SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 24, 1997
THE BOEING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-442 1-0425694
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
7755 East Marginal Way South, Seattle, Washington 98108
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 655-2121
N/A
(Former name or former address, if changed since last report)
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<PAGE>
ITEM 5. OTHER EVENTS.
On October 24, 1997, The Boeing Company issued a press release with
respect to its results of operations for the third quarter of fiscal 1997. A
copy of this press release is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of businesses acquired:
No applicable.
(b) Pro forma financial information:
Not applicable.
(c) Exhibits:
EXHIBIT
NO. DESCRIPTION
- ------------------ ----------------------------------------------------------
99.1 Press Release issued by The Boeing Company on October 24, 1997.
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 hereunto duly authorized.
THE BOEING COMPANY
By: /s/ Steven N. Frank
------------------------------
Steven N. Frank
Vice President, Associate
General Counsel and Secretary
Date: October 24, 1997
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
EXHIBIT
NO. DESCRIPTION
- ------------------ ----------------------------------------------------------
99.1 Press Release issued by The Boeing Company on October 24, 1997.
BOEING REPORTS 1997 3RD QUARTER RESULTS
<TABLE>
<CAPTION>
Nine months ended
3rd Quarter September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(Dollars in millions except per share data)
Sales and other operating revenues $11,371 $9,009 $34,073 $25,476
Net earnings (loss) $(696) $466 $320 $1,374
Earnings (loss) per share $(.72) * $.48 $.33 * $1.41
Average shares (millions) 972.3 966.0 969.3 972.9
<FN>
* $(.67) and $.35 excluding ShareValue Trust accounting
</FN>
</TABLE>
SEATTLE, Oct. 24, 1997 - Sales of $11.4 billion and a net loss of $696 million
or $.72 per share for the third quarter of 1997 were reported by Phil Condit,
Boeing Chairman and Chief Executive Officer. Third quarter earnings were reduced
by approximately $1.6 billion pretax, or $1.0 billion after tax, representing
the financial impact of the unplanned and abnormal production inefficiencies and
late-delivery costs associated with the accelerated production increases on the
7-series commercial aircraft programs. Earnings will continue to be negatively
impacted by these production inefficiencies in 1998, which is the expected
production recovery period. The results reflect the combined operations and
conforming accounting adjustments resulting from the merger with McDonnell
Douglas Corporation, which was completed on Aug. 1, 1997. Comparable figures for
the same period of 1996 were sales of $9.0 billion and net earnings of $466
million or $.48 per share.
The higher sales for the 1997 third quarter were primarily attributed to the
significantly higher level of commercial aircraft deliveries and the inclusion
in 1997 of the operations of the aerospace and defense units acquired from
Rockwell International Corporation in December 1996.
In addition to the commercial aircraft production problems, earnings for the
quarter were lower than the same period last year due to program losses at the
Douglas Products Division; higher research and development expense; higher joint
venture development expense in the Information, Space & Defense Systems (ISDS)
business units; and a higher effective income tax rate.
Sales for the first nine months of 1997 were $34.1 billion and net earnings were
$320 million or $.33 per share. Comparable figures for 1996 were sales of $25.5
billion and net earnings of $1,374 million or $1.41 per share. The 1997 earnings
include the impact of the commercial aircraft production recovery and disruption
inefficiencies and $99 million in merger-related expenses. The nine-month 1996
earnings included income of $176 million after tax or $.18 per share for the
settlement of certain ISDS contract issues and the recognition of prior years'
investment tax credits.
The Company recently completed the review of the cost impact of the production
recovery plans announced on Oct. 3, 1997. The production problems which were
being experienced on the commercial aircraft programs reached unexpected levels
late in the third quarter. The Company is in the midst of an unprecedented
production rate build-up for the 7-series commercial aircraft programs, and has
experienced raw material shortages, internal and supplier parts shortages, and
productivity inefficiencies associated with adding thousands of new employees.
These factors have resulted in significant out-of-sequence work. The breadth and
complexity of the entire commercial aircraft production process, especially
during this time of substantial production rate increases, present a situation
where disrupted process flows are causing major inefficiencies throughout the
entire process chain. Under the current recovery plans, the 747 and 737
production lines are being halted for approximately one month. Process
inefficiencies and work-arounds will continue until the entire process is
substantially back in balance, which is expected to occur in 1998.
In addition to the approximately $1.6 billion pretax charge for the third
quarter of 1997, the continuing recovery plan disruptions will also impact
commercial aircraft segment earnings through 1998. Based on a successful
execution of the current production recovery plans, it is expected that
additional production disruption costs in the range of $1 billion pretax will be
incurred over this time period. The cash expenditures associated with the
production disruptions and recovery plans will approximate the reduced earnings
through 1998.
A substantial portion of the total third quarter earnings charges results from
the unplanned production inefficiencies being experienced on the Next-Generation
737 program. Based on the production recovery plan, $700 million of the third
quarter pretax loss is associated with the initial program accounting quantity
of 400 aircraft for the Next-Generation 737 program.
The Company is currently assessing the market and operations for the commercial
aircraft programs of the Douglas Products Division (DPD), formerly Douglas
Aircraft Company. DPD programs currently in production include the MD-80 and
MD-90 twinjets and MD-11 trijet. Additionally, the MD-95 twinjet is in
development, with first delivery scheduled for 1999. Decisions regarding
restructuring, production and marketing plans for DPD commercial aircraft
programs are expected to be made during the fourth quarter, and may result in
the write-off of certain program assets, related valuation adjustments and
restructuring charges. Organizational consolidation is in progress and is
expected to produce longer-term cost benefits to the combined commercial
operations.
Research and development expense for the first nine months of 1997 was $1,464
million or $243 million higher than in the comparable period of 1996.
Certification and first delivery of the 737-700 to Southwest Airlines is
scheduled to occur in the next few weeks. Development efforts in 1997 also
include the 737-600 and -800 models; the 757-300, a stretched derivative of the
757-200 which is scheduled to be delivered to launch customer Condor-Flugdienst
in early 1999; and the 767-400ER, a stretched version of the 767-300ER which is
scheduled to be delivered to launch customer Delta Airlines in the year 2000.
The MD-95 continues in development, with first delivery to AirTran in 1999. In
addition, the ISDS group had a higher level of development expense on commercial
space and communication activities, including the Delta III intermediate-class
rocket, compared with prior periods.
Upon completion of the merger with McDonnell Douglas, the Information, Space &
Defense Systems organization (ISDS) was formed, comprised of business elements
from the former Boeing Defense & Space Group and McDonnell Douglas Corporation.
ISDS is now focused on achieving both market and cost synergies.
During the third quarter, the Boeing F/A-18E/F Super Hornet, the newest
derivative of the jet fighter, passed the 1,500-flight-hour and 1,000-flight
milestones, representing the halfway point of a three-year flight test effort.
Manufacture of the first production aircraft began in September. First flight of
the initial Lockheed Martin-Boeing F-22 Raptor air dominance fighter for the
U.S. Air Force also occurred in September. Boeing is responsible for the F-22
wings; rear fuselage; radar; avionics integration and testing; training,
life-support and fire-protection systems; and 70 percent of mission software. In
addition, five missions of the Delta II launch vehicles were completed during
the quarter. Three of the missions carried Iridium satellites for Motorola, one
carried a U.S. Air Force global positioning system satellite, and another
carried a scientific satellite for NASA.
<PAGE>
<TABLE>
OPERATING AND FINANCIAL DATA
<CAPTION>
<S> <C> <C> <C> <C>
Deliveries
Nine Months 3rd Quarter
Commercial Aircraft 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
737 93 53 33 15
747 30 16 8 5
757 34 34 10 15
767 34 29 11 10
777 49 24 18 9
MD-80 11 11 3 4
MD-90 16 8 5 4
MD-11 5 10 1 3
- -----------------------------------------------------------------------------------
Total 272 185 89 65
===================================================================================
Information, Space & Defense Systems
C-17 5 5 2 2
F-15 10 9 3 4
F-18 C/D 29 23 11 4
F-18 C/D Kits 20 11 8 1
T-45TS 8 8 5 3
Delta II launches 8 8 5 2
Revenues
Commercial Aircraft $20.5 $14.0 $ 6.5 $5.0
Information, Space & Defense Systems 13.3 11.3 4.8 3.9
Financial Services and other .3 .2 .1 .1
- -----------------------------------------------------------------------------------
Total revenue $34.1 $25.5 $11.4 $9.0
===================================================================================
</TABLE>
Commercial aircraft revenue of $20.5 billion for the nine months ended Sept. 30,
1997, included four MD-80 and three MD-90 aircraft which were accounted for as
operating leases, with minimal revenue recorded at the time of delivery.
Commercial aircraft revenue of $14.0 billion for the same period in 1996
included one MD-80, two MD-90s and two MD-11s which were accounted for as
operating leases, and certain 7-series aircraft previously on operating lease
which were converted to sales. ISDS revenues of $13.3 billion and $11.3 billion
for 1997 and 1996 were impacted by a 99-day strike at the St. Louis facilities,
which ended in mid-September 1996 and delayed some deliveries from 1996 to 1997.
Total Company revenues for 1997 are projected to be in the $46 billion to $47
billion range, compared with $35.5 billion in 1996.
<PAGE>
<TABLE>
The Boeing Company and Subsidiaries
Consolidated Statements of Operations
Reflecting Merger Combination With McDonnell Douglas Corporation
(Dollars in millions)
(Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Nine months ended Three months ended
September 30 September 30
- ---------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------
Sales and other operating revenues $34,073 $25,476 $11,371 $9,009
Operating costs and expenses 30,536 21,136 11,337 7,500
General and administrative expense 1,505 1,233 557 444
Research and development expense 1,464 1,221 456 407
- -----------------------------------------------------------------------------------
$33,505 $23,590 $12,350 $8,351
===================================================================================
Earnings (loss) from operations 568 1,886 (979) 658
Other income, principally interest 303 271 120 106
Interest and debt expense (365) (295) (122) (96)
ShareValue Trust appreciation change (42) (4) (40) (4)
- -----------------------------------------------------------------------------------
Earnings (loss) before income taxes 464 1,858 (1,021) 664
Income taxes 144 484 (325) 198
Net earnings (loss) $ 320 $ 1,374 $ (696) $ 466
===================================================================================
Earnings (loss) per share $ .33 $ 1.41 $ (.72) $ .48
===================================================================================
Cash dividends per share $ .42 $ .41 $ .14 $ .14
===================================================================================
Effective income tax rate 31.0% 26.0% 31.8% 29.8%
-------------------------------------
Excluding ShareValue Trust accounting:
Net earnings (loss) $ 349 $ 1,377 $ (668) $ 469
Earnings (loss) per share $ .35 $ 1.41 $ (.67) $ .48
</TABLE>
<PAGE>
<TABLE>
The Boeing Company and Subsidiaries
Consolidated Statements of Financial Position
Reflecting Merger Combination With McDonnell Douglas Corporation
(Dollars in millions)
(Unaudited)
<CAPTION>
<S> <C> <C> <C>
September 30 June 30 December 31
- -----------------------------------------------------------------------------------
Assets 1997 1997 1996
- -----------------------------------------------------------------------------------
Cash and cash equivalents $ 4,820 $ 5,580 $ 5,469
Short-term investments 730 968 883
Accounts receivable 3,312 2,998 2,870
Current portion of customer financing 354 732 774
Deferred income taxes 1,393 986 1,362
Inventories, net of advances and
progress billings 10,543 10,124 9,151
- -----------------------------------------------------------------------------------
Total current assets 21,152 21,388 20,509
Customer financing and properties on lease 3,641 3,274 3,114
Property, plant and equipment, net 8,314 8,308 8,266
Deferred income taxes 152 122 143
Goodwill 2,418 2,437 2,478
Prepaid pension expense 3,270 3,295 3,014
Other assets 427 426 356
- -----------------------------------------------------------------------------------
$39,374 $39,250 $37,880
===================================================================================
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $11,404 $10,834 $ 9,901
Advances in excess of related costs 1,971 1,880 1,714
Income taxes payable 361 395 474
Short-term debt and current portion of
long-term debt 608 596 637
- -----------------------------------------------------------------------------------
Total current liabilities 14,344 13,705 12,726
Accrued retiree health care 4,807 4,803 4,800
Long-term debt 6,353 6,468 6,852
- -----------------------------------------------------------------------------------
Total liabilities 25,504 24,976 24,378
Common stock less treasury shares 6,225 5,911 5,886
Retained earnings 8,925 9,660 8,896
Unearned compensation (22) (39) (22)
ShareValue Trust (1,258) (1,258) (1,258)
- -----------------------------------------------------------------------------------
Total shareholders' equity 13,870 14,274 13,502
- -----------------------------------------------------------------------------------
$39,374 $39,250 $37,880
===================================================================================
</TABLE>
<PAGE>
<TABLE>
The Boeing Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in millions)
(Unaudited)
<CAPTION>
Nine months ended
September 30
1997 1996
<S> <C> <C>
Cash flows - operating activities:
Net earnings $ 320 $ 1,374
Adjustments to reconcile net earnings to net cash
provided by operating activities:
ShareValue Trust appreciation change 42 4
Depreciation 1,028 925
Amortization of goodwill and intangibles 78 13
Changes in assets and liabilities -
Short-term investments 153 (939)
Accounts receivable (442) 191
Inventories, net of advances and progress billings (1,392) 700
Accounts payable and other liabilities 1,633 308
Advances in excess of related costs 257 219
Income taxes payable and deferred (153) (99)
Other assets (345) (328)
Accrued retiree health care 7 86
- -----------------------------------------------------------------------------------
Net cash provided by operating activities 1,186 2,454
- -----------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and properties on lease - additions (928) (910)
Customer financing and properties on lease - reductions 751 1,339
Property, plant and equipment, net additions (1,006) (684)
Other 27
- -----------------------------------------------------------------------------------
Net cash used by investing activities (1,183) (228)
- ----------------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 66 430
Debt repayments (594) (421)
ShareValue Trust (691)
Shares issued in the open market 268
Proceeds from stock options exercised, other 143 177
Common shares purchased (118) (709)
Dividends paid (417) (356)
- ----------------------------------------------------------------------------------
Net cash used by financing activities (652) (1,570)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (649) 656
Cash and cash equivalents at beginning of year $ 5,469 $ 4,527
- -----------------------------------------------------------------------------------
Cash and cash equivalents at end of 3rd quarter $ 4,820 $ 5,183
===================================================================================
</TABLE>
<PAGE>
The overall operating earnings margin, exclusive of the abnormal production
inefficiencies, research and development expense, merger-related expenses, and
joint venture development costs expensed as incurred ($64 million in 1997,
compared with $14 million in 1996), was 11.1% for the first nine months of 1997,
compared with 11.9% for the same period in 1996, excluding the earnings from the
settlement of contract issues. The 1997 margin has been impacted by the model
mix of commercial aircraft deliveries that included 49 777s in the first nine
months of 1997, compared with 24 777s in the first nine months of 1996, as well
as increased pricing pressure. Margins for the balance of 1997 and 1998
exclusive of the abnormal production inefficiencies are expected to be lower due
to significant 777 and Next-Generation 737 deliveries. With regard to the 777
and Next-Generation 737 programs, new and major derivative commercial jet
aircraft programs normally have lower operating profit margins due to initial
tooling amortization and higher unit production costs in the early years of a
program.
Corporate other income was $32 million higher in the first nine months of 1997
than in the same period in 1996 due primarily to the higher cash and short-term
investments balance. Interest and debt expense was $70 million higher due to the
debt assumed in the Rockwell acquisition and increases associated with the
Financial Services business segment.
The higher effective income tax rate for the nine months of 1997, compared with
the same period of 1996, was primarily due to the recognition of a one-time tax
benefit of $95 million related to prior years' investment tax credits in the
second quarter of 1996. Without the investment tax credit benefit, the effective
income tax rate would have been 31.2% for the first nine months of 1996,
compared with 31.0% for the first nine months of 1997. The effective tax rate
for the first nine months of 1997 reflects the current estimated annualized rate
for 1997.
The growth in net inventory and the $1 billion decline in cash and short-term
investments since the second quarter are primarily due to the production rate
delivery delays and associated production cost increases.
<PAGE>
<TABLE>
Comparative Balances
<S> <C> <C> <C>
September 30 June 30 December 31
- -----------------------------------------------------------------------------------
(Dollars in billions) 1997 1997 1996
- -----------------------------------------------------------------------------------
Contractual backlog
Commercial Aircraft $ 83.5 $ 84.1 $ 86.2
Information, Space & Defense Systems 25.3 28.1 28.0
- -----------------------------------------------------------------------------------
Total backlog $108.8 $112.2 $114.2
</TABLE>
<PAGE>
Not included in contractual backlog are purchase options and announced orders
for which definitive contracts have not been executed, including significant
announced orders from American, Delta and Continental Airlines which will be
added to contractual backlog as of year end. U.S. Government and foreign
military backlog is limited to amounts obligated to contracts. Unobligated
amounts under U.S. Government contracts not included in backlog at Sept. 30,
1997, total $28.9 billion, compared with $30.7 billion at June 30, 1997, and
$29.7 billion at Dec. 31, 1996.
ShareValue Trust Accounting
The ShareValue Trust is a 12-year irrevocable trust that holds Boeing common
stock, receives dividends, and distributes to employees appreciation in value
above a 3% per annum threshold rate of return. In accordance with generally
accepted accounting principles, the change in the potential distributable
appreciation is reflected in earnings on a quarterly basis, and shares of the
Trust are not considered outstanding for financial reporting purposes. Because
the Trust is fully funded and is solely responsible for making any potential
distributions, the Company supplementally discloses earnings and earnings per
share excluding the ShareValue Trust accounting impact, while recognizing the
shares held by the Trust as outstanding. Since inception of the Trust in July
1996, the distributable appreciation charged or credited to earnings on an
after-tax basis is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Cumulative
(Dollars in millions)
1996
3rd quarter $ 3 $ 3
4th quarter 84 87
1997
1st quarter (64) 23
2nd quarter 65 88
3rd quarter 28 116
</TABLE>
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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; future integration of McDonnell Douglas
Corporation; 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.
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C1572
Contact: Paul Binder
Larry McCracken
(206) 655-6123
