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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1996
Commission file number 1-442
THE BOEING COMPANY
7755 East Marginal Way South
Seattle, Washington 98108
Telephone: (206) 655-2121
State of incorporation: Delaware
IRS identification number: 91-0425694
The registrant 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 and has been subject to such filing requirements
for the past 90 days.
As of November 5, 1996, there were 349,170,879 shares of common
stock, $5.00 par value, issued and outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in millions except per share data)
(Unaudited)
Nine months ended Three months ended
September 30 September 30
- ------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------
Sales and other operating revenues $16,169 $14,976 $5,601 $4,381
Costs and expenses 15,237 14,214 5,307 4,158
Special retirement program expense 600
- ------------------------------------------------------------------------------
Earnings from operations 932 162 294 223
Other income, principally interest 205 147 77 60
Interest and debt expense (108) (118) (33) (39)
Accrual for ShareValue Trust appreciation (4) (4)
- ------------------------------------------------------------------------------
Earnings before federal taxes on income 1,025 191 334 244
Federal taxes on income 184 16 80 19
- ------------------------------------------------------------------------------
Net earnings $ 841 $ 175 $ 254 $ 225
==============================================================================
Earnings per share $2.44 $ .51 $ .74 $ .66
==============================================================================
Cash dividends per share $ .81 $ .75 $ .28 $ .25
==============================================================================
Average shares outstanding
excluding shares held in
ShareValue Trust (in millions) 344.6 341.8 343.5 342.5
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions except per share data)
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Assets (Unaudited)
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 4,616 $ 3,730
Short-term investments 939
Accounts receivable 1,269 1,470
Current portion of customer financing 47 205
Deferred income taxes 648 840
Inventories 15,197 14,001
Less advances and progress billings (9,012) (7,068)
- ------------------------------------------------------------------------------
Total current assets 13,704 13,178
Customer financing 848 1,660
Property, plant and equipment, at cost 14,071 13,744
Less accumulated depreciation (7,777) (7,288)
Deferred income taxes 156 58
Other assets 1,000 746
- ------------------------------------------------------------------------------
$22,002 $22,098
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Accounts payable and other liabilities $ 6,341 $ 6,245
Advances in excess of related costs 752 510
Income taxes payable 153 389
Current portion of long-term debt 22 271
- ------------------------------------------------------------------------------
Total current liabilities 7,268 7,415
Accrued retiree health care 2,529 2,441
Long-term debt 2,332 2,344
Shareholders' equity:
Common shares, par value $5.00 -
600,000,000 shares authorized;
349,256,792 shares issued 1,746 1,746
Additional paid-in capital 822 615
Retained earnings 8,392 7,746
Distributable ShareValue Trust appreciation 4
ShareValue Trust -
9,116,200 shares of common stock held (861)
Cash and investments to acquire remaining
shares - 2,199,217 shares of common stock
to be purchased (208)
Less treasury shares, at cost -
1996 - 293,969; 1995 - 5,304,135 (22) (209)
- ------------------------------------------------------------------------------
Total shareholders' equity 9,873 9,898
- ------------------------------------------------------------------------------
$22,002 $22,098
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine months ended
September 30
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 841 $ 175
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Special retirement program expense 600
Accrual for ShareValue Trust appreciation 4
Depreciation and amortization 740 809
Changes in assets and liabilities -
Short-term investments (939) 559
Accounts receivable 201 258
Inventories, net of advances and progress billings 748 (921)
Accounts payable and other liabilities 190 223
Advances in excess of related costs 242 (84)
Income taxes payable and deferred (142) 135
Other assets (254) (249)
Accrued retiree health care 88 119
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,719 1,624
- ------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing additions (404) (658)
Customer financing reductions 1,339 1,839
Plant and equipment, net additions (543) (538)
- ------------------------------------------------------------------------------
Net cash provided by investing activities 392 643
- ------------------------------------------------------------------------------
Cash flows - financing activities:
Debt financing (261) 8
Shareholders' equity -
Cash transferred to ShareValue Trust (691)
Cash dividends paid (281) (256)
Treasury shares acquired (168)
Stock options exercised, other 176 98
- ------------------------------------------------------------------------------
Net cash used by financing activities (1,225) (150)
- ------------------------------------------------------------------------------
Net increase in cash and cash equivalents 886 2,117
Cash and cash equivalents at beginning of year 3,730 2,084
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of 3rd quarter $ 4,616 $4,201
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Consolidated Financial Statements
The consolidated interim financial statements included in this report have
been prepared by the Company without audit. In the opinion of management,
all adjustments necessary for a fair presentation are reflected in the
interim financial statements. Such adjustments are of a normal and
recurring nature. The results of operations for the period ended
September 30, 1996, are not necessarily indicative of the operating
results for the full year. The interim financial statements should be
read in conjunction with the audited financial statements and notes
thereto included in the Company's 1995 Annual Report.
Note 2 - Earnings per Share
Earnings per share are computed on the basis of the weighted average
number of shares outstanding during the period. The weighted average
number of shares was 344.6 million and 341.8 million for the nine-month
periods ended September 30, 1996 and 1995. There was no material dilutive
effect on earnings per share due to common stock equivalents. Shares held
by the ShareValue Trust are not considered outstanding for purposes of
calculating earnings per share. See Note 10 for additional discussion on
the ShareValue Trust.
Note 3 - Federal Taxes on Income
The federal income tax provision rate of 18.0% for the first nine months
of 1996 is lower than the statutory rate principally due to a 9.3%
reduction attributable to a $95 one-time tax benefit related to prior
years' investment tax credits recognized in the second quarter, a 2.0%
reduction attributable to an adjustment of prior years' tax expense, and a
6.1% reduction attributable to Foreign Sales Corporation tax benefits.
For the first nine months of 1995, the federal income tax provision rate
was 8.4%, reflecting reductions from the statutory rate amounting to 16.1%
for a research and experimentation tax credit and 11.5% for Foreign Sales
Corporation tax benefits. For 1995, the $600 pretax charge to earnings
for the special retirement program resulted in higher relative percentage
reductions to the statutory tax rate.
Net income tax payments (refunds) were $281 and $(127) for the nine months
ended September 30, 1996 and 1995.
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Note 4 - Accounts Receivable
Accounts receivable consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Accounts receivable under
U.S. Government contracts $ 933 $1,059
Accounts receivable from commercial
and foreign military customers 336 411
- ------------------------------------------------------------------------------
$1,269 $1,470
==============================================================================
Note 5 - Inventories
Inventories consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Commercial jet transport programs
and long-term contracts in progress $14,165 $13,107
Commercial spare parts, general stock
materials and other 1,032 894
- ------------------------------------------------------------------------------
$15,197 $14,001
==============================================================================
Note 6 - Customer Financing
Long-term customer financing, less current portion, consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Notes receivable $365 $ 721
Investment in sales-type leases 302 351
Operating lease aircraft, at cost,
less accumulated depreciation
of $72 and $326 281 688
- ------------------------------------------------------------------------------
948 1,760
Less valuation allowance (100) (100)
- ------------------------------------------------------------------------------
$848 $1,660
==============================================================================
Financing for aircraft is collateralized by security in the related asset,
and historically the Company has not experienced a problem in accessing
such collateral when necessary.
Sales and other operating revenues for the first nine months of 1996 and
1995 included interest income of $36 and $130 associated with notes
receivable and sales-type leases.
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Note 7 - Other Assets
Other assets consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Prepaid pension expense $ 863 $698
Investments, other 137 48
- ------------------------------------------------------------------------------
$1,000 $746
==============================================================================
Note 8 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Accounts payable $3,069 $3,017
Accrued compensation and employee benefit costs 1,491 1,374
Lease and other deposits 406 508
Other 1,375 1,346
- ------------------------------------------------------------------------------
$6,341 $6,245
==============================================================================
Note 9 - Long-Term Debt
Long-term debt consisted of the following:
September 30 December 31
1996 1995
- ------------------------------------------------------------------------------
Unsecured debentures and notes:
8 3/8% due Mar. 1, 1996 $ - $ 250
6.35% due Jun. 15, 2003 299 299
8 1/10% due Nov. 15, 2006 175 175
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Other notes 116 127
Less current portion (22) (271)
- ------------------------------------------------------------------------------
$2,332 $2,344
==============================================================================
The Company has $2,000 currently available under credit line agreements
with a group of commercial banks. Under these agreements, there are
compensating balance arrangements, and retained earnings totaling $1,839
are free from dividend restrictions. The Company has complied with the
restrictive covenants contained in debt agreements.
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Total debt interest, including amounts capitalized, was $151 and $162 for
the nine-month periods ended September 30, 1996 and 1995, and interest
payments were $155 and $160.
Note 10 - ShareValue Trust Plan
In July 1996 the Company funded a self-sufficient, irrevocable 12-year
trust, "ShareValue Trust," designed to allow all employees to share in the
results of increasing shareholder value over the long term. The Trust has
acquired 11,315,417 shares of the Company's common stock, equivalent to
$1 billion of market value based upon a stock price of $88 3/8, which was the
average price per share on June 28, 1996. Shares of common stock held by
the Trust are legally outstanding and entitled to receive dividends.
Dividends received by the Trust are reinvested in additional shares of common
stock. As of October 30, 1996, the Company had contributed approximately 4.3
million shares, with the balance of the 11.3 million shares purchased by the
trustee on the open market using cash contributed by the Company.
Two investment periods began on July 1, 1996. One period has a duration of
two years and the other has a duration of four years. Each period was
allocated a fund of one-half of the total shares. Distributions from the
ShareValue Trust to employees in the form of common stock will be made to the
extent the market value of that ShareValue Trust fund has increased above a
pre-defined threshold amount of 3% per annum at the end of each investment
period. The ShareValue Trust bears its own nominal administrative costs paid
out of the Trust assets. After the initial two-year period, investment
periods will be overlapping and four years in length, with potential
distributions every two years. The Trust fund market value after distribution
will be the basis for determining the distributable market value appreciation
over the threshold for each succeeding investment period.
Although the obligation to make these distributions is solely that of the
Trust and no assets of the Company will be required in the future to
satisfy the Trust distributions, the change in Trust appreciation above
the threshold amounts for the respective investment periods is charged or
credited to earnings based on the Trust valuation as of the end of the
reporting period. ShareValue Trust charges and credits reflected in
earnings will not impact the Company's current or future cash flow.
The shares held by the ShareValue Trust, recorded in the contra equity
account "ShareValue Trust," are legally outstanding for registration
purposes and dividend payments, but are required to be accounted for as the
equivalent of treasury stock for earnings per share purposes (i.e., the
outstanding shares held by the Trust are not treated as outstanding for
calculating earnings per share). The ShareValue Trust account balance is
adjusted to market value of the shares held, with an offsetting adjustment to
Additional Paid-In Capital.
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Note 11 - Shareholders' Equity
Changes in shareholders' equity for the nine-month periods ended September
30, 1996 and 1995, consisted of the following:
(Shares in thousands)
- ------------------------------------------------------------------------------
1996 1995
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Common Stock
Beginning balance - January 1 349,257 $1,746 349,257 $1,746
No shares issued during period
- ------------------------------------------------------------------------------
Ending balance - September 30 349,257 $1,746 349,257 $1,746
==============================================================================
Additional paid-in capital
Beginning balance - January 1 $615 $586
Treasury shares issued for incentive
stock plans, net (27) (8)
Tax benefit related to incentive stock plans 45 8
Stock appreciation rights expired or surrendered 7 8
Incentive stock plan accrual 8
ShareValue Trust market value adjustment 182
- ------------------------------------------------------------------------------
Ending balance - September 30 $822 $599
==============================================================================
Retained earnings
Beginning balance - January 1 $7,746 $7,696
Net earnings 841 175
Cash dividends declared (195) (171)
- ------------------------------------------------------------------------------
Ending balance - September 30 $8,392 $7,700
==============================================================================
Distributable ShareValue Trust appreciation
Beginning balance - January 1 $0 $0
Accrual of distributable gain 4
- ------------------------------------------------------------------------------
Ending balance - September 30 $4 $0
==============================================================================
Treasury stock
Beginning balance - January 1 5,304 $(209) 8,378 $(328)
Treasury shares issued for incentive
stock plans, net (3,446) 159 (2,192) 85
Treasury shares acquired 1,936 (168)
Shares transferred
to ShareValue Trust (3,500) 196
- ------------------------------------------------------------------------------
Ending balance - September 30 294 $ (22) 6,186 $(243)
==============================================================================
ShareValue Trust
Beginning balance - January 1 0 $0 0 $0
Shares transferred from treasury stock 3,500 (196)
Cash transferred into Trust (691)
Cash used to purchase common stock 483
Common stock purchased 5,616 (483)
Market value adjustment (182)
- ------------------------------------------------------------------------------
Ending balance - September 30 9,116 $(1,069) 0 $0
==============================================================================
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Note 12 - Significant Events
Acquisition Agreement for Rockwell Aerospace and Defense Business Units
- -----------------------------------------------------------------------
The Company announced on August 1, 1996, that Boeing and Rockwell
International Corporation had signed a definitive agreement under which Boeing
will acquire most of Rockwell's aerospace and defense business.
Boeing will issue approximately $860 of its common stock, assume
$2,165 of Rockwell debt and assume certain retiree obligations of
Rockwell. The transaction is subject to approval by Rockwell's
shareholders, consent from its debtholders, certain regulatory approvals
and customer approvals, and other provisions generally required in similar
transactions. A special Rockwell shareholders' meeting will be held on
December 4, 1996, and the transaction is expected to be completed shortly
thereafter.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Sales of $16.2 billion for the first nine months of 1996 were 7% higher than
sales for the comparable period of 1995. Commercial aircraft sales for 1996
included the sale of certain aircraft previously on operating leases.
Approximately 215 commercial aircraft deliveries are currently projected for
the full year 1996, compared with 206 in 1995. Total sales for 1996 are
projected to be in the $22 billion range, compared with $19.5 billion in 1995.
Sales by business segment were as follows ($ in millions):
First Nine Months Third Quarter
----------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Commercial aircraft $12,022 $10,828 $4,284 $3,047
Defense and space 4,147 4,148 1,317 1,334
------- ------- ------ ------
Total $16,169 $14,976 $5,601 $4,381
======= ======= ====== ======
Commercial jet transport deliveries were as follows:
First Nine Months Third Quarter
----------------- -------------
Model 1996 1995 1996 1995
----- ---- ---- ---- ----
737 53 80 15 25
747 16 20 5 4
757 34 39 15 12
767 29 24 10 8
777 24 7 9 2
--- --- -- --
Total 156 170 54 51
=== === == ==
Net earnings of $841 million for the first nine months of 1996 were 35% higher
than earnings for the comparable period of 1995, excluding the 1995 special
retirement program charge. The higher net earnings for the nine-month period
were principally attributable to recognition of tax benefits related to prior
years' investment tax credits amounting to $95 million, the settlement of
various defense and space segment contract issues (resulting in an $81 million
after-tax increase to earnings), reduced research and development expense, and
increased interest income, partially offset by a higher effective income tax
rate.
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|------------------------------------------------------------------------------|
| Forward-Looking Information Is Subject to Risk and Uncertainty |
| |
| Certain statements in the financial discussion and analysis by |
| management contain "forward-looking" information that involves risk and |
| uncertainty, including projections for deliveries, sales, research and |
| development expense, and other trend projections. Actual future results and |
| trends may differ materially depending on a variety of factors, including |
| the Company's successful execution of internal performance plans; product |
| performance risks associated with regulatory certifications of the Company's |
| commercial aircraft by the U.S. Government and foreign governments; other |
| regulatory uncertainties; collective bargaining labor disputes; performance |
| issues with key suppliers and subcontractors; governmental export and import |
| policies; factors that result in significant and prolonged disruption to air |
| travel worldwide; global trade policies; worldwide political stability and |
| economic growth; changing priorities or reductions in the U.S. Government |
| defense and space budgets; termination of government contracts due to |
| unilateral government action or failure to perform; and legal proceedings. |
|------------------------------------------------------------------------------|
The effective income tax rate of 18.0% for the first nine months of 1996
reflects the recognition of a one-time tax benefit of $95 million related to
prior years' investment tax credits. Without the investment tax credit
benefit, the effective income tax rate would have been 27.2%, 1.6% lower than
previously estimated for the full year of 1996 due to reinstatement of the
research and experimentation tax credit effective July 1, 1996, and an
increased Foreign Sales Corporation tax benefit. The 8.4% income tax rate for
1995 was the result of the $600 million pretax charge to earnings for the
special retirement program and the recognition of a significant research and
experimentation tax credit in 1995.
The overall operating earnings margin, exclusive of research and development
expense, the 1996 settlement of contract issues, and the 1995 impact of the
special retirement program, was 10.6% for the first nine months of 1996
compared with 11.7% for the same period in 1995. The lower margin was
primarily attributed to a model mix of commercial aircraft that included 31
fewer deliveries of established production models, and 17 more 777s in the
first nine months of 1996 compared with the first nine months of 1995. With
regard to the 777 program, new commercial jet transport programs normally have
lower operating profit margins due to initial tooling amortization improvement
trends typically experienced on new large-scale production programs.
Research and development expense totaled $890 million for the first nine months
of 1996, compared with $994 million for the same period in 1995, primarily due
to reduced expenditures on the 777 program. Based upon current programs and
schedules, research and development expense for the full year 1996 is projected
to be in the $1.2 billion range, compared with $1.3 billion in 1995.
Airline order activity continues to be encouraging, reflecting continued growth
in passenger traffic, load factors and profitability for the airline industry
as a whole. The Company recently announced production rate changes on the 737
and 777 programs, both currently planned to increase by the third quarter of
1997 to 17 airplanes per month and 7 per month, respectively. The total
commercial aircraft monthly production rate is currently planned to increase
from the present rate of 22.5 airplanes per month to 36 airplanes per month by
the third quarter of 1997. Planned production rates will continue to be
adjusted to match customer orders.
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Program development continues on schedule for the long-range 777-200 and the
stretched version 777-300. Certification and initial deliveries for the long-
range 777-200 and 777-300 are scheduled for early 1997 and mid-1998,
respectively. The development and production of the 737-700, the first of the
three new 737 derivative models, is progressing on schedule with first delivery
scheduled for October 1997.
The Company is talking with customers about developing an aircraft that is
larger and has more range than the 747-400. Because of a limited market for
aircraft of this size and range and the very substantial investment levels that
would be required to develop and produce an all-new commercial jet transport,
the only economically viable option appears to be a 747 derivative aircraft. A
management team is continuing its focus on development of potential
derivatives.
Developments in the Company's defense and space segment during the third
quarter included the United Kingdom's Ministry of Defence selection of
British Aerospace (BAe) as the prime contractor for the $3.2 billion Nimrod
2000 Replacement Maritime Patrol Aircraft program. Boeing is a major
subcontractor in BAe's program, serving as the mission avionics integration
contractor, with work valued at $650 million. In addition, the United States
Air Force announced that the Company was awarded a $365 million contract for
four 757-200 aircraft to be used as VIP transports for key executive branch
and congressional personnel.
Liquidity and Capital Resources
- -------------------------------
Cash and short-term investments increased by $1.8 billion during the first nine
months of 1996. In addition to the significant positive cash flow generated
from earnings, the increase reflects the sale of customer financing assets and
the reduction of inventory levels on established programs associated with the
recovery from the 10-week labor strike in the fourth quarter of 1995. Although
further sales of customer financing assets will occur as circumstances allow,
there may also be new customer financings related to outstanding commitments.
Production rate increases planned for all commercial aircraft programs will
result in increasing inventory levels.
The Company's financial liquidity position remains strong, with cash and
short-term investments totaling $5.6 billion at September 30, 1996, and total
long-term debt at 19% of total shareholders' equity plus debt. The Company
continues to maintain its $2.0 billion revolving credit line. As part of the
terms of the planned acquisition of most of Rockwell's aerospace and defense
units (see below), the Company will assume $2.165 billion of outstanding
Rockwell debt, including $565 million of short-term borrowing. Before
repayment of the short-term obligation, the assumption of this debt would
result in a capital structure with total long-term debt increasing to about 30%
of total shareholders' equity plus debt.
13
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Boeing ShareValue Trust
- -----------------------
In July 1996 the Company funded a self-sufficient, irrevocable 12-year trust,
"ShareValue Trust," designed to allow all employees to share in the results
of increasing shareholder value over the long term. The Trust has acquired
11,315,417 shares of the Company's common stock, equivalent to $1 billion of
market value based upon a stock price of $88 3/8, which was the average price
per share on June 28, 1996. Shares of common stock held by the Trust are
legally outstanding and entitled to receive dividends. Dividends received by
the Trust are reinvested in additional shares of common stock. As of October
30, 1996, the Company had contributed approximately 4.3 million shares, with
the balance of the 11.3 million shares purchased by the trustee on the open
market using cash contributed by the Company.
Two investment periods began on July 1, 1996. One period has a duration of two
years and the other has a duration of four years. Each period was allocated a
fund of one-half of the total shares. Distributions from the ShareValue Trust
to employees in the form of common stock will be made to the extent the market
value of that ShareValue Trust fund has increased above a pre-defined threshold
amount of 3% per annum at the end of each investment period. The ShareValue
Trust bears its own nominal administrative costs paid out of the Trust assets.
After the initial two-year period, investment periods will be overlapping and
four years in length, with potential distributions every two years. The Trust
fund market value after distribution will be the basis for determining the
distributable market value appreciation over the threshold for each succeeding
investment period.
Although the obligation to make these distributions is solely that of the Trust
and no assets of the Company will be required in the future to satisfy the
Trust distributions, the change in Trust appreciation above the threshold
amounts for the respective investment periods is charged or credited to
earnings based on the Trust valuation as of the end of the reporting period.
ShareValue Trust charges and credits reflected in earnings will not impact the
Company's current or future cash flow.
The shares held by the ShareValue Trust, recorded in the contra equity account
"ShareValue Trust," are legally outstanding for registration purposes and
dividend payments, but are required to be accounted for as the equivalent of
treasury stock for earnings per share purposes (i.e., the outstanding shares
held by the Trust are not treated as outstanding for calculating earnings per
share). The ShareValue Trust account balance is adjusted to market value of
the shares held, with an offsetting adjustment to Additional Paid-In Capital.
The following comprehensive income financial schedule, although not
representing disclosures in accordance with current generally accepted
accounting principles nor presented in lieu of such disclosures, is useful in
understanding the potential financial implications of the ShareValue Trust
arrangement. The comprehensive income summary is presented, in management's
opinion, in accordance with the Proposed Statement of Financial Accounting
Standards, "Reporting Comprehensive Income."
14
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Comprehensive Income ($ in millions):
Nine months ended Three months ended
September 30 September 30
- ------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------
Net earnings $841 $175 $254 $225
ShareValue Trust unrealized gain 4 4
- ------------------------------------------------------------------------------
Comprehensive income $845 $175 $258 $225
==============================================================================
Comprehensive income per share* $2.44 $ .51 $ .74 $ .66
==============================================================================
*Based on average shares
outstanding including shares
held in ShareValue Trust
(in millions) 346.4 341.8 348.0 342.5
Although the accrual for ShareValue Trust appreciation reflected in the
consolidated statements of net earnings and the ShareValue Trust unrealized
gain reflected in the comprehensive income summary were not significant for the
three- and nine-month periods ended September 30, 1996, such amounts may be
substantial relative to earnings in future reporting periods.
Acquisition Agreement for Rockwell Aerospace and Defense Business Units
- -----------------------------------------------------------------------
The Company announced on August 1, 1996, that Boeing and Rockwell International
Corporation had signed a definitive agreement under which Boeing will acquire
most of Rockwell's aerospace and defense business. Boeing will issue
approximately $860 million of its common stock, assume $2.165 billion of
Rockwell debt and assume certain retiree obligations of Rockwell. The
transaction is subject to approval by Rockwell's shareholders, consent from
its debtholders, certain regulatory approvals and customer approvals, and
other provisions generally required in similar transactions. A special
Rockwell shareholders' meeting will be held on December 4, 1996, and the
transaction is likely to be completed by the end of the year. The acquisition
is expected to strengthen the strategic position of the Company's defense and
space segment, particularly with respect to space systems and
information/battle management systems.
The major product groups of the divisions to be acquired are rocket propulsion
including the Space Shuttle main engine; Space Station electric power; Space
Shuttle integration, logistics and operations; Global Positioning System
satellites; ICBM systems; tactical missiles; sensors; B1-B bomber; commercial
aerostructures; aircraft and helicopter modifications; airborne laser and
electro-optics; space defense; and advanced programs. The Rockwell aerospace
and defense units had fiscal 1995 annual sales of $2.7 billion, excluding sales
to Boeing, and employ approximately 21,000 employees.
15
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Backlog
- -------
Contractual backlog of unfilled orders (which excludes purchase options and
announced orders for which definitive contracts have not been executed, and
unobligated Government contract values) was as follows ($ in billions):
Sep. 30 June 30 Dec. 31
1996 1996 1995
------------ ------- -------
Commercial aircraft $79.1 $76.3 $66.5
Defense and space 5.2 5.2 5.8
----- ----- -----
Total $84.3 $81.5 $72.3
===== ===== =====
Unobligated U.S. Government contract values not included in backlog totaled
$6.5 billion at September 30, 1996, $6.5 billion at June 30, 1996, and $7.6
billion at December 31, 1995.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated statement of financial position as of September 30, 1996, the
consolidated statements of net earnings for the three- and nine-month periods
ended September 30, 1996 and 1995, and the consolidated statements of cash
flows for the nine-month periods ended September 30, 1996 and 1995, have been
reviewed by the registrant's independent accountants, Deloitte & Touche LLP,
whose report covering their review of the financial statements follows.
16
<PAGE> 17
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
The Boeing Company
Seattle, Washington
We have reviewed the accompanying consolidated statement of financial position
of The Boeing Company and subsidiaries as of September 30, 1996, the related
consolidated statements of net earnings for the three- and nine-month periods
ended September 30, 1996 and 1995, and the related consolidated statements of
cash flows for the nine-month periods ended September 30, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of The Boeing
Company and subsidiaries as of December 31, 1995, and the related consolidated
statements of net earnings and cash flows for the year
then ended (not presented herein); and in our report dated January 25, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
statement of financial position as of December 31, 1995, is fairly stated, in
all material respects, in relation to the consolidated statement of financial
position from which it has been derived.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
November 5, 1996
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Articles of Incorporation and By-laws.
(i) By-laws, amended as of August 26, 1996. Exhibit 3.1 in
Registration No. 333-15001 on Form S-4 of the
Company filed on October 29, 1996.
(10) Material Contracts.
. The Boeing Company Bank Credit Agreements.
(ii) Agreement Amended and Restated as of September 27, 1996
[Seven-Year Agreement]. Exhibit 10.18 in Registration
No. 333-15001 on Form S-4 of the Company filed
on October 29, 1996.
(iii) Agreement Amended and Restated as of September 27, 1996
[364-Day Agreement]. Exhibit 10.19 in Registration
No. 333-15001 on Form S-4 of the Company filed
on October 29, 1996.
. Management Contracts and Compensatory Plans.
(iv) The Boeing Company ShareValue Program, dated as of July
1, 1996. Exhibit 10.20 in Registration No. 333-15001
on Form S-4 of the Company filed on October 29, 1996.
(v) Stock Purchase and Restriction Agreement dated
as of July 1, 1996, between The Boeing Company and
Wachovia Bank of North Carolina, N.A. as Trustee, under
the ShareValue Trust Agreement dated as of July 1, 1996.
Exhibit 10.20 in Registration No. 333-15001 on
Form S-4 of the Company filed on October 29, 1996.
(vi) Deferred Compensation Plan for Directors of The Boeing
Company, as amended October 28, 1996. Exhibit 10.1 in
Registration No. 333-15001 on Form S-4 of the
Company filed on October 29, 1996.
. Agreement and Plan of Merger between Boeing and Rockwell.
(vii) Agreement and Plan of Merger dated as of July 31, 1996,
among Rockwell International Corporation, The Boeing Company
and Boeing NA, Inc. Exhibit 2.1 in Registration
No. 333-15001 on Form S-4 of the Company filed on
October 29, 1996.
(15) Letter regarding unaudited interim financial information.
Page 20.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter covered by
this report.
18
<PAGE> 19
- - - - - - -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BOEING COMPANY
-------------------------------
(Registrant)
November 14, 1996 /s/ Gary W. Beil
- ------------------------ -------------------------------
(Date) Gary W. Beil
Vice President and Controller
19
<PAGE> 20
EXHIBIT (15)
Letter from Independent Accountants Regarding
Unaudited Interim Financial Information
The Boeing Company and Subsidiaries
The consolidated statement of financial position as of September 30, 1996, the
consolidated statements of net earnings for the nine-month periods ended
September 30, 1996 and 1995, and the statements of cash flows for the nine-
month periods ended September 30, 1996 and 1995, have been reviewed by the
registrant's independent accountants, Deloitte & Touche LLP, whose letter
regarding such unaudited interim financial information follows.
November 5, 1996
The Boeing Company
Seattle, Washington
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The Boeing Company and subsidiaries for the periods ended
September 30, 1996 and 1995, as indicated in our report dated November 5, 1996;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, is
incorporated by reference in Registration Statement Nos. 33-46540 and 333-11777
on Forms S-3 and Prospectuses, in Registration Statement Nos. 2-48576, 2-93923,
33-25332, 33-31434, 33-43854, 33-58798, and 333-03191 on Forms S-8, and in
Registration Statement No. 333-15001 on Form S-4.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statements prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
20
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