (250) 312
Other postretirement benefit plans
Accumulated postretirement benefit obligation (175) 205
Net periodic postretirement benefit cost (12) 13
Pension expense is also sensitive to changes in the expected long-term rate of asset return. A decrease
or increase of 25 basis points in the expected long-term rate of asset return would have increased or
decreased 2012 net periodic pension expense by $126 million. We expect 2013 net periodic pension cost
to increase by approximately $400 million and the portion recognized in earnings for 2013 to increase by
approximately $800 million primarily due to a reduction in the discount rate from 4.4% at December 31,
2011 to 3.8% at December 31, 2012 and amortization of actuarial losses.
The assumed medical trend rates have a significant effect on the following year’s expense, recorded
liabilities and Shareholders’ equity. The following table shows the sensitivity of our other postretirement
benefit plan liabilities and net periodic cost to a 100 basis point change as of December 31, 2012.
(Dollars in millions)
Change in medical trend rate
Increase 100 bps
Change in medical trend rate
Decrease 100 bps
Other postretirement benefit plans
Accumulated postretirement benefit
obligation $827 ($700)
Net periodic postretirement benefit
cost 128 (110)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have financial instruments that are subject to interest rate risk, principally fixed-rate debt obligations,
and customer financing assets and liabilities. Additionally, BCC uses interest rate swaps with certain debt
obligations to manage exposure to interest rate changes. Historically, we have not experienced material
gains or losses on our customer financing assets and liabilities due to interest rate changes. As of
December 31, 2012, the impact over the next 12 months of a 100 basis point rise in interest rates to our