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..............................................................................
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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, 1997
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 October 31, 1997, there were 999,593,261 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 OPERATIONS
(Dollars in millions except per share data)
(Unaudited)
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
- ------------------------------------------------------------------------------
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
==============================================================================
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)
(Unaudited)
September 30 December 31
1997 1996
..............................................................................
Assets
..............................................................................
Cash and cash equivalents $ 4,820 $ 5,469
Short-term investments 730 883
Accounts receivable 3,312 2,870
Current portion of customer and commercial financing 354 774
Deferred income taxes 1,393 1,362
Inventories, net of advances and progress billings 10,543 9,151
- ------------------------------------------------------------------------------
Total current assets 21,152 20,509
Customer and commercial financing 3,641 3,114
Property, plant and equipment, net 8,314 8,266
Deferred income taxes 152 143
Goodwill 2,418 2,478
Prepaid pension expense 3,270 3,014
Other assets 427 356
- ------------------------------------------------------------------------------
$39,374 $37,880
==============================================================================
Liabilities and Shareholders' Equity
..............................................................................
Accounts payable and other liabilities $11,404 $ 9,901
Advances in excess of related costs 1,971 1,714
Income taxes payable 361 474
Short-term debt and current portion of long-term debt 608 637
- ------------------------------------------------------------------------------
Total current liabilities 14,344 12,726
Accrued retiree health care 4,807 4,800
Long-term debt 6,353 6,852
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 1,000,022,667 and 993,347,933 5,000 4,967
Additional paid-in capital 1,238 920
Treasury shares, at cost - 250,237 and 30,440 (13) (1)
Retained earnings 8,925 8,896
Unearned compensation (22) (22)
ShareValue Trust shares - 26,314,706 and 26,119,702 (1,258) (1,258)
- ------------------------------------------------------------------------------
Total shareholders' equity 13,870 13,502
- ------------------------------------------------------------------------------
$39,374 $37,880
==============================================================================
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
..............................................................................
1997 1996
..............................................................................
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 and commercial financing - additions (928) (910)
Customer and commercial financing - 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:
Debt additions 66 430
Debt repayments (594) (421)
ShareValue Trust (691)
Common shares issued 268
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
==============================================================================
See notes to consolidated financial statements.
4
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Merger With McDonnell Douglas Corporation
Effective August 1, 1997, McDonnell Douglas Corporation merged with the Company
through a stock-for-stock exchange in which 1.3 shares of Company stock were
issued for each share of McDonnell Douglas stock outstanding. The Company
issued 277.3 million shares in connection with the merger. The combined company
is operating in the name of The Boeing Company.
The merger is accounted for as a pooling of interests. Accordingly, except for
adjustments to reflect conformed accounting policies, the historical results of
operations of the two companies have been combined, and no goodwill or
acquisition revaluations were recorded.
The merger was subject to approval by the United States Federal Trade Commission
and the European Commission. Future requirements or obligations associated with
obtaining these approvals are not expected to have a material impact on future
operations or liquidity of the Company.
The following table presents sales and other operating revenues and net earnings
for the periods presented. The conforming accounting adjustment conforms the
following McDonnell Douglas accounting policies to Boeing accounting policies:
(1) on a net-of-tax basis, the application of the percentage-of-completion
method of recognizing sales and earnings for fixed-price contracts is changed
from the cost-to-cost basis of revenue recognition to the delivery basis of
revenue recognition; and (2) the McDonnell Douglas classification of income
associated with cash and short-term investments and gains on sale of assets is
changed from "Sales and other operating revenues" to "Other income,
principally interest."
Three months ended Nine months ended
Sales and other operating revenues September 30, 1996 September 30, 1996
..............................................................................
The Boeing Company $5,601 $16,169
McDonnell Douglas Corporation 3,308 9,743
Intercompany sales elimination (164) (451)
Conforming accounting adjustment 264 15
- ------------------------------------------------------------------------------
Combined $9,009 $25,476
==============================================================================
Net earnings
The Boeing Company $254 $ 841
McDonnell Douglas Corporation 195 581
Conforming accounting adjustment 17 (48)
- ------------------------------------------------------------------------------
Combined $466 $1,374
==============================================================================
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The conforming accounting adjustments have also resulted in the following
changes applicable to the McDonnell Douglas balance sheet accounts: an increase
in current deferred tax assets; a decrease in inventories, billings in excess of
related costs, and retained earnings; and conformity to a classified balance
sheet separating current and non-current balances.
Note 2 - Consolidated Interim 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 periods ended September 30, 1997, 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 included in the 1996 annual reports of
The Boeing Company and McDonnell Douglas Corporation.
Note 3 - Summary of Significant Accounting Policies
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of all majority-owned
subsidiaries. Intercompany profits, transactions and balances have been
eliminated in consolidation.
Sales and other operating revenues
- ----------------------------------
Sales under fixed-price-type contracts are generally recognized as deliveries
are made or at the completion of contractual sales events. For certain fixed-
price contracts that require substantial performance over an extended period
before deliveries begin, sales are recorded based upon attainment of scheduled
performance milestones. Sales under cost-reimbursement contracts are recorded
as costs are incurred. Certain U.S. Government contracts contain profit
incentives based upon performance relative to predetermined targets. Incentives
based on cost performance are recorded currently, and other incentives and fee
awards are recorded when the amounts can be reasonably estimated or are awarded.
Income associated with customer financing activities is included in sales and
other operating revenues.
Contract and program accounting
- -------------------------------
Information, space and defense systems segment operations principally consist of
performing work under U.S. Government and foreign military contracts. Cost of
sales for such contracts is determined based on the estimated average total
contract cost and revenue. To the extent the total of such costs is expected to
exceed the total estimated sales price, charges are made to current earnings to
reduce inventoried costs to estimated realizable value.
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Commercial aircraft programs are planned, committed and facilitized based on
long-term delivery forecasts, normally for quantities in excess of contractually
firm orders. Cost of sales for the 737, 747, 757, 767 and 777 commercial
aircraft programs is determined based on estimated average total cost and
revenue for the current program quantity. The initial program quantities for
the 777 program and the 737-600, -700, -800 Next-Generation programs have been
established at 400 units, the same initial program quantity as used for the 747
program in 1969 and for the 767 and 757 programs in 1982. The Next-
Generation 737 deliveries are scheduled to begin in the fourth quarter of
1997. The estimated program average costs and revenues are reviewed and
reassessed quarterly, and changes in estimates are recognized over current and
future deliveries constituting the program quantity.
Cost of sales for the MD-80, MD-90 and MD-11 aircraft programs is determined on
a specific-unit cost method. Effective October 1, 1995, the Company changed its
accounting for the MD-11 program to the specific-unit cost method. Prior to
October 1, 1995, cost of sales for the MD-11 aircraft program was determined by
the program method of accounting described above. Concurrent with this change
in accounting for the MD-11 program, the Company revalued the MD-11 program
inventory to be consistent with the specific-unit cost method. This revaluation
resulted in a non-cash pretax charge to operations of $1,838 in the fourth
quarter of 1995.
Inventories
- -----------
Inventoried costs on long-term commercial aircraft programs and U.S. Government
and foreign military contracts include direct engineering, production and
tooling costs, and applicable overhead. Inventoried costs associated with
commercial aircraft programs and long-term contracts, less estimated average
cost of sales, are not in excess of estimated realizable value. In accordance
with industry practice, inventoried costs include amounts relating to programs
and contracts with long production cycles, a portion of which is not expected to
be realized within one year. Commercial spare parts and general stock materials
are stated at average cost not in excess of realizable value.
Research and development, general and administrative expenses
- -------------------------------------------------------------
Research and development and general and administrative expenses are charged
directly to earnings as incurred.
Interest expense
- ----------------
Interest and debt expense is presented net of amounts capitalized. Interest
expense is subject to capitalization as a construction-period cost of property,
plant and equipment and of commercial program tooling.
7
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Income taxes
- ------------
Federal, state and foreign income taxes are computed at current tax rates, less
tax credits. Taxes are adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from
those previously used to determine deferred tax assets or liabilities. Tax
provisions include amounts that are currently payable, plus changes in deferred
tax assets and liabilities that arise because of temporary differences between
the time when items of income and expense are recognized for financial reporting
and income tax purposes.
Note 4 - Cost Impact of Commercial Aircraft Production Recovery Plans
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 a 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 were halted for approximately one month beginning early
October 1997.
During the third quarter of 1997, the Company recognized a pretax charge of
approximately $1,600 associated with the related recovery plans and late
delivery costs, of which $700 relates to the Next-Generation 737 program. The
unplanned production inefficiencies have had a significant impact on the
Next-Generation 737 program, and the $700 represents the estimated excess of
unit production costs, tooling and special equipment costs over the estimated
revenues for the initial 400 units, the initial program quantity as discussed in
Note 3.
Note 5 - Contingent Valuation Losses
On November 3, 1997, the Company announced product strategy decisions regarding
the commercial aircraft programs of the Douglas Products Division (formerly
Douglas Aircraft Company). The Douglas Products Division programs currently in
production are the MD-11 trijet and the MD-80 and MD-90 twinjets. Additionally,
the MD-95 twinjet is currently in development, with first delivery scheduled for
1999. Based upon current market assessments, the Company intends to continue to
offer the MD-11 trijet, but principally limited to the freighter version. The
MD-80 and MD-90 will continue to be produced until approximately mid-1999, when
current production commitments end. The Company is committed to build the 50
MD-95s ordered by launch customer AirTran; however, no decision about the long-
term future of the MD-95 program has been made. The financial implications of
these Douglas Products Division program decisions and associated near-term
operating decisions are expected to be included in the fourth-quarter 1997
operating results. These decisions are expected to result in the write-off of
certain program assets and related valuation adjustments. The product strategy
decisions are one step in an ongoing operating review of all of the Company's
sites and capabilities to make the most productive use of the available
resources in the longer term.
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Note 6 - Earnings per Share
Net earnings per share are computed based on 969.3 million shares and 972.9
million shares for the nine-month periods ended September 30, 1997 and 1996,
which are the weighted average number of shares outstanding excluding the
outstanding shares held by the ShareValue Trust. There is no material dilutive
effect on net earnings per share due to common stock equivalents. See Note 14
regarding the ShareValue Trust.
Statement of Financial Accounting Standards No. 128, Earnings per Share, is
required to be implemented in financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier adoption is not
permitted. The Company does not anticipate that adoption of this Statement will
have a material effect on earnings per share.
Note 7 - Income Taxes
Significant components of the effective tax rates were as follows:
Nine months ended
September 30
..............................................................................
1997 1996
..............................................................................
U.S. Federal statutory tax rate 35.0 % 35.0 %
Foreign Sales Corporation tax benefit (8.9)% (4.2)%
Research benefit (0.9)% (0.1)%
Prior years' investment tax credit (5.1)%
Prior years' tax adjustment (4.4)% (1.1)%
Nondeductibility of goodwill and merger costs 7.8 %
Other provision adjustments (0.2)% (0.3)%
State income tax provision, net of effect on U.S. federal tax 2.6 % 1.8 %
- ------------------------------------------------------------------------------
Effective tax rate 31.0 % 26.0 %
==============================================================================
Net income tax payments were $250 and $525 for the nine months ended September
30, 1997 and 1996.
Note 8 - Accounts Receivable
Accounts receivable consisted of the following:
September 30 December 31
1997 1996
..............................................................................
Accounts receivable under U.S. Government contracts $2,363 $2,159
Accounts receivable from commercial and foreign
government customers 949 711
- ------------------------------------------------------------------------------
$3,312 $2,870
==============================================================================
9
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Note 9 - Inventories
Inventories consisted of the following:
September 30 December 31
1997 1996
..............................................................................
Commercial aircraft programs and long-term
contracts in progress $ 25,800 $ 23,291
Commercial spare parts, general stock materials
and other 1,949 1,476
- ------------------------------------------------------------------------------
27,749 24,767
Less advances and progress billings (17,206) (15,616)
- ------------------------------------------------------------------------------
$ 10,543 $ 9,151
==============================================================================
Note 10 - Customer and Commercial Financing
Customer and commercial financing consisted of the following:
September 30 December 31
1997 1996
..............................................................................
Aircraft financing
Notes receivable $ 593 $ 555
Investment in sales-type leases 1,539 1,605
Operating lease equipment, at cost,
less accumulated depreciation of $245
and $206 1,098 868
Commercial equipment financing
Notes receivable 114 257
Investment in sales-type leases 367 358
Operating lease equipment, at cost,
less accumulated depreciation of $101
and $106 436 395
- ------------------------------------------------------------------------------
Less valuation allowance (152) (150)
- ------------------------------------------------------------------------------
$3,995 $3,888
==============================================================================
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.
10
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Note 11 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
September 30 December 31
1997 1996
..............................................................................
Accounts payable $ 5,097 $4,787
Accrued compensation and employee benefit costs 2,351 2,000
Lease and other deposits 779 524
Other 3,177 2,590
- ------------------------------------------------------------------------------
$11,404 $9,901
==============================================================================
Note 12 - Debt
The Company has $1,000 currently available under credit line agreements with a
group of commercial banks. Under these agreements, there are compensating
balance arrangements, and retained earnings totaling $2,104 are free from
dividend restrictions. The Company has complied with the restrictive covenants
contained in various debt agreements. Additionally, the Company has received
commitments from a group of commercial banks to increase the credit line
availability to $3,000. Under the revised agreements, the compensating balance
arrangement and dividend restrictions will be eliminated.
During the fourth quarter of 1997, Boeing Capital Corporation (BCC), a
corporation wholly owned by the Company, filed a shelf registration statement
with the Securities and Exchange Commission relating to up to $1,200 aggregate
principal amount of debt securities. In addition, BCC has $240 available under
a credit line agreement with a group of commercial banks.
Total debt interest, including amounts capitalized, was $413 and $338 for the
nine-month periods ended September 30, 1997 and 1996, and interest payments were
$442 and $337.
Note 13 - Shareholders' Equity
Stock split
- -----------
An increase in the total number of shares of authorized stock from 610 million
to 1,220 million was approved by shareholders at the Company's Annual Meeting
on April 28, 1997, and a 2-for-1 stock split was effective as of the close of
business June 6, 1997. Shareholders' equity has been restated to give
retroactive recognition to the stock split for all periods presented by
reclassifying, from additional paid-in capital or retained earnings to common
stock, the par value of the additional shares arising from the split. In
addition, all references to number of shares and per share amounts have been
restated to reflect the stock split.
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Changes in shareholders' equity for the nine-month periods ended September 30,
1997 and 1996, consisted of the following:
(Shares in thousands)
..............................................................................
1997 1996
Shares Amount Shares Amount
..............................................................................
Common Stock
Beginning balance - January 1 993,348 $ 4,967 989,255 $ 4,946
Shares issued 4,550 23
Shares repurchased (14,822) (74)
Shares issued for incentive stock plans 2,125 10 830 4
- ------------------------------------------------------------------------------
Ending balance - September 30 1,000,023 $ 5,000 975,263 $ 4,876
- ------------------------------------------------------------------------------
Additional paid-in capital
Beginning balance - January 1 $ 920 $ 0
Shares issued 245
Shares repurchased (231)
Treasury shares issued for incentive
stock plans, net (5) (3)
Tax benefit related to incentive stock plans 31 45
Stock appreciation rights expired or surrendered 5 7
ShareValue Trust market value adjustment 42 182
- ------------------------------------------------------------------------------
Ending balance - September 30 $ 1,238 $ 0
==============================================================================
Treasury stock
Beginning balance - January 1 30 $ (1) 10,608 $ (209)
Treasury shares issued for incentive
stock plans, net (1,349) 106 (6,892) 159
Treasury shares acquired 1,564 (118) 3,872 (168)
Shares transferred from/to ShareValue Trust 5 0 (7,000) 196
- ------------------------------------------------------------------------------
Ending balance - September 30 250 $ (13) 588 $ (22)
==============================================================================
Retained earnings
Beginning balance - January 1 $ 8,896 $ 7,808
Net earnings 320 1,374
Shares repurchased (233)
Cash dividends declared (291) (273)
- ------------------------------------------------------------------------------
Ending balance - September 30 $ 8,925 $ 8,676
==============================================================================
Unearned compensation
Beginning balance - January 1 $ (22) $ (18)
New issuances (29) (22)
Amortization 29 12
- ------------------------------------------------------------------------------
Ending balance - September 30 $ (22) $ (28)
==============================================================================
12
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Changes in shareholders' equity for the nine-month periods ended September 30,
1997 and 1996, consisted of the following (cont.):
(Shares in thousands)
..............................................................................
1997 1996
Shares Amount Shares Amount
..............................................................................
ShareValue Trust
Beginning balance - January 1 26,120 $(1,258) 0 $ 0
Shares transferred to/from treasury stock (5) 7,000 (196)
Shares acquired from dividend reinvestment 200
Cash transferred to trust (691)
Cash used to purchase common stock 483
Common stock purchased 11,232 (483)
Market value adjustment (42) (182)
Accrual of distributable appreciation 42 4
- ------------------------------------------------------------------------------
Ending balance - September 30 26,315 $(1,258) 18,232 $(1,065)
==============================================================================
Note 14 - ShareValue Trust
In July 1996, the Company established a self-sustaining, irrevocable 12-year
trust, the ShareValue Trust, designed to allow substantially all employees to
share in the results of increasing shareholder value over the long term. As of
September 30, 1997, the Trust had acquired 26,025,460 shares of the Company's
common stock, equivalent to $1,150 of market value based upon a stock price of
$44 3/16, which was the average price per share on June 28, 1996, plus 289,246
shares acquired from reinvested dividends. 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. If
the term of the Trust is not extended beyond the initial irrevocable 12-year
period, any residual trust balance will revert to 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 the ShareValue Trust has increased above a pre-defined threshold amount
of 3% per annum at the end of that fund's investment period. The ShareValue
Trust bears its own nominal administrative costs paid out of the Trust assets.
At the end of each investment period, a new, four-year investment period will
begin, resulting in overlapping periods with potential distributions every two
years. The Trust fund market value after distribution will be the base from
which the distributable market value appreciation over the threshold for the
succeeding investment period will be determined.
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
distribution obligations, 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. As of September 30, 1997, the total increased
value of both current funds exceeded the thresholds by $175.
13
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The shares held by the ShareValue Trust, recorded in the contra equity account
"ShareValue Trust," are legally outstanding and receive dividend payments. The
ShareValue Trust is adjusted to market value at each reporting period, with an
offsetting adjustment to additional paid-in capital.
As a result of the merger of McDonnell Douglas Corporation with a wholly-owned
subsidiary of the Company effective August 1, 1997, McDonnell Douglas became a
wholly-owned subsidiary of the Company. The approximately 64,000 employees of
the McDonnell Douglas subsidiary are not currently participants in the
ShareValue Trust. The Company's Board of Directors has approved the issuance
of up to $550 of additional stock to fund the ShareValue Trust for future
participation by the employees of the McDonnell Douglas subsidiary.
Note 15 - Contingencies
On January 7, 1991, the U.S. Navy notified the Company and General Dynamics
Corporation (the Team) that it was terminating for default the Team's contract
for development and initial production of the A-12 aircraft. The Team filed a
legal action to contest the Navy's default termination, to assert its rights to
convert the termination to one for "the convenience of the Government," and to
obtain payment for work done and costs incurred on the A-12 contract but not
paid to date. At September 30, 1997, inventories included approximately $575 of
recorded costs on the A-12 contract, against which the Company has established a
loss provision of $350. The amount of the provision, which was established in
1990, was based on the Company's belief, supported by an opinion of outside
counsel, that the termination for default would be converted to a termination
for convenience, that the Team would establish a minimum of $250 in claims
adjustments, that there was a range of reasonably possible results on
termination for convenience, and that it was prudent to provide for what the
Company then believed was the upper range of possible loss on termination for
convenience, namely $350.
On December 19, 1995, the U.S. Court of Federal Claims ordered that the
Government's termination of the A-12 contract for default be converted to a
termination for convenience of the Government. On December 13, 1996, the Court
issued an opinion confirming its prior no-loss adjustment and no-profit recovery
order. Subsequent to an early 1997 stipulation based on the prior orders and
findings of the Court in which the parties agreed that plaintiffs were entitled
to recover $1,071 the Court has preliminarily determined that the Government is
liable for certain adjustments that increase the plaintiffs' possible
recovery. A trial to determine the plaintiffs' recovery has now concluded and
judgment is expected in the near future. On January 22, 1997, the Court
issued an opinion in which it ruled that plaintiffs are entitled to recover
interest on that recovery.
Although the Government is expected to appeal the resulting judgment, the
Company believes the judgment will be sustained. Final resolution of the A-12
litigation will depend on such appeals and possible further litigation, or
negotiations, with the Government. If sustained, however, the expected damages
judgment, including interest, ultimately could result in pretax income ranging
up to an amount that could more than offset the loss provision established in
1990.
14
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On October 31, 1997, a federal securities lawsuit was filed against the Company
in the U.S. District Court for the Western District of Washington, in Seattle.
The lawsuit names as defendants the Company and three of its executive officers.
Three additional lawsuits of a similar nature have been filed in the same court.
The plaintiffs in each lawsuit seek to represent a class of purchasers of Boeing
stock between July 21, 1997, and October 22, 1997 (the "Class Period"),
including recipients of Boeing stock in the McDonnell Douglas merger. July 21,
1997, was the date on which the Company announced its second quarter results,
and October 22, 1997, was the date on which the Company announced charges to
earnings associated with production problems being experienced on commercial
aircraft programs. The lawsuits generally allege that the defendants desired to
keep the Company's share price as high as possible in order to ensure that the
McDonnell Douglas shareholders would approve the merger and, in the case of two
of the individual defendants, to benefit directly from the sale of Boeing stock
during the Class Period. The plaintiffs seek compensatory damages and treble
damages. The Company believes that the allegations are without merit and that
the outcome of these lawsuits will not have a material adverse effect on its
earnings, cash flow or financial position.
15
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Sales of $34.1 billion for the first nine months of 1997 were 34% higher than
sales for the comparable period of 1996. A total of 272 commercial aircraft
were delivered, compared with 185 in the first nine months of 1996.
Approximately 375-385 commercial aircraft deliveries are currently projected for
the full year 1997, compared with 218 in 1996. Total sales for 1997 are
projected to be in the $46 billion to $47 billion range, compared with $35.5
billion in 1996.
Sales by business segment were as follows ($ in billions):
First Nine Months Third Quarter
----------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Commercial aircraft $20.5 $14.0 $ 6.5 $ 5.0
Information, space and defense systems 13.3 11.3 4.8 3.9
Financial services and other .3 .2 .1 .1
----- ----- ----- -----
Total $34.1 $25.5 $11.4 $9.0
===== ===== ===== =====
Commercial aircraft deliveries were as follows:
First Nine Months Third Quarter
----------------- -------------
Model 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
==== ==== ==== ====
16
<PAGE> 17
|------------------------------------------------------------------------------|
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.
|------------------------------------------------------------------------------|
Information, space and defense systems deliveries included the following:
First Nine Months Third Quarter
----------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
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
Net earnings before and after the effect of the ShareValue Trust (SVT)
accounting were as follows (all shares adjusted for the 2-for-1 stock split
effective June 6, 1997):
First Nine Months Third Quarter
----------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in millions except per share data)
Before SVT accounting:
Net earnings (loss) $ 347 $1,377 $ (670) $ 469
Earnings (loss) per share $ .35 $ 1.41 $ (.67) $ .48
Average shares (millions) 995.5 976.0 998.5 975.2
After SVT accounting:
Net earnings (loss) $ 320 $1,374 $ (696) $ 466
Earnings (loss) per share $ .33 $ 1.41 $ (.72) $ .48
Average shares (millions)* 969.3 972.9 972.3 966.0
* Excludes outstanding shares held by the ShareValue Trust.
17
<PAGE> 18
Net earnings after SVT accounting for the first nine months of 1997 were $320
million, compared to the nine-month 1996 net earnings of $1,374 million. The
1997 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 August 1, 1997, and $99 million in merger-related expenses. The
nine-month 1996 earnings included income of $176 million after tax for the
settlement of certain Information, Space & Defense Systems (ISDS) contract
issues and the recognition of prior years' investment tax credits.
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 for the same period last year due to program losses at
the Douglas Products Division (formerly Douglas Aircraft Company); higher
research and development expense; higher joint venture development expense in
the ISDS business units; and a higher effective income tax rate.
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 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.
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 during the fourth quarter. 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.
Based on current programs and schedules, research and development expense for
the full year 1997 is projected to be in the $1.9 billion to $2.0 billion range,
compared with $1.6 billion in 1996.
18
<PAGE> 19
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. Out-of-sequence work, which costs substantially more than in-sequence
work, reached unexpected levels late in the third quarter. Under the current
recovery plans, the 747 and 737 production lines were halted for approximately
one month beginning early October. Process inefficiencies and work-arounds will
continue until the entire process is substantially back in balance, which is
expected to occur in 1998.
During the third quarter of 1997, the Company recognized a pretax charge of
approximately $1.6 billion associated with the related recovery plans and late
delivery costs, of which $700 million relates to the Next-Generation 737
program. The unplanned production inefficiencies have had a significant impact
on the Next-Generation 737 program, and the $700 million represents the
estimated excess of unit production costs, tooling and special equipment costs
over the estimated revenues for the initial 400 units.
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.
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.
19
<PAGE> 20
On November 3, 1997, the Company announced product strategy decisions regarding
the commercial aircraft programs of the Douglas Products Division (formerly
Douglas Aircraft Company). The Douglas Products Division programs currently in
production are the MD-11 trijet and the MD-80 and MD-90 twinjets. Additionally,
the MD-95 twinjet is currently in development, with first delivery scheduled for
1999. Based upon current market assessments, the Company intends to continue to
offer the MD-11 trijet, but principally limited to the freighter version. The
MD-80 and MD-90 will continue to be produced until approximately mid-1999, when
current production commitments end. The Company is committed to build the 50
MD-95s ordered by launch customer AirTran; however, no decision about the long-
term future of the MD-95 program has been made. The financial implications of
these Douglas Products Division program decisions and associated near-term
operating decisions are expected to be included in the fourth-quarter 1997
operating results. These decisions are expected to result in the write-off of
certain program assets and related valuation adjustments. The product strategy
decisions are one step in an ongoing operating review of all of the Company's
sites and capabilities to make the most productive use of the available
resources in the longer term.
Upon completion of the merger with McDonnell Douglas, the Information, Space &
Defense Systems organization (ISDS) was formed, comprising business elements
from the former Boeing Defense & Space Group and McDonnell Douglas Corporation.
ISDS is now focused on achieving both market and cost synergies.
In September, Boeing and NASA jointly announced projected cost overruns on the
International Space Station Alpha program that could total $600 million for this
cost-reimbursement development contract. These overruns were the result of
schedule delays on Russian hardware elements, subcontractor delays and
development issues identified during the testing program. The Company has taken
numerous actions to ensure that it achieves the revised flight schedule and cost
estimates. These cost overruns are expected to have only a nominal impact on
earnings because the contract with NASA is under cost-reimbursement terms.
Liquidity and Capital Resources
- -------------------------------
The Company's financial liquidity position remains strong, with cash and short-
term investments totaling $5.6 billion at September 30, 1997, and total
long-term debt at 33% of total shareholders' equity plus debt. The Company
maintains its $1.0 billion revolving credit line, and has received commitments
from a group of commercial banks to increase the credit line availability to
$3.0 billion.
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 funding) was as follows (dollars in billions):
Sep. 30 June 30 Dec. 31
1997 1997 1996
------- ------- -------
Commercial aircraft $ 83.5 $ 84.1 $ 86.2
Information, space and defense systems 25.3 28.1 28.0
------- ------- -------
Total $108.8 $112.2 $114.2
======= ======= =======
20
<PAGE> 21
Unobligated U.S. Government contract funding not included in backlog totaled
$28.9 billion at September 30, 1997, $30.7 billion at June 30, 1997, and $29.7
billion at December 31, 1996.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated statement of financial position as of September 30, 1997, the
consolidated statements of operations for the nine-month periods ended September
30, 1997 and 1996, and the consolidated statements of cash flows for the nine-
month periods ended September 30, 1997 and 1996, have been reviewed by the
registrant's independent accountants, Deloitte & Touche LLP, whose report
covering their review of the financial statements follows.
Deloitte & Touche LLP was furnished the reports of other accountants
concerning the review of the interim financial information of McDonnell
Douglas Corporation for the three-month and nine-month periods ended
September 30, 1996, and the six-month period ended June 30, 1997. Those
independent accountants' review reports also follow.
21
<PAGE> 22
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
The Boeing Company
Seattle, Washington
We have reviewed the accompanying condensed consolidated statement of financial
position of The Boeing Company and subsidiaries (the Company) as of September
30, 1997, and the related condensed consolidated statements of operations for
the three-month and nine-month periods ended September 30, 1997 and 1996, and
condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 1997 and 1996. These financial statements are the responsibility
of the Company's management. The accompanying condensed consolidated financial
statements give retroactive effect to the 1997 merger of the Company and
McDonnell Douglas Corporation (McDonnell Douglas), which has been accounted for
as a pooling of interests as described in Note 1 to the condensed consolidated
financial statements. We were furnished with the reports of other accountants
on their review of the interim financial information of McDonnell Douglas for
the six-month period ended June 30, 1997, and the three-month and nine-month
periods ended September 30, 1996. Total McDonnell Douglas revenues
constituted 30%, 37%, and 38% of consolidated total revenues for such periods,
respectively.
We conducted our review in accordance with 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 and the reports of other accountants, we are not aware of
any material modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of the Company and
subsidiaries as of December 31, 1996, prior to restatement for the 1997 pooling
of interests (not presented herein); and in our report dated January 23, 1997,
we expressed an unqualified opinion on those consolidated financial statements.
The financial statements of McDonnell Douglas for the year ended December 31,
1996, were audited by other auditors whose report, dated January 22, 1997,
expressed an unqualified opinion on those financial statements (not presented
herein). We also audited the adjustments described in Note 1 that were applied
to restate the December 31, 1996, consolidated statement of financial position
of the Company and subsidiaries for the 1997 pooling of interests (not
presented herein). In our opinion, such adjustments are appropriate and have
been properly applied and the information set forth in the accompanying
condensed consolidated statement of financial position as of December 31,
1996, is fairly stated, in all material respects, in relation to the restated
consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
October 24, 1997
22
<PAGE> 23
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Shareholders and Board of Directors
McDonnell Douglas Corporation
We have reviewed the accompanying condensed consolidated balance sheet
(including the consolidating data for MDC Aerospace and Financial Services) of
McDonnell Douglas Corporation and consolidated subsidiaries (MDC) as of
September 30, 1996, and the related condensed consolidated statement of
earnings for the three-month and nine-month periods ended September 30, 1996
and 1995, and the condensed consolidated statement of cash flows for the
nine-month periods ended September 30, 1996 and 1995. These financial
statements are the responsibility of MDC's management.
We conducted our reviews in accordance with 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 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, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet (including the consolidating data for
MDC Aerospace and Financial Services) of MDC as of December 31, 1995, and the
related consolidated statement of operations, shareholders' equity, and cash
flows for the year then ended [not presented herein] and in our report dated
January 17, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet (including the consolidating
data for MDC Aerospace and Financial Services) as of December 31, 1995, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet (including the consolidating data for MDC Aerospace and Financial
Services) from which it has been derived.
As discussed in Note 2 to the condensed consolidated financial statements, in
1995 MDC changed its method of accounting for the MD-11 commercial aircraft
program
/s/ Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
October 16, 1996
23
<PAGE> 24
INDEPENDENT ACCOUNTANTS' REVEIW REPORT
Shareholders and Board of Directors
McDonnell Douglas Corporation
We have reviewed the accompanying condensed consolidated balance sheet
(including the consolidating data for MDC Aerospace and Financial Services)
of McDonnell Douglas Corporation and consolidated subsidiaries (MDC) as of June
30, 1997, and the related condensed consolidated statements of earnings for the
three-month and six-month periods ended June 30, 1997 and 1996 and the condensed
consolidated statement of cash flows for the six-month periods ended
June 30, 1997 and 1996. These financial statements are the responsibility of
MDC's management.
We conducted our reviews in accordance with 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 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, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet (including the consolidating data
for MDC Aerospace and Financial Services) of MDC as of December 31, 1996, and
the related consolidated statement of operations, shareholders' equity, and
cash flows for the year then ended [not presented herein] and in our report
dated January 22, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet (including the
consolidating data for MDC Aerospace and Financial Services) as of
December 31, 1996, is fairly stated, in all material respects, in relation to
the consolidated balance sheet (including the consolidating data for MDC
Aerospace and Financial Services) from which it has been derived.
/s/ Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
July 16, 1997
24
<PAGE> 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 31, 1997, a federal securities lawsuit was filed against the
Company in the U.S. District Court for the Western District of
Washington, in Seattle. The lawsuit names as defendants the Company and
three of its executive officers. Three additional lawsuits of a similar
nature have been filed in the same court. The plaintiffs in each lawsuit
seek to represent a class of purchasers of Boeing stock between July 21,
1997, and October 22, 1997, (the "Class Period"), including recipients of
Boeing stock in the McDonnell Douglas merger. July 21, 1997, was the date
on which the Company announced its second quarter results, and October 22,
1997, was the date on which the Company announced charges to earnings
associated with production problems being experienced on commercial
aircraft programs. The lawsuits generally allege that the defendants
desired to keep the Company's share price as high as possible in order to
ensure that the McDonnell Douglas shareholders would approve the merger
and, in the case of two of the individual defendants, to benefit directly
from the sale of Boeing stock during the Class Period. The plaintiffs
seek compensatory damages and treble damages. The Company believes that
the allegations are without merit and that the outcome of these lawsuits
will not have a material adverse effect on its earnings, cash flow or
financial position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts.
Management Contracts and Compensatory Plans.
(i) Boeing Company Executive Layoff Benefits Plan, as
amended on October 27, 1997. Filed herewith.
(ii) Supplemental Retirement Plan for Executives of The
Boeing Company, as amended on August 25, 1997. Filed
herewith.
(iii) Supplemental Benefit Plan for Employees of The Boeing
Company, as amended on August 25, 1997. Filed
herewith.
(iv) The McDonnell Douglas 1994 Performance and Equity
Incentive Plan. Filed as Exhibit 99.1 of Registration
Statement No. 333-32567 on Form S-8 filed on
July 31, 1997.
(v) The McDonnell Douglas Incentive Award Plan as amended
and restated July 20, 1990. Filed as Exhibit 99.2 of
Registration Statement No. 333-32567 on Form S-8 filed
on July 31, 1997.
(15) Letter From Independent Accountants Regarding Unaudited
Interim Financial Information. Page 41.
(b) A report on Form 8-K was filed on October 27, 1997, to report under
Item 5 the announcement of third quarter results on
October 24, 1997.
25
<PAGE> 26
- - - - - - -
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 13, 1997 /s/ Gary W. Beil
---------------------- --------------------------------
(Date) Gary W. Beil
Vice President and Controller
26
<PAGE> 27
Exhibit (10) (i)
Boeing Company Executive Layoff Benefits Plan
INTRODUCTION
------------
The Boeing Company hereby establishes The Boeing Company Executive Layoff
Benefits Plan to provide for lump sum payments as layoff benefits for its
executive employees as provided in this document.
It is intended that this Plan constitute a welfare benefit severance pay
plan under the Employee Retirement Income Security Act (ERISA) and that
the plan shall be construed and interpreted in a manner consistent with
such intention.
Article 1
Definitions
-----------
1.1 Affiliate or Subsidiary means a member (other than The Boeing Company)
of a controlled group of corporations (as defined in Internal Revenue Code
Section 1563(a) determined without regard to Internal Revenue Code Sections
1563(a)(4) and (e)(3)(c)), a group of trades or businesses (whether
incorporated or not) which are under common control within the meaning of
Internal Revenue Code Section 414(c), or an affiliated service group (as
defined in Internal Revenue Code Section 414(m) or 414(o)) of which The Boeing
Company is a part.
1.2 Committee means the Welfare Benefit Plans Committee (or its successor)
appointed by the Board of Directors of The Boeing Company.
1.3 Company means The Boeing Company, and any Affiliate or Subsidiary which
has adopted the Plan by action of its Board of Directors if such adoption has
been approved by the Compensation Committee or by such corporate officers as
the Compensation Committee may designate.
1.4 Compensation Committee means the Compensation Committee appointed by
the Board of Directors of The Boeing Company.
1.5 Effective Date means the closing date, August 1, 1997, of the Agreement
and Plan of Merger dated as of December 14, 1996 among The Boeing Company,
West Acquisition Corporation, a wholly-owned subsidiary of The Boeing Company,
and McDonnell Douglas Corporation.
1.6 Employee means a person who is employed by the Company including a
person on an approved leave of absence.
1.7 Equivalent Employment means an employment offer made prior to a Layoff
Event
a) at an annual base salary equal to no less than 90% of the Employee's base
salary at the time of the offer,
27
<PAGE> 28
b) if the Employee is eligible for incentive compensation, with a target under
the applicable incentive compensation plan which is no less than 90% of the
Employee's target at the time of the offer,
c) for a job which is located within 70 miles of the normal location of the
Employee's employment at the time of the offer.
1.8 Layoff Benefit is defined in Article 3.
1.9 Layoff Event is defined in Section 2.3
1.10 Plan means The Boeing Company Executive Layoff Benefits Plan.
1.11 Plan Year means the calendar year.
1.12 Service shall be determined in the same manner as the service time
calculation under the Company Service Awards Program procedure.
Article 2
Eligibility and Layoff Event
----------------------------
2.1 Eligibility
In order to be eligible for a Layoff Benefit, an Employee must meet the
following requirements as of the date of the Layoff Event:
a) The Employee must be a member of a participating group of Employees in
accordance with Section 2.2.
b) The Employee must have at least one year of Service, and
c) A Layoff Event must occur with respect to the Employee.
2.2 Participating Groups
a) Employees of The Boeing Company who are Executive Payroll Employees shall
participate in the Plan.
b) Employees of McDonnell Douglas Corporation, a subsidiary of The Boeing
Company, who are participants in the Senior Executive Performance Sharing Plan
or the Performance Sharing Plan shall participate in the Plan.
c) The Compensation Committee may, by written resolution, provide for
participation of other Employees as of an effective date specified in the
resolution.
2.3 Layoff Event
A Layoff Event is an involuntary layoff from employment with the Company
between the Effective Date and December 31, 1998 pursuant to a merger-related
staffing decision, but does not include a layoff if:
a) The Employee becomes employed by the Company or any Affiliate or Subsidiary
of the Company within 90 days of the layoff.
28
<PAGE> 29
b) The layoff occurs because of a merger, sale, spin-off, reorganization, or
similar transfer of assets or stock, and the Employee is offered Equivalent
Employment with The Boeing Company or any Affiliate or Subsidiary of the
Company.
c) The layoff occurs because of an act of God, natural disaster, or national
emergency.
d) The layoff occurs because of a strike, picketing of the Company's premises,
work stoppage, or any similar action which would interrupt or interfere with
any operation of the Company, or
e) The termination of employment is for any reason other than involuntary
layoff, including, but not limited to, voluntary or temporary layoff,
resignation, dismissal, retirement, death, or leave of absence.
Article 3
Layoff Benefit
--------------
3.1 Layoff Benefit
An Employee's Layoff Benefit is equal to:
a) One year of salary (base salary at time of layoff), plus
b) Incentive target under the Incentive Compensation Plan for Officers and
Employees of The Boeing Company and Subsidiaries or the McDonnell Douglas
Senior Executive Performance Sharing Plan or the Performance Sharing Plan
effective at the time of the Layoff Event, plus
c) The Company paid portion of the cost (grossed up for taxes) for the current
medical and dental coverage for the Employee and dependents for twelve months,
less
d) If applicable, the total of all payments made, or to be made, pursuant to
the Employee's Termination Benefits Agreement; or the Employee Severance Pay
Plans of McDonnell Douglas Corporation (McDonnell Douglas Finance Corporation
or McDonnell Douglas Realty Corporation); or any other individual employment
agreement.
3.2 Payment of Layoff Benefit
a) Lump Sum Benefit
An Employee will receive his or her Layoff Benefit as a lump sum, net of
any applicable withholding taxes, to be paid within a reasonable period of
time following the Layoff Event. Interest shall not accrue on a Layoff
Benefit regardless of the time of payment.
b) Limit on Payment
No Employee shall be paid more than one Layoff Benefit under this Plan. In
no event will the Layoff Benefit exceed the equivalent of twice the Employee's
Annual Compensation during the year immediately preceding the termination of
an Employee's service.
29
<PAGE> 30
For purposes of this section, Annual Compensation means the total of all
compensation, including wages, salary, and any other benefit of monetary
value, whether paid in the form of cash or otherwise, which was paid as
consideration for the Employee's service during the year, or which would have
been so paid at the Employee's usual rate of compensation if the employee had
worked a full year.
c) Recovery of Payment
If a Layoff Benefit is paid to an Employee and the Committee determines
that all or part of such payment was not owed under the terms of the Plan, the
Company reserves the right to recover such payment, including deducting such
amounts from any sums due the Employee.
d) Recovery of Debt
If an Employee owes the Company an acknowledged debt, including, but not
limited to, loans, relocation fees, and travel advances, such debt may be
deducted from the Layoff Benefit, subject to applicable state laws.
e) Waiver of Claims
As a condition to receiving the Layoff Benefit described in Section 3.1,
the Employee must execute a release of all claims by submitting to the Company
a Waiver and Release form in a form provided by the Company.
3.3 Death Benefit
No death benefit is payable under the Plan. All rights to a Layoff Benefit
shall terminate upon the death of the Employee whether or not payment has been
made or begun.
Article 4
Administration
--------------
4.1 Administration
a) The Committee will serve as the Plan administrator and named fiduciary
pursuant to ERISA. The Committee will have complete control of the
administration of the Plan, subject to the provisions hereof, with all powers
necessary to enable it to carry out its duties properly in that respect. Not
in limitation, but in amplification of the foregoing, it will have the power
to interpret the Plan, to apply its discretion, and to determine all questions
that may arise hereunder, including all questions relating to the eligibility
of Employees to participate in the Plan and the amount of benefit to which
any Employee may become entitled. Its decisions upon all matters within the
scope of its authority will be final and binding.
b) The Committee will establish rules and procedures to be followed by
Employees in filing applications for benefits and in other matters required to
administer the Plan.
30
<PAGE> 31
4.2 Committee Liability
The members of the Committee shall use ordinary care and diligence in the
performance of their duties, but no member will be personally liable by virtue
of any contract, agreement, or other instrument made or executed as a member
of the Committee, nor for any mistake of judgment made by such member or by
any other member, nor for any loss unless resulting from willful misconduct or
failure to exercise good faith. No member of the Committee will be liable for
the neglect, omission, or wrongdoing of any other member or of the agents or
counsel of the Committee. The Company shall indemnify each member of the
Committee against, and hold each member harmless from any and all expenses and
liabilities arising out of, any act or omission to act as a member of the
Committee, except such liabilities and expenses as are due to willful
misconduct or failure to exercise good faith.
4.3 Claim Procedure
The Committee shall adopt procedures for the presentation of claims for
benefits and for the review of the denial of such claims by the Committee.
The decision of the Committee upon such review shall be final, subject to
appeal rights provided by law.
Article 5
General Provisions
------------------
5.1 Plan Amendment and Termination
The Company, acting through the Compensation Committee, may amend or terminate
the Plan in whole or in part at any time. Such amendments may include any
remedial retroactive changes to comply with the requirements of any law or
regulation issued by any government agency to which the Company is subject.
If not terminated earlier by action of the Committee, the Plan will terminate
on March 31, 1999.
5.2 Funding
The Plan shall be unfunded, and Layoff Benefits shall be paid from the general
assets of the Company.
5.3 Benefit Plan Application
Layoff Benefits and periods for which an Employee receives a Layoff Benefit
shall not be considered as compensation or service under any employee benefit
plan or program and shall not be counted toward Service under this Plan.
Layoff Benefits may not be deferred into the Voluntary Investment Plan or any
other cash or deferred arrangement.
5.4 Provision Against Anticipation
No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge, or other
legal process, and any attempt to do so shall be void.
31
<PAGE> 32
5.5 Employment Status
Nothing contained in the Plan will be deemed to give any Employee the right to
be retained in, or recalled to, the employ of the Company or to interfere with
the rights of the Company to discharge any Employee at any time.
5.6 Facility of Payment
If any Employee is physically or mentally incapable of giving a valid receipt
for any payment due and no legal representative has been appointed for such
Employee, the Committee may make such payment to any person or institution
maintaining such Employee and the release of such person or institution will
be a valid and complete discharge for such payment. Any final payment or
distribution to any Employee or the legal representative of the Employee in
accordance with the provisions herein will be in full satisfaction of all
claims against the Plan, the Committee, and the Company arising under or by
virtue of the Plan.
5.7 Construction
The validity of the Plan or any of its provisions will be determined under and
will be construed according to federal law and, to the extent permissible,
according to the laws of the state of Washington. If any provision of the
Plan is held illegal or invalid for any reason, such determination will not
affect the remaining provisions of the Plan and the Plan will be construed and
enforced as if said illegal or invalid provision had never been included.
32
<PAGE> 33
Exhibit (10) (ii)
SUPPLEMENTAL RETIREMENT PLAN
FOR EXECUTIVES OF
THE BOEING COMPANY
Section 1. Purpose of the Plan.
- -------------------------------
The Supplemental Retirement Plan for Executives of The Boeing Company was
established effective July 1, 1980. Its sole purpose is to provide a retirement
benefit for a select group of management or highly compensated employees of The
Boeing Company (the Company) supplemental to the benefits provided by the
Company's Employee Retirement Plan. The prior Plan is amended effective
February 26, 1996, to read as set forth in this Plan document.
Section 2. Definitions.
- -----------------------
The Plan means the Supplemental Retirement Plan for Executives of The Boeing
Company as herein set forth, together with any amendments to it that may at any
time be adopted.
The Retirement Plan means The Boeing Company Employee Retirement Plan, together
with any amendments to it that may at any time be adopted.
The Incentive Compensation Plan means the Incentive Compensation Plan for
Officers and Employees of The Boeing Company and Subsidiaries, together with any
amendments to it that may at any time be adopted.
The Long-Term Incentive Program means the program provided for by Section 5A of
the Incentive Compensation Plan, together with any modifications that may at any
time be adopted.
The Supplemental Benefit Plan means the Supplemental Benefit Plan for Employees
of The Boeing Company, together with any amendments to it that may at any time
be adopted.
Defined terms in the Retirement Plan will have the same meaning when used in
this Plan.
The Code means the Internal Revenue Code of 1986, as amended.
The Supplemental Benefit means the benefit provided by this Plan.
Effective January 1, 1991, Final Average Monthly Total Earnings means the sum of
(a) Final Average Monthly Earnings as defined in the Retirement Plan without
regard to the compensation limitation under Code Section 401(a)(17), and (b) the
sum of the five highest awards made to the employee under the Incentive
Compensation Plan during the last ten calendar years preceding his retirement
date divided by sixty. If fewer than five awards are made, then the sum of all
awards made during the last ten calendar years preceding retirement will be used
in computing (b) above.
33
<PAGE> 34
For purposes of the computations under clause (b) above, an employee's Incentive
Compensation Plan award includes:
(i) deferred awards, as well as those paid currently,
(ii) the amount by which the Compensation Committee of the Board of
Directors reduces the employee's Incentive Compensation Plan award
under Section 5 thereof because of the employee's participation in
the Long-Term Incentive program under Section 5A thereof; and
(iii) Boeing Stock Unit awards made under Section 5B thereof at their Fair
Market Value as of the date of the award, determined as provided in
such Section 5B; provided, that Boeing Stock Unit awards that have
been forfeited pursuant to clause (5) of Section 5B shall be
excluded from the computations under clause (b) above.
(iv) Incentive Stock Unit awards made pursuant to the Incentive Stock
Plan for Employees at their Fair Market Value as of the date of the
award, determined as provided in the grant of the Incentive Stock
Unit award; provided that, Incentive Stock Unit awards that have
been forfeited pursuant to the terms of such award shall be excluded
from the computation under clause (b) above.
Section 3. Eligibility.
- ----------------------
Eligibility for the accrual of a Supplemental Benefit under this Plan is limited
to employees of the Company, and employees of an affiliate or subsidiary of the
Company which, pursuant to the provisions prescribed therein, has adopted The
Boeing Company Employee Retirement Plan, the Voluntary Investment Plan and the
Employee Financial Security Plan, either on the active payroll or on approved
leave of absence, on or at any time after July 1, l980, who were also members of
the Incentive Compensation Plan (Executive Payroll, formerly known as 90-Series
Grades) as of July 1, 1980, or who became members of the Incentive Compensation
Plan at a later date.
Eligibility for the payment of a Supplemental Benefit is limited to employees
who have participated in this Plan and who immediately prior to their retirement
or death while in the employ of the Company, as the case may be, were
participants in the Retirement Plan and also on the management payroll; and who,
in the case of death while in the employ of the Company, left a spouse who
became entitled to a survivor benefit under the Retirement Plan.
Section 4. Supplemental Benefit.
- -------------------------------
The Supplemental Benefit payable to a retiring employee of the Company is a
monthly amount computed as (a) + (b) - (c) below.
(a) Core Benefit: A monthly amount equal to 1% of Final Average Monthly
Total Earnings multiplied by Credited Service and the appropriate
Early Retirement Reduction Factor. The Early Retirement Reduction
Factor is based on the employee's age in completed months on the
date of retirement. The appropriate factors are as follows:
34
<PAGE> 35
Early Retirement
Age at Retirement Reduction Factor
----------------- ----------------
55 90%
56 92%
57 94%
58 96%
59 98%
60 or older 100%
(b) Excess Benefit. A monthly amount based on .5% of Final Average
Monthly Total Earnings in excess of Covered Compensation divided by
twelve. This amount is multiplied by Credited Service and then by
the appropriate Early Retirement Reduction Factor. The Early
Retirement Reduction Factor is based on the employee's age in
completed months on the date of retirement. The appropriate factors
are as follows:
Early Retirement
Age at Retirement Reduction Factor
----------------- ----------------
55 75%
56 80%
57 85%
58 90%
59 95%
60 or older 100%
(c) Retirement Plan and Supplemental Benefit Plan Benefit: The amount
payable from The Boeing Company Employee Retirement Plan and the
amount payable under Section 3 Paragraph (a) of the Supplemental
Benefit Plan. If applicable, this amount will reflect reductions
for early retirement. However, this amount will not reflect
reductions for joint and survivor options or other optional forms of
payment.
In no event will the Supplemental Benefit be less than zero.
Section 5. Payment of Benefit.
- ------------------------------
Subject to Section 6 and the provisions of this Section 5, the Supplemental
Benefit shall be paid to the retiring employee (and, if applicable, to his or
her surviving spouse) at the same time and for the same period and generally in
accordance with the same provisions as are applicable to the payment of
retirement benefits under the Retirement Plan. Without limiting the generality
of the foregoing, if an employee should die while still in the employ of the
Company leaving a spouse entitled to a survivor benefit under the Retirement
Plan, the spouse will be entitled to receive for life on account of the
35
<PAGE> 36
Supplemental Benefit an amount determined in the same way as his or her survivor
benefit was determined under the Retirement Plan. The retiring employee may
elect to receive payment of the Supplemental Benefit under either the straight
life method or the 50%, 75% or 100% joint and survivor method, and such election
shall be subject to the same actuarial or other adjustments that are used in
determining benefits under the Retirement Plan. If the employee's benefits
under the Retirement Plan are increased on account of subsequent amendments to
that Plan, for example, amendments providing increased benefits for retirees, a
corresponding increase will be made in the Supplemental Benefit.
Notwithstanding the foregoing, if the Actuarial Equivalent of a Participant's
Supplemental Benefit (or, if applicable, that of his or her spouse) is $10,000
or less, the Actuarial Equivalent value of the Supplemental Benefit shall be
paid in the form of an automatic lump sum at the same time as benefits begin or
are paid under the Retirement Plan. This paragraph applies to Participants who
retire or begin receiving termination benefits under the Retirement Plan (or to
spouses who begin receiving their benefits) on or after February 1, 1997, and
for this purpose the Actuarial Equivalent shall be determined as of the
Participant's Retirement Date (or, if applicable, the spouse's benefit
commencement date) under the Retirement Plan. This paragraph shall also apply
to Participants (or spouses) who are receiving benefits under this Plan as of
February 1, 1997, and for this purpose the Actuarial Equivalent shall be
determined with respect to each Participant's remaining benefits payable under
this Plan determined as of February 1, 1997.
Section 6. Forfeiture.
- ----------------------
A retired employee (and a surviving spouse, if applicable) shall forfeit all
right to receive further payments of the Supplemental Benefit and shall have no
further interest in this Plan if at any time after retirement the retired
employee shall engage in an activity, whether individually or as an employee,
consultant or otherwise, which the Retirement Committee, in its sole and
absolute discretion, shall determine to be in competition with any significant
aspect of the Company's business.
Section 7. Nonassignability.
- ----------------------------
The Supplemental Benefit shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, charge, execution, attachment,
garnishment or any other legal process. Any attempt to take any such action
shall be void and shall authorize the Retirement Committee, in its sole and
absolute judgment, to forfeit all further right and interest in the Supplemental
Benefit.
Section 8. Funding.
- -------------------
The Plan shall be unfunded, and the Supplemental Benefit shall be paid only from
the general assets of the Company.
36
<PAGE> 37
Section 9. Administration.
- --------------------------
The Plan shall be administered by the Retirement Committee as appointed by the
Board of Directors of The Boeing Company. The Committee shall make such rules,
interpretation, determinations of fact and computations as it may deem
appropriate. Any decision of the Committee with respect to the Plan, including
(without limitation) any calculation of a Supplemental Benefit, shall be
conclusive and binding on all persons.
Section 10. Amendment and Termination.
- --------------------------------------
The Boeing Company shall have the authority to amend or terminate the Plan at
any time. Such amendment or termination shall not adversely affect or impair
the benefit entitlements in course of payment to retired employees and surviving
spouses, the contingent rights to the continuance of benefit payments of the
spouses of retired employees named as Joint Annuitants, or the accrued
Supplemental Benefits as defined in this Section of all eligible employees then
in the employ of the Company.
For the purpose of this section, an accrued Supplemental Benefit will be
determined for each eligible employee in accordance with the provisions of
Section 4 but based on Credited Service, Final Average Monthly Total Earnings,
Covered Compensation and the accrued benefit provided by the Retirement Plan all
determined as of the effective date of the amendment or termination. Payment of
benefits based on such an accrued Supplemental Benefit will be made in
accordance with the terms of this Plan to the employee if he retires under the
Retirement Plan, or to his surviving spouse if he dies while in the employ of
the Company and leaves a spouse eligible for a Pre-Retirement Joint and Survivor
Spouse Benefit under the Retirement Plan.
Section 11. Employment Rights.
- -----------------------------
Nothing in the Plan shall be deemed to give any person any right to remain in
the employ of the Company or affect any right of the Company to terminate a
person's employment with or without cause.
37
<PAGE> 38
Exhibit (10) (iii)
SUPPLEMENTAL BENEFIT PLAN
FOR EMPLOYEES OF
THE BOEING COMPANY
Section 1. Purpose of the Plan.
- -------------------------------
The Supplemental Benefit Plan for Employees of The Boeing Company (the Plan) was
established effective January 1, 1978 by The Boeing Company (the Company). The
purpose of the Plan is to supplement the benefits of certain employees under the
Company's Employee Retirement Plan, Voluntary Investment Plans, Employee Stock
Ownership Plan and Financial Security Plan to the extent that such benefits are
reduced by the limitations on benefits and contributions imposed by Section 415
of the Internal Revenue Code of 1986 (the Code). For the period January 1, 1987
through May 31, 1987, the purpose of the Plan shall also be to supplement the
limitation on Elective Deferrals imposed by Section 402(g)(1) of the Code, to
the extent such deferrals for certain employees are required to be reduced.
Effective January 1, 1989, the purpose of the Plan shall be expanded to also
supplement the benefits of certain employees to the extent such benefits are
curtailed because their Compensation exceeds the annual compensation limit
permitted under Section 401(a)(17) of the Code. It is intended that the Plan
shall be an Excess Benefit Plan as defined in Section 3 (36) of the Employee
Retirement Income Security Act of 1974.
Section 2. Eligibility and Participation.
- -----------------------------------------
Participation and eligibility shall be limited to those Executive Payroll
(formerly known as 90-Series) employees of the Company, or an affiliate or
subsidiary, who are participants in the Company's Employee Retirement Plan,
Voluntary Investment Plan or Financial Security Plan and whose benefits
thereunder are affected by the limitations on benefits or contributions imposed
by Section 415 and 401(a)(17) of the Code. Such persons shall be referred to as
Participants.
Section 3. Plan Benefits.
- -------------------------
Each Participant shall be entitled to benefits under this Plan as follows:
(a) Employee Retirement Plan. With respect to the Employee
Retirement Plan, the benefits under this Plan shall be the
difference between the actual benefits of a Participant under
the Employee Retirement Plan and the benefits that would have
been payable under that plan except for the limitations on
benefits imposed by Sections 415 and 401(a)(17) of the Code. The
benefits payable under this Plan with respect to the Employee
Retirement Plan shall be payable to the Participant or to any
other person who is receiving or entitled to receive benefits with
respect to the Participant under the Employee Retirement Plan, and
shall be paid in the same form, at the same times and for the same
period as benefits are paid with respect to the Participant under
the Employee Retirement Plan.
38
<PAGE> 39
Notwithstanding the foregoing, if the Actuarial Equivalent of the
benefit payable under this Plan with respect to the Employee
Retirement Plan is $10,000 or less, the Actuarial Equivalent value
of the benefit shall be paid in the form of an automatic lump sum
at the same time as benefits begin or are paid under the Employee
Retirement Plan. Actuarial Equivalent is defined in the Employee
Retirement Plan. This paragraph applies to Participants who retire
or begin receiving termination benefits under the Employee
Retirement Plan on or after February 1, 1997, and for this purpose
the Actuarial Equivalent shall be determined as of the
Participant's Retirement Date under the Employee Retirement Plan.
This paragraph shall also apply to Participants who are receiving
benefits under this Plan as of February 1, 1997, and for this
purpose the Actuarial Equivalent shall be determined with respect
to each participant's remaining benefits payable under this Plan
determined as of February 1, 1997.
(b) Voluntary Investment Plans; Financial Security Plan; Employee
Stock Ownership Plan. With respect to the Voluntary Investment
Plans, the Financial Security Plan and the Employee Stock Owner-
ship Plan (the "individual account plans"), the benefits under
this Plan shall be determined separately for each such plan and
for each year for which the contributions and other additions to
the account of a Participant are reduced because of Sections 415,
401(a)(17) and 402(g)(1) of the Code from what they would other-
wise have been except for that provision. The benefits under this
Plan with respect to a particular year shall be the additional
benefit that would have been payable under the individual account
plan to which the aforesaid reduction is applicable if the
reduction on contributions and other additions had not been made.
All amounts deferred under this Plan shall be credited to the
Supplemental Benefit Plan accounts of Participants at the time
such amounts would otherwise have been credited to their accounts
under the individual account plans. Interest shall be credited to
each Participant's account balance at the same time and at the
same rate of interest as is established for the period involved
under the Deferred Compensation Plan for Employees of The Boeing
Company.
Benefits under this Plan shall be payable to the Participant, or
to any person receiving or entitled to receive benefits with
respect to the Participant under the Voluntary Investment Plans of
the Company (the "VIP"), and shall be paid in any form allowable
under the VIP at the same time or times and for the same periods
as benefits are payable under the VIP to or with respect to such
Participant.
Section 4. Funding.
- -------------------
The Plan shall be unfunded, and the benefits under the Plan shall be paid only
from the general assets of the Company.
39
<PAGE> 40
Section 5. Administration.
- --------------------------
The Plan shall be administered by the Compensation Committee of the Board of
Directors of The Boeing Company. No member of the Committee shall become a Plan
Participant. The Committee shall make such rules, interpretations,
determinations of fact and computations as it may deem appropriate. Any
decision of the Committee with respect to the Plan, including (without
limitation) any determination of eligibility to participate in the Plan and any
calculation of plan benefits, shall be conclusive and binding on all persons.
The Committee shall submit to the Board of Directors periodic reports covering
the operation of the Plan.
Section 6. Amendment and Termination.
- -------------------------------------
The Boeing Company shall have the authority to amend or terminate the Plan at
any time. In the event of Plan amendment or termination, a Participant's
benefits under the Plan shall not be less than the Plan benefits to which the
Participant would be entitled if the Participant had terminated employment
immediately prior to such amendment or termination of the Plan.
Section 7. Employment Rights.
- -----------------------------
Nothing in the Plan shall be deemed to give any person any right to remain in
the employ of the Company or affect any right of the Company to terminate a
person's employment with or without cause.
Section 8. Employee Rights.
- ---------------------------
No benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge, execution,
attachment, garnishment, or any other legal process, and any attempt to do so
shall be void.
40
<PAGE> 41
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, 1997, the
consolidated statements of operations for the nine-month periods ended September
30, 1997 and 1996, and the statements of cash flows for the nine-month periods
ended September 30, 1997 and 1996, have been reviewed by the registrant's
independent accountants, Deloitte & Touche LLP, whose letter regarding such
unaudited interim financial information follows.
November 12, 1997
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 (the Company) and subsidiaries for the nine-
month periods ended September 30, 1997, and 1996 as indicated in our report
dated October 24, 1997; because we did not perform an audit, we expressed no
opinion on that information. That information gives retroactive effect to the
1997 merger of the Company and McDonnell Douglas Corporation (McDonnell
Douglas), which has been accounted for as a pooling of interests. We were
furnished with the reports of other accountants on their review of the interim
financial statements of McDonnell Douglas for the respective three-month and
nine-month periods ended September 30, 1996, and six-month period ended June
30, 1997.
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, 1997, is
incorporated by reference in Registration Statement Nos. 2-48576, 33-25332, 33-
31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867, 333-32461, 333-
32499, 333-32491, and 333-32567 of The Boeing Company on Form S-8.
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
41
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