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BOEING INVESTMENT PLAN Team Echo Kevin Calvert

Jeremy Edwards Julie Hubbert Charles Pao

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The purpose of this investment plan is to provide our parents with an investment strategy concerning their assets at retirement. We, the children, have researched and reviewed the Boeing company to invest our parents money in. Our goal for this investment strategy is to maintain our parents current net income with adjustment for inflation. We do this by considering their social security benefits, interest and dividend income, inflation, draw down of savings, and sell of stocks. These income items are then compared with our parents inflation adjusted expenses. Boeing Overview Boeing is the second largest aerospace and defense contractor in the world. Boeing is also the largest global aircraft manufacturer in the world. They were integral in the development of military aircrafts such as everything from the B-17 Flying Fortress and B-29 Superfortress to current aircrafts such as the Apache, Chinook, and Osprey helicopters. Boeing has also maintained a sustained relationship with NASA through the development of rocketry and satellite technology and continues to be the primary contractor for the International Space Station. With Boeing continuing to be driven by its ability to provide customers with continued development at the right price, the company is showing no signs of slowing in the future market. It will continue to sustain its profitability and market share for the next several decades (About Us, 2014). Major Markets and Customer Base Given the breadth and diversity of Boeing in the commercial, aerospace, and defense market, their major markets are located globally. Currently, Boeing is divided into two divisions, Boeing Commercial Airplanes and Boeing Defense. The primary business of the Commercial Airplanes division is the development, construction, and sales of commercial airliners of various sizes and configurations ranging from the 777 down to regional jets. The commercial airliners are sold globally, and sales will continue to grow over the next several years. As of this year, 12,000 Boeing commercial jetliners are in service worldwide and comprise roughly 75 percent of the global market. According to Boeings latest Current Market Outlook, a long-term forecast of air traffic volumes and airplane demand, long-term demand will increase by 36,770 new airplanes with 15,500 of those new planes replacing older and less fuel-efficient airplanes. The remaining 21,270 airplanes are expected to be implemented in future fleet expansion in emerging markets such as the Asian Pacific region and Europe. This expansion is valued at $5.2 trillion dollars over the next twenty years (Long-Term Market, 2014). The Boeing Defense, Space & Security division is the second largest defense and aeronautical agency in the world. In the United States, Boeing supports numerous agencies such as the Department of Defense, the National Aeronautics and Space Administration (NASA), and the federal government itself. Boeing also provides support to allied government customers located in 150 countries. These products and services vary greatly in their application. For military applications, Boeing produces strike or surveillance aircraft, unmanned aircraft, weapons, and rockets. They also provide

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information security and analysis, integrated missile systems, and secure communications. In cooperation with NASA, Boeing develops or maintains space transportation, military and space security, satellite systems and services, heavy lift launch vehicles, and is the primary contractor for the International Space Station (About Us, 2014). While current governmental funding for the defense industry and NASA has taken a cut in recent times, with the increasing use of unmanned aircraft, fighter jets, information security concerns, and global communications, Boeing should not see any sizeable decrease in revenue from the governmental sector any time soon. Company Competition The current market for commercial jet airliners continues to be an extremely competitive market. Despite Boeings 75 percent market share in the segment, competitors continue to try to increase their market share in North America. Their primary competitor is Airbus, a European company, which has received roughly the same number of orders for aircrafts and delivered roughly the same number as Boeing within the last ten years. However, in the current year Boeing has seen a significantly larger amount of orders than their leading competitor due to the Emirates canceling a large order of jetliners from Airbus. A number of other companies across the globe have also begun attempting to grab market share, such as Embraer, Bombardier, Irkut (Russia), COMAC (China), and Honda and Mitsubishi (Japan) (The Boeing Company, 2014). The Defense, Space & Security division faces strong competition in all markets from a number of companies located globally. Primary competition includes companies such as Lockheed Martin, Northrup Grumman, Raytheon, General Dynamics, BAE Systems, and Airbus. While competition has remained fierce amongst defense contractors, particularly within the last decade, Boeing has continued to build a strategic presence by strengthening operations, and collaborating with other defense companies for various projects. For example, despite Lockheed Martin being a competitor, the two companies created a joint venture named Hellfire Systems, LLC, which manufactures Hellfire missiles. The two companies also jointly own United Launch Alliance, LLC, which manufactures the Delta IV and Atlas V while launching high-priority systems for the U.S. Air Force, National Reconnaissance Office (NRO), NASA, and commercial payloads to orbit. Boeing and Lockheed Martin are also the primary contractors for the F-22 Raptor. Bell Helicopter and Boeing formed Bell-Boeing Joint Project Office to build the V-22 Osprey, the tilt-rotor aircraft that is primarily used by the United States Marine Corps (The Boeing Company, 2014). Corporate Citizenship Boeing has a proud tradition of corporate citizenship globally. In 2013 alone, Boeing invested over $176 million dollars in people and communities throughout the world and contributed thousands of hours of volunteer work. Through the motto of One Boeing Alignment, which is a three-tier approach to corporate citizenship, Boeing focuses its efforts in their products and services, community engagement, and business practices (Boeing, 2013, p.3). The diversity of Boeings involvement in the community is

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widespread. First, Boeing supports education programs designed to develop a globally competitive workforce and enables students to excel through academic endeavors to inspire future leaders. For instance, Boeing invests in the National Math and Science Initiative and hosts the FIRST Robotics Competition which has supported almost 850 FIRST teams with funding and active participation from volunteers since 2008 (Boeing, 2013, p.5). In addition to community investments that Boeing supports, nearly 50% are dedicated to educational programs worldwide (Boeing, 2013, p.9). Educational awareness and support is only one facet of corporate citizenship Boeing participates in. Other highlights include Boeing donating more than $16 million dollars to military and veteran programs in 2013 alone (Boeing, 2013, p.16). Boeing also employs more than 23,000 military veterans, which according to Forbes, is the seventh best employer for veterans in America (Dill, 2014). The company also contributes greatly to humanitarian aid worldwide. Since 2000, Boeing has donated more than $31 million dollars to relief efforts globally and a further $33 million dollars to health and human services programs in twenty-five countries (Boeing, 2013, pp.20-22). These endeavors mark just a few of the widespread commitments Boeing strives to better globally. The company is also engaged in programs that benefit the environment, volunteering, the Employees Community Fund, civic engagement, and arts and culture. Boeing is truly a world leader in corporate citizenship that will continue for years to come. Boeings Last 5 Years and Stock Projection Sales Dollars The sales trend for Boeing is increasing over the past 5 years. Although they had a -5.82% decrease in sales from 2009 to 2010, this was their only year in past five years to have a decrease in sales. This is mainly because of an -8.21% decrease in cost of goods sold from 2009 to 2010, so the amount of sales dollars is expected to decrease. 2010 was the only year that Boeing did not see a growth is sales dollars in the past 5 years. From 2011 to 2012, the company saw an 18.86% increase in sales which is the highest percentage increase of the past 5 years. Cost of goods sold also increased by 22.71%, so net income decreased by 2.89% from 2011 to 2012. This shows great potential for future growth of the company. Their sales is projected to be doubled the amount it was in 2009 twenty years from now (Investor, 2014).

2009 2010 2011 2012 2013 Sales/Revenue 68.28B 64.31B 68.74B 81.7B 86.62B

% Growth --- -5.82% 6.89% 18.86% 6.03% All Values USD Billions

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Annual Net Profit/Loss The net income for Boeing has varied over the past 5 years and has been somewhat inconsistent. Even with decrease in sales from 2009 to 2010, Boeing increased net profit by 148.01%, from $1.34 billion to $3.31 billion in net income. This was the highest increase percentage of the past 5 years. 2011 still saw a 21.14% increase in profit from 2010 to $4.01 billion. 2012 is the only year in the past 5 years that Boeing has had a negative percentage loss in net income from 2011, even though they still had a net profit of $3.9 billion dollars for the fiscal year. Boeing saw its highest net income dollars in the past 5 years in 2013 with a 17.56% increase of $4.58 billion from 2012 (Annual, 2014).

2009 2010 2011 2012 2013

Net Income

1.34B 3.31B 4.01B 3.9B 4.58B

% Growth --- 148.01% 21.14% -2.89% 17.56% All Values USD Billions Dividend History The stock dividend payout history of Boeing has slowly increased over the past 5 years. Boeing gives its shareholders a cash dividend form of payment on their shares of stock. Shareholders consistently have received dividend payouts each quarter of each fiscal year for the entire companys history. From 2009 to 2011, Boeing had a total of $1.68 of dividend payout each year. In 2012, stockholders saw a .08-cent increase in total dividend payout for that year. In 2013, the company had its biggest dividend payout of the past five years with $1.94 total dividend payout for the entire fiscal year. There is no indication that Boeing will not continue to be able to provide dividend payouts for its stockholders in the future. There is only one other company, Airbus, which is any type of competition for Boeing that would lower its value of investing in the company (Investor, 2014).

Annual Dividends

12/2009 12/2010 12/2011 12/2012 12/2013

Dividend Amount

$1.68 $1.68 $1.68 $1.76 $1.94

Year-End Yield %

3.10% 2.57% 2.29% 2.34% 1.42%

All Values USD For the purpose of our investment strategy, we are taking the average year-end yield percent from the last five years to determine the projected dividends Boeing will pay to our parents.

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Stock price and Projected Change The stock price per share for Boeing has nearly tripled in the past 5 years. There are currently 720,613,000 outstanding shares for the company. In 2009, the lowest closing stock price for the company was $29.05. For the current year, Boeing saw a high of $144.57 per share and a low of $116.32 per share; however, it is still higher than any previous high stock mark of the companys history. It is calculated that there is $122.71 sales dollars for every share of stock for the company. The range in stock price for the company in the past 5 years shows how much Boeing has grown and will continue to grow.

However, for the purpose of our investment strategy we have assumed Boeings stock to grow at a nominal rate of 7%. Even though the past 5 years indicate tremendous growth, the countrys economic depression in 2009 and the subsequent bounce back of the economy for the past 5 years have skewed Boeings stock growth. Nevertheless, with projected sales and product production to be doubled as well as low threats of competition, this is great indication that stock prices should continue to rise over the next twenty years.

Inflation Rate and Effect on Disposable Income, Expenses, and Savings The latest annual rate of inflation in the United States is 1.7%, as reported by the Bureau of Labor Statistics (US Inflation Rate, 2014).

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US Inflation Rate Table (1980 2014)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave

2014 1.6% 1.1% 1.5% 2.0% 2.1% 2.1% 2.0% 1.7%

2013 1.6% 2.0% 1.5% 1.1% 1.4% 1.8% 2.0% 1.5% 1.2% 1.0% 1.2% 1.5% 1.5%

2012 2.9% 2.9% 2.7% 2.3% 1.7% 1.7% 1.4% 1.7% 2.0% 2.2% 1.8% 1.7% 2.1%

2011 1.6% 2.1% 2.7% 3.2% 3.6% 3.6% 3.6% 3.8% 3.9% 3.5% 3.4% 3.0% 3.2%

2010 2.6% 2.1% 2.3% 2.2% 2.0% 1.1% 1.2% 1.1% 1.1% 1.2% 1.1% 1.5% 1.6%

2009 0.0% 0.2% -0.4% -0.7% -1.3% -1.4% -2.1% -1.5% -1.3% -0.2% 1.8% 2.7% -0.4%

The projected inflation rate in the long run is an estimated 2% (Economic Projections of Federal Reserve, 2014, p. 1). This means that the disposable income for our parents will not purchase the same amount of goods and services in future years as they would be able to purchase today. For example, if our parents needed $60,000 for the first year of their retirement, then according to the inflation rate calculator, the amount they would need after 18 years to maintain the same purchasing power as today would be $85,694.77 (Inflation Calculator, 2014). Thus, inflation greatly impacts the purchasing power.

This also means that any amount that is saved today will be worth less in the future due to the inflation rate. In this situation, our parents decide to deposit $1,500 into a savings account today and decide to leave in the savings account for 18 years at a savings rate of 1.58%. Then, taking into account that they are in the 25% federal tax bracket and the state tax rate for Texas is 6.25%, the amount of the deposit after 18 years would be $1,273 and $1,388 if tax-deferred or tax-exempt (Calculator: How Will Taxes and Inflation Affect My Savings?, 2014). The amount $1,273 has been adjusted for inflation. This goes to show that inflation can also affect the amount of money that is saved.

Inflation Calculator

Today's Amount: $ 60000

Annual Inflation Rate: 2 %

Number of Years: 18

Reduced Amount $42,009.56

Required Amount $85,694.77

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INPUTS

Amount you have deposited

$ 1,500

Years saved

18

Your savings rate

1.58

%

Your federal tax rate

25.00

%

Your state tax rate

6.25

%

Inflation rate

2.00

%

RESULTS In 18 years, your deposit will be worth:

Amount

Amount adjusted

for inflation

If you pay taxes on earnings $1,819 $1,273

If tax-deferred or tax-exempt $1,986 $1,388

By looking at the graph above, the affect inflation has on the spending value of money is very noticeable.

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Also, due to inflation, our parents living expenses will also increase, meaning they would have to have a larger spending budget to match the rising prices in goods and services. Alternative Investment Strategies In order to counter inflation and preserve their purchasing powers, our parents can invest in other areas that would be inflation proof besides Boeing. One possibility is to invest in bonds that are benchmarked to inflation ---- Treasury Inflation Protected Securities, or TIPS (Reeves, 2013, p. 2). TIPS is directly linked to the Consumer Price Index; this means that the larger the inflation the bigger the payout from the investments. If consumer prices remain constant and inflation does not rise, then investing in lower risk alternatives, such as corporate bonds, is the better route. Another possibility is to invest in gold. When inflation rises, so does gold. Naturally, there is some risk involved if this route is chosen. The risk for investing in gold is if inflation stops rising or even starts to decline, then gold will stop rising and possibly decline in value (Reeves, 2013, p. 3). A third route is to invest in foreign currency. The improvement in technology has made trading foreign currency easier. As with the previous two methods mentioned, there is risk involved with investing in foreign currency. Trading in foreign currency can mean a lot of volatility, thanks to the endless flow of geopolitical news and policy actions that threaten to the change the game in a hurry (Reeves, 2013, p. 4). Other possible investments include investing in commodities, such as cotton, soybeans, or any raw material, and investing in real estate. Although these are alternatives, the safest possible way to invest money would be to put the money in an interest earning account, such as savings, or a CD. Unfortunately, investing in a savings account or CD does not make it inflation proof and has the possibility of losing purchasing power as shown earlier with the charts and calculations. Thus, it ultimately depends on how much risk our parents are willing to take. This will determine where they invest the remaining amount of money that is left over after investing in Boeing and accounting for expenses. Investment Strategy After carefully considering Boeings projected stock and dividends, our investment strategy involves investing $250,000 (half of our parents CD dollars) into Boeing while investing the other half into savings. During the next 16 years, after the 2 years that they stop working and retire, they will draw $25,000 per year first from their savings and then from their selling of stocks. Expenses The following is an estimated budget for our parents expenses and net income. The Social Security tax and Federal Income tax have already been calculated to simplify the process (Federal Insurance, 2013; Publication 501, 2013). The other expenses have

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been reasonably estimated by carefully considering our parents age, location, income, and assets.

Estimated Annual Expenses

Income $100,000 Income Taxes Social Security Medicare Tax $7,650 Federal Income Taxes 15,763 Total ($23,413)

Home Owners Expenses Property Taxes (cor.net) $8,544 Home Owners Insurance 3,600 Repairs/Maintenace 1,800 Water (cor.net) 1,092 Gas 1,236 Electric 2,418 Phone/Cable/Internet 180 Total ($18,870) Personal Expenses Food $4,320 Medical/Medical Insurance 1,800 Personal Items 1,200 Cell Phone 1,200 Total ($8,520)

Automobile Auto Insurance $2,400 Gasoline 1,950 Maintenance 720 ($5,070) Total Expenses ($58,273)

Total Net Income.$41,727 As you can see, our parents total net income after expenses for the first of the two years that they will be working is $41,727. Our strategy is to maintain this level of income. Basic Assumptions

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The following are basic assumptions we have included in order to carry out our investment plan.

We have assumed the inflation rate to be 2%. We have assumed our parents will buy Boeings stock at the current price of

$125. We have assumed Boeings stock will grow at a nominal rate of 7% (real growth

rate of 5% plus 2% inflation rate). We have assumed Boeing will pay a dividend equal to 2.3% of the current stock

price. We have assumed the savings account will draw 1.58%. We have assumed social security benefits to be $4000 each month adjusted for

inflation. We have assumed the taxes paid on social security benefits and dividends to be

zero to simplify our calculations. The inclusion of these taxes would not change our strategy.

This graph shows that our parents net income is maintained throughout their retirement years. The large drop in income after the first two years is caused by our parents no longer bringing in their income from working. The income level is then maintained through social security, stock dividends, and the added $25,000 from savings and selling of stocks. The large drop after two years in expenses is caused by our parents no longer having to pay income and social security taxes. After calculating our parents income and expenses throughout our parents retirement years, we feel that our investment strategy in Boeing and savings will allow them to live comfortably and keep their current lifestyle by maintaining their net income.

0

20000

40000

60000

80000

100000

120000

1 3 5 7 9 11 13 15 17 19 Years

Nominal Net Income

Nominal Net Income

Expenses

Income

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References

About Us. (2014, January 1). Retrieved October 26, 2014, from http://www.boeing.com/boeing/companyoffices/aboutus/brief/bds.page?

Annual Financials for Boeing Co. (2014). Retrieved October 18, 2014 from http://www.marketwatch.com/investing/stock/ba/financials#

Boeing (2013). The Boeing Company 2013 Corporate Citizenship Report. Retrieved October 25, 2014, from http://www.boeing.com/assets/pdf/companyoffices/aboutus/community/2013_report/Boeing_CitizenshipReport_031414.pdf

CALCULATOR: HOW WILL TAXES AND INFLATION AFFECT MY SAVINGS? (n.d.).

Retrieved October 2, 2014, from http://www.providentcu.org/index.asp?i=Savings_Resources&search=tax_inflation_Calc

Dill, K. (2014, April 22). Top 15 Employers For Veterans. Retrieved October 26, 2014,

from http://www.forbes.com/sites/kathryndill/2014/04/22/top-15-employers-for-veterans/

Economic Projections of Federal Reserve Board Members and Federal Reserve Bank

Presidents. (2014, March 19). Retrieved October 2, 2014, from http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140319.pdf

Federal Insurance Contributions Act (FICA) Withholding for Social Security and

Medicare (2013, March 19). Retrieved October 18, 2014 from https://fmx.cpa.state.tx.us/fm/pubs/paypol/tax_information/index.php?section=federal&page=federal

Inflation Calculator - Save Enough to Account for Inflation. (2014, January 1). Retrieved

October 2, 2014, from http://www.buyupside.com/calculators/inflationjan08.htm Investor Relations. (2014). Retrieved October 18, 2014 from

http://www.boeing.com/boeing/companyoffices/financial/index.page? Long-Term Market. (2014, January 1). Retrieved October 26, 2014, from

http://www.boeing.com/boeing/commercial/cmo/index.page Publication 501 (2013). Retrieved October 18, 2014, from

http://www.irs.gov/publications/p501/ar02.html#en_US_2013_publink1000221051

Reeves, J. (2013, October 4). 5 Ways to Inflation-Proof Your Portfolio. Retrieved October 22, 2014, from http://investorplace.com/2013/10/5-ways-to-inflation-proof-your-portfolio/view-all/#.VEgsYPnF8uM

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US INFLATION RATE. (2014, September 17). Retrieved October 2, 2014, from

http://usinflation.org/us-inflation-rate/ The Boeing Company (NYSE:BA) | Competitors & Competition. (2014, January 1).

Retrieved October 26, 2014, from http://www.bga-aeroweb.com/firms/Competitors/Competitors-Boeing.html