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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, 1998
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 30, 1998, there were 999,133,781 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
- -----------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------
Sales and other operating revenues $39,047 $34,073 $12,717 $11,371
Operating costs and expenses 35,079 30,418 11,265 11,244
General and administrative expense 1,488 1,623 528 650
Research and development expense 1,431 1,464 455 456
Share-based plans 106 42 43 40
- -----------------------------------------------------------------------------
38,104 33,547 12,291 12,390
- -----------------------------------------------------------------------------
Earnings (loss) from operations 943 526 426 (1,019)
Other income, principally interest 241 303 92 120
Interest and debt expense (341) (365) (114) (122)
- -----------------------------------------------------------------------------
Earnings (loss) before income taxes 843 464 404 (1,021)
Income taxes 188 144 57 (325)
- -----------------------------------------------------------------------------
Net earnings (loss) $ 655 $ 320 $ 347 $ (696)
=============================================================================
Basic earnings (loss) per share $.67 $.33 $.36 $(.72)
=============================================================================
Diluted earnings (loss) per share $.67 $.33 $.36 $(.72)
=============================================================================
Cash dividends per share $.42 $.42 $.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)
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
(Unaudited)
Assets
- -----------------------------------------------------------------------------
Cash and cash equivalents $ 2,435 $ 4,420
Short-term investments 279 729
Accounts receivable 3,255 3,121
Current portion of customer and commercial financing 126 261
Deferred income taxes 1,674 1,765
Inventories, net of advances and progress billings 10,531 8,967
- -----------------------------------------------------------------------------
Total current assets 18,300 19,263
Customer and commercial financing 4,373 4,339
Property, plant and equipment, net 8,552 8,391
Deferred income taxes 232 15
Goodwill 2,333 2,395
Prepaid pension expense 3,409 3,271
Other assets 424 350
- -----------------------------------------------------------------------------
$37,623 $38,024
=============================================================================
Liabilities and Shareholders' Equity
- -----------------------------------------------------------------------------
Accounts payable and other liabilities $10,909 $11,548
Advances in excess of related costs 1,484 1,575
Income taxes payable 674 298
Short-term debt and current portion of long-term debt 534 731
- -----------------------------------------------------------------------------
Total current liabilities 13,601 14,152
Accrued retiree health care 4,789 4,796
Long-term debt 6,261 6,123
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 1,011,870,159 and 1,000,029,538 5,059 5,000
Additional paid-in capital 1,171 1,090
Treasury shares, at cost - 11,668,743 and 164,667 (417) (9)
Retained earnings 8,518 8,147
Unearned compensation (18) (20)
ShareValue Trust shares - 38,005,571 and 26,385,260 (1,341) (1,255)
- -----------------------------------------------------------------------------
Total shareholders' equity 12,972 12,953
- -----------------------------------------------------------------------------
$37,623 $38,024
=============================================================================
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
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 655 $ 320
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Share-based plans 106 42
Depreciation and amortization 1,225 1,106
Changes in assets and liabilities -
Short-term investments 450 153
Accounts receivable (134) (442)
Inventories, net of advances and
progress billings (1,564) (1,392)
Accounts payable and other liabilities (492) 1,633
Advances in excess of related costs (91) 257
Income taxes payable and deferred 250 (153)
Other assets (227) (345)
Accrued retiree health care (7) 7
- -----------------------------------------------------------------------------
Net cash provided by operating activities 171 1,186
- -----------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and properties on lease - additions (978) (928)
Customer financing and properties on lease - reductions 983 751
Property, plant and equipment, net additions (1,213) (1,006)
- -----------------------------------------------------------------------------
Net cash used by investing activities (1,208) (1,183)
- -----------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 548 66
Debt repayments (607) (594)
Common shares purchased (479) (118)
Common shares issued 268
Stock options exercised, other 15 143
Dividends paid (425) (417)
- -----------------------------------------------------------------------------
Net cash used by financing activities (948) (652)
- -----------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,985) (649)
Cash and cash equivalents at beginning of year 4,420 5,469
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of 3rd quarter $ 2,435 $ 4,820
=============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Condensed Consolidated Interim Financial Statements
The condensed consolidated interim financial statements included in this
report have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary for a fair presentation are reflected in
the interim financial statements. Such adjustments are of a normal and
recurring nature. The results of operations for the period ended September
30, 1998, are not necessarily indicative of the operating results for the full
year. The interim financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's 1997 Annual Report. Certain reclassifications have been made to
prior periods to conform with current reporting.
Note 2 - Recognition of Forward Loss for the Next-Generation 737 Program
During the first quarter of 1998, the Company recognized a forward loss pretax
charge of $350 attributable to the Next-Generation 737 program. This charge
represents an increase to the forward loss charge of $700 recognized by the
Company in the third quarter of 1997. As of March 31, 1998, the cumulative
forward loss of $1,050 represented the amount by which the estimated production
costs exceeded the estimated revenue for the first 400 units of the program.
The additional forward loss resulted principally from additional retrofit
activity costs attributable to flight test and certification requirements, as
well as the costs of increased resources to reduce out-of-sequence work and
process flow risks. As of September 30, 1998, the Company had delivered 94
Next-Generation 737 airplanes.
Note 3 - Earnings per Share
The weighted average number of shares (in millions) used for computing earnings
per share for the periods ended September 30, 1998 and 1997, are as follows:
First Nine Months Third Quarter
----------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Basic shares 972.0 969.3 969.3 972.3
Diluted shares 982.4 984.5 977.3 972.3
Basic earnings per share are calculated based on the weighted average number of
shares outstanding, excluding the outstanding shares held by the ShareValue
Trust. Diluted earnings per share are calculated based on the same number of
shares plus additional dilutive shares representing stock distributable under
share-based plans computed using the treasury stock method.
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Note 4 - Income Taxes
The effective income tax provision rate of 22.3% for the first nine months of
1998 is lower than the statutory federal rate, principally due to a $57
reduction in the income tax provision recognized in the third quarter related to
settlement of prior years' defense-related partnership research and development
tax credits, and to Foreign Sales Corporation tax benefits and current-year
research and development tax credits. Partially offsetting this reduction
from the statutory federal rate are state income taxes and non-deductibility
of goodwill. Net income tax payments were $3 and $250 for the nine months
ended September 30, 1998 and 1997.
Note 5 - Accounts Receivable
Accounts receivable consisted of the following:
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
U.S. Government contracts $2,203 $2,053
Other 1,052 1,068
- -----------------------------------------------------------------------------
$3,255 $3,121
=============================================================================
Note 6 - Inventories
Inventories consisted of the following:
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
Commercial aircraft programs
and long-term contracts in progress $ 28,058 $ 26,566
Commercial spare parts, general stock
materials and other 2,283 1,869
- -----------------------------------------------------------------------------
30,341 28,435
Less advances and progress billings (19,810) (19,468)
- -----------------------------------------------------------------------------
$ 10,531 $ 8,967
=============================================================================
As of September 30, 1998, there were 36 undelivered commercial aircraft in
storage, representing $1,500 net of customer advances.
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Note 7 - Customer and Commercial Financing
Customer and commercial financing consisted of the following:
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 535 $ 651
Investment in sales-type/financing leases 1,241 1,646
Operating lease equipment, at cost,
less accumulated depreciation
of $219 and $254 1,817 1,289
Commercial equipment financing
Notes receivable 373 313
Investment in sales-type/financing leases 386 407
Operating lease equipment, at cost,
less accumulated depreciation
of $108 and $96 366 502
- -----------------------------------------------------------------------------
Less valuation allowance (219) (208)
- -----------------------------------------------------------------------------
$4,499 $4,600
=============================================================================
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.
Note 8 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
Accounts payable $ 5,590 $ 5,609
Accrued compensation and employee benefit costs 2,460 2,154
Lease and other deposits 665 819
Other 2,194 2,966
- -----------------------------------------------------------------------------
$10,909 $11,548
=============================================================================
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Note 9 - Debt
Short- and long-term debt consisted of the following:
September 30 December 31
1998 1997
- -----------------------------------------------------------------------------
Unsecured debentures and notes:
7 5/8% due Feb. 17, 1998 $ - $ 301
8 7/8% due Sep. 15, 1999 306 311
8.25% due Jul. 1, 2000 200 200
8 3/8% due Feb. 15, 2001 180 182
9.25% due Apr. 1, 2002 120 120
6 3/4% due Sep. 15, 2002 298 297
6.35% due Jun. 15, 2003 300 299
7 7/8% due Feb. 15, 2005 208 209
6 5/8% due Jun. 1, 2005 292 291
6.875% due Nov. 1, 2006 248 248
8 1/10% due Nov. 15, 2006 175 175
9.75% due Apr. 1, 2012 348 348
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
6 5/8% due Feb. 15, 2038 300
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Senior debt securities,
5.0% - 9.4%, due through 2011 58 148
Senior medium-term notes,
5.5% - 13.6%, due through 2017 1,228 1,129
Subordinated medium-term notes,
6.1% - 9.4%, due through 2004 70 70
Capital lease obligations due through 2008 412 500
Other notes 288 262
- -----------------------------------------------------------------------------
$6,795 $6,854
=============================================================================
The Company has $2,400 currently available under credit line agreements with a
group of commercial banks. The Company has complied with the restrictive
covenants contained in various debt agreements. In addition, Boeing Capital
Corporation, a corporation wholly owned by the Company, has $240 available, but
unused, under a credit line agreement with a group of commercial banks. Total
debt interest, including amounts capitalized, was $390 and $413 for the nine-
month periods ended September 30, 1998 and 1997, and interest payments were $367
and $442, respectively.
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Note 10 - Shareholders' Equity
Changes in shareholders' equity for the nine-month periods ended September 30,
1998 and 1997, consisted of the following:
- -----------------------------------------------------------------------------
1998 1997
(Shares in thousands) Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Common stock
Beginning balance - January 1 1,000,030 $ 5,000 993,348 $ 4,967
Shares issued 4,550 23
Shares issued for the ShareValue Trust 11,253 56
Shares issued for incentive stock plans 587 3 2,125 10
- -----------------------------------------------------------------------------
Ending balance - September 30 1,011,870 $ 5,059 1,000,023 $ 5,000
=============================================================================
Additional paid-in capital
Beginning balance - January 1 $ 1,090 $ 920
Share-based compensation, net of tax impact 69
Treasury shares issued for incentive
stock plans, net (37) (5)
Shares issued 245
Tax benefit related to incentive stock plans 13 31
Stock appreciation rights expired
or surrendered 6 5
Shares issued for the ShareValue Trust 494
ShareValue Trust market value adjustment (464) 42
- -----------------------------------------------------------------------------
Ending balance - September 30 $ 1,171 $ 1,238
=============================================================================
Treasury stock
Beginning balance - January 1 165 $ (9) 30 $ (1)
Treasury shares issued for incentive
stock plans, net (1,407) 71 (1,349) 106
Treasury shares acquired 12,911 (479) 1,564 (118)
Shares transferred from
ShareValue Trust 5
- -----------------------------------------------------------------------------
Ending balance - September 30 11,669 $ (417) 250 $ (13)
=============================================================================
Retained earnings
Beginning balance - January 1 $ 8,147 $ 8,896
Net earnings 655 320
Cash dividends declared (284) (291)
- -----------------------------------------------------------------------------
Ending balance - September 30 $ 8,518 $ 8,925
=============================================================================
Unearned compensation
Beginning balance - January 1 $ (20) $ (22)
New issuances (29)
Forfeitures 6
Amortization (4) 29
- -----------------------------------------------------------------------------
Ending balance - September 30 $ (18) $ (22)
=============================================================================
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Note 10 - Shareholders' Equity (continued)
Changes in shareholders' equity for the nine-month periods ended September 30,
1998 and 1997, consisted of the following:
- -----------------------------------------------------------------------------
1998 1997
(Shares in thousands) Shares Amount Shares Amount
- -----------------------------------------------------------------------------
ShareValue Trust
Beginning balance - January 1 26,385 $(1,255) 26,120 $(1,258)
Shares transferred to treasury stock (5)
Shares acquired from dividend reinvestment 368 200
Shares issued from common stock 11,253 (550)
Market value adjustment 464 (42)
Accrual of distributable appreciation 42
- -----------------------------------------------------------------------------
Ending balance - September 30 38,006 $(1,341) 26,315 $(1,258)
=============================================================================
Comprehensive income and net earnings were the same for the periods presented.
Note 11 - Share-Based Compensation
Beginning in the first quarter of 1998, the Company adopted the expense
recognition provisions of Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, which applies to Performance Share
awards, the ShareValue Trust plan, and stock options.
On February 23, 1998, the Company awarded approximately 3.9 million Performance
Shares to executive management. Performance Shares are convertible to common
stock at the time the stock price reaches and maintains certain threshold levels
for 20 consecutive days. These threshold levels represent predetermined
compound five-year growth rates relative to the stock price on the date of the
award. In accordance with SFAS No. 123, the Company will recognize the
associated expense over the five-year award period.
The ShareValue Trust, currently in its third year, is a 14-year irrevocable
trust that holds Boeing common stock, receives dividends, and distributes to
employees appreciation in value above a 3% per annum threshold rate of return.
The expense recognition method for the ShareValue Trust plan under SFAS No. 123
is based upon the fair value of the total expected distributions, determined by
applying an option pricing model. The fair value of the expected distributions
under the option pricing model is recognized over the life of the plan
regardless of actual distributions. On June 30, 1998, the first investment
period of the trust ended with a fund appreciation insufficient to generate a
distribution to employees. The second investment period and the next potential
distribution measurement date will be June 30, 2000.
The Company granted stock options during the first nine months of 1998, and
recognized $21 million of expense in accordance with the provisions of SFAS No.
123.
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Note 12 - Contingencies
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
legal proceedings are related to matters covered by insurance.
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, 1998, inventories included approximately $581 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 claim for contract adjustments
for a minimum of $250, 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, which was $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. On December 5, 1997, the Court issued
an opinion confirming its preliminary holding that plaintiffs were entitled to
certain adjustments to the contract funding, increasing the plaintiffs' possible
recovery to $1,200. On March 31, 1998, the Court entered a judgment, pursuant
to a March 30 opinion and order, determining that plaintiffs were entitled to be
paid that amount, plus statutory interest from June 26, 1991, until paid.
Although the Government has appealed 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, could result in pretax income that would more than
offset the loss provision established in 1990.
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 executive officers.
Additional lawsuits of a similar nature have been filed in the same court.
These lawsuits were consolidated on February 24, 1998. The plaintiffs 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.
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On March 26, 1997, Gerald Verdine sued McDonnell Douglas Corporation for age and
race discrimination, retaliation and breach of contract. After a trial that
concluded in July 1998, the jury returned a verdict in favor of Mr. Verdine on
the retaliation count and a breach of contract count and were either
deadlocked or ruled in favor of McDonnell Douglas Corporation on the remaining
causes of action. The jury awarded damages to Mr. Verdine in the amount of
$28. The trial court reduced the verdict to $10.4 in response to post-trial
motions. Boeing has filed an appeal seeking to overturn the entire verdict.
On June 6, 1998, sixteen (16) African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint in
U.S. District Court for the Western District of Washington alleging, on the
basis of race, discrimination in promotions and training. The plaintiffs also
allege retaliation and harassment and seek, among other things, an order
certifying a class of all African American employees who are currently working
or have worked for the three companies during the past few years. Also, on July
31, 1998, seven African American employees of the helicopter division of the
Military Aircraft & Missile Systems Group in Philadelphia filed an action in the
U.S. District Court for the Eastern District of Pennsylvania alleging, on the
basis of race, discrimination in compensation, promotions and terminations. The
complaint also alleges retaliation at that division. Plaintiffs are seeking an
order certifying a class of all African American employees of The Boeing
Company. In September 1998, the Court conditionally denied plaintiffs' motion
seeking class certification and allowed plaintiffs to renew their motion upon
completion of class discovery. The Company believes that the outcome of the
lawsuits will not have a material adverse effect on its earnings, cash flow or
financial position.
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Note 13 - Business Segment Data
Segment information for revenues, earnings, and research and development
consisted of the following:
Nine months ended Three months ended
September 30 September 30
- -----------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------
Revenues:
Commercial Aircraft $24,151 $20,248 $ 7,719 $ 6,429
Information, Space and
Defense Systems 14,318 13,293 4,835 4,765
Customer and Commercial Financing,
Other 578 532 163 177
- -----------------------------------------------------------------------------
Operating revenues $39,047 $34,073 $12,717 $11,371
=============================================================================
Earnings (loss) from operations:
Commercial Aircraft $ (184) $ (593) $ 77 $(1,370)
Information, Space and
Defense Systems 1,079 1,008 362 382
Customer and Commercial Financing,
Other 340 305 97 73
Unallocated expense (186) (152) (67) (64)
Share-based plans (106) (42) (43) (40)
- -----------------------------------------------------------------------------
Operating earnings (loss) $ 943 $ 526 $ 426 $(1,019)
- -----------------------------------------------------------------------------
Other income, principally interest 241 303 92 120
Interest and debt expense (341) (365) (114) (122)
- -----------------------------------------------------------------------------
Earnings (loss) before income taxes $ 843 $ 464 $ 404 $(1,021)
=============================================================================
Net earnings (loss) $ 655 $ 320 $ 347 $ (696)
=============================================================================
Research and development:
Commercial Aircraft $ 799 $ 942 $ 235 $ 248
Information, Space and
Defense Systems 632 522 220 208
- -----------------------------------------------------------------------------
Total research and
development expense $ 1,431 $ 1,464 $ 455 $ 456
=============================================================================
Unallocated expense includes goodwill amortization, capitalized interest
amortization, certain unallocated actuarial costs, and corporate costs not
allocated to other internal reporting entities.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenue
- -------
Sales of $39.0 billion for the first nine months of 1998 were 15% higher than
sales for the comparable period of 1997. A total of 368 commercial jet aircraft
were delivered, compared with 272 in the first nine months of 1997.
Approximately 550 commercial aircraft deliveries, including 235 of the newer-
model 737s and 777s, are currently projected for the full year 1998, compared
with 374 in 1997. Total sales for 1998 are projected to be in the $56 billion
range, compared with $45.8 billion in 1997.
Commercial jet aircraft deliveries were as follows:
Nine Months 3rd Quarter
- -----------------------------------------------------------------------------
Model 1998 1997 1998 1997
- -----------------------------------------------------------------------------
737 92 93 25 33
737 Next-Generation 91 - 41 -
747 32 30 11 8
757 35 34 12 10
767 35 34 11 11
777 52 49 15 18
MD-80 5 (2) 11 (4) 2 (2) 3 (3)
MD-90 18 16 (3) 4 5 (1)
MD-11 8 (2) 5 2 1
- -----------------------------------------------------------------------------
Total 368 272 123 89
=============================================================================
Commercial jet aircraft deliveries included deliveries under operating lease,
which are identified by parentheses in the above table. Aircraft accounted for
as operating leases have minimal revenue recorded at the time of delivery.
===============================================================================
Forward-Looking Information Is Subject to Risk and Uncertainty
Certain statements in this report contain "forward-looking" information that
involves risk and uncertainty, including projections for production rates,
deliveries, customer financing, sales, revenues, margins, earnings, cash,
research and development expense, employment, asset utilization, year 2000
readiness, and other trend projections. This forward-looking information is
based upon a number of assumptions, including assumptions regarding demand,
internal performance, customer financing, customer, supplier and subcontractor
performance, government policies and actions, and price-escalation. Actual
future results and trends may differ materially depending on a variety of
factors, including the Company's successful execution of internal performance
plans including research and development, production recovery, production rate
increases, production system initiatives and other cost-reduction efforts; year
2000 readiness; the cyclical nature of the Company's business; volatility of the
14
<PAGE> 15
market for certain products; continued 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, subcontractors and customers;
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 conditions, particularly in Asia; price
escalation trends; 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. Additional
information regarding these factors is contained in the Company's Annual Report
on Form 10-K for the year ended 1997 and Form 10-Q for the quarterly period
ended June 30, 1998.
================================================================================
Information, Space and Defense Systems deliveries included the following:
Nine Months 3rd Quarter
- ----------------------------------------------------------------------------
Model 1998 1997 1998 1997
- ----------------------------------------------------------------------------
C-17 6 5 2 2
F-15 25 10 12 3
F/A-18 C/D 24 37 8 14
F/A-18 C/D Kits - 9 - 5
T-45TS 11 8 4 5
CH-47 14 - 8 -
767 AWACS 2 - - -
757/C-32A 2 - - -
Delta II 8 9 1 5
Delta III 1 - 1 -
Earnings
- --------
Net earnings of $655 million for the first nine months of 1998 reflect lower
commercial aircraft profit margins, including the $219 million after-tax loss on
the Next-Generation 737 recorded in the first quarter and $78 million in after-
tax charges relating to the planned termination of the MD-11 program and
additional late delivery costs associated with Next-Generation 737 aircraft.
Comparable net earnings for the same period of 1997 were $320 million, which
included after-tax charges of approximately $1.0 billion reflecting the
financial impact of unplanned and abnormal production inefficiencies and late-
delivery costs associated with accelerated production increases on commercial
aircraft programs.
Based on current programs and plans, research and development expense for 1998
is expected to be in the $1.9 billion to $2.0 billion range, compared with $1.9
billion in 1997.
The income tax provision of $188 million for the first nine months of 1998
includes a credit of $57 million relating to settlement of prior years' research
and development tax credits associated with joint program partnerships; and
credits relating to Foreign Sales Corporation tax benefits and current-year
research and development tax credits. These benefits were partially offset by
the non-deductibility of goodwill and other costs.
15
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In October, Congress extended research and development tax credits for the
twelve-month period from July 1, 1998, through June 30, 1999. This will result
in additional tax credits that will be reflected in the full-year 1998 tax
provision at year end.
The Company has filed refund claims for additional research and development tax
credits, primarily in relation to its fixed-price government development
programs. These credits have not been recorded as the claims are under review
by the IRS in the context of prior years' audits. Successful resolution would
result in increased income to the Company.
In December 1996, The Boeing Company filed suit in the U.S. District Court
for the Western District of Washington for the refund of over $400 million in
federal income taxes and related interest. The suit challenged the IRS method
of allocating research and development costs for the purpose of determining tax
incentive benefits on export sales through the Company's Domestic International
Sales Corporation (DISC) and its Foreign Sales Corporation (FSC) for the years
1979 through 1987. In September, the District Court granted the Company's
motion for summary judgment. It is not certain whether the U.S. Department of
Justice will appeal this decision. If the Company were to prevail, the refund
would include interest computed to the payment date. The issue could affect tax
computations for subsequent years; however, the financial impact would depend on
the final resolution of audits for these years.
Federal income tax payments over the next several years are projected to
substantially exceed income tax expense due to anticipated completion of
contracts executed under prior tax regulations.
Operating Profit
- ----------------
Commercial Aircraft Programs
The higher sales for the first nine months and third quarter of 1998 were
principally due to the increased level of commercial aircraft deliveries. A
total of 370 jet aircraft were delivered, including two 757/C-32A aircraft,
compared with 272 in the first nine months of 1997. Although commercial
aircraft deliveries and sales were higher, the overall profit margin for the
commercial aircraft segment, excluding forward losses, valuation adjustments and
research and development expense, was lower due to the model mix of
aircraft deliveries, continued pricing pressures and lower price-escalation
trends. With regard to model mix, most of the sales increase was attributable
to the new 777 and Next- Generation 737 programs. New commercial aircraft
programs have lower operating profit margins due to higher unit production
costs in the early years of a program. Additionally, no gross profit has yet
been recognized for the Next- Generation 737 program, for which losses had
previously been recognized, including $350 million pretax in the first quarter
of 1998.
The Company previously announced its plans to phase out MD-11 production, with
the final MD-11 deliveries now scheduled for 2001. Results for the first nine
months of 1998 include a valuation adjustment associated with the MD-11 program
that was recorded in the second quarter of 1998.
16
<PAGE> 17
Operating profit margins on all commercial aircraft models have been and will
continue to be affected by pricing pressures and lower price-escalation trends.
The Company sells its products at base prices plus indexed changes for
employment cost and producer price changes. Such changes have been
significantly less than anticipated during the last two years.
Research and development expense for the Commercial Aircraft segment totaled
$799 million for the first nine months of 1998, compared with $942 million for
the same period of 1997, principally due to reduced spending on the Next-
Generation 737 models and the 777-300, an increased-capacity version of the 777.
Development continues on the 757-300, a stretched derivative of the 757-200,
which is scheduled to be delivered in early 1999; and the 767-400ER, a stretched
version of the 767-300ER, which is scheduled to be delivered in the year 2000.
The 717-200 program (formerly the MD-95) continues in development; flight test
commenced during the third quarter of this year with first delivery planned for
mid-1999.
During the third quarter, the 747 production rate increased from four to five
aircraft per month, and the 777 program production rate increased from five to
seven aircraft per month. The Next-Generation 737 program production rate is
currently increasing from 14 aircraft per month to 21 per month. Production
schedule challenges and general production efficiencies will continue to be
aggressively managed, but significant performance risks remain.
Commercial aircraft deliveries for 1998 are currently expected to be about
550 aircraft, including approximately 235 of the newer-model 737s and 777s. The
delivery quantity is dependent on performing to the production plan and
delivering the majority of 36 aircraft in storage as of September 30, 1998,
which are principally associated with Asian customers affected by adverse
economic conditions and customers awaiting final financing arrangements.
The Company continues to assess the economic situation in Asia, which presents a
significant risk to deliveries over the next few years, particularly for twin-
aisle models. The 747 production rate is currently scheduled to be reduced in
the second quarter of 1999 from five aircraft per month to three and a half per
month. The 777 production rate is currently scheduled to be reduced in the
fourth quarter of 1999 from seven aircraft to five per month, with a previously
announced plan to return to seven per month in 2000. Scheduled production rates
are being reassessed, and downward revisions are expected to be made based on
customer requirements.
Information, Space and Defense Systems (ISDS) Programs
Total ISDS sales in the first nine months of 1998 were approximately 8 percent
higher than during the same period of 1997, principally due to increased
military aircraft deliveries. Total ISDS sales for the year are expected to be
in the $19 billion to $20 billion range. Operating margins for the first nine
months decreased slightly from 7.6 percent in 1997 to 7.5 percent in 1998,
principally due to increased research and development expense associated with
commercial space and communication activities, and joint venture development
costs for the Sea Launch program and the Bell Boeing 609 Civil Tiltrotor
program.
Research and development expense for the ISDS segment totaled $632 million
for the first nine months of 1998, compared with $522 million for the same
period in 1997, due to the development activity on the
Delta family of launch vehicles and other business opportunities.
17
<PAGE> 18
The Sea Launch assembly and command ship and the launch platform were
completed in June. They have both arrived at the Home Port in Long Beach,
California. Full-scale preparations for first launch are underway after
reinstatement by the U.S. State Department of the Sea Launch license that was
withdrawn on July 27, 1998, following disclosure by Boeing that technical
information may have been transferred without proper approval. Boeing is a 40
percent partner in Sea Launch with RSC Energia (25 percent) from Russia,
Kvaerner Maritime (20 percent) from Norway, and KB Yuzhnoye / PO Yuzhmash (15
percent) from Ukraine.
Because of the risk associated with new launch activities, the first launch will
be a demonstration payload. Hughes Space & Communications International, Inc.,
and Space Systems/Loral are the first Sea Launch customers, with
announced orders for 18 launches plus options. Ongoing viability of the Sea
Launch program will depend on meeting technical specifications and
demonstrating that launches from a seagoing platform represent an economic
alternative for customers looking for launch capability. Technical failure on
the initial launch could substantially impair the prospect for additional
customer acceptance and could consequently result in significant impairment to
the value of the Sea Launch program assets.
In August, a Delta III, the newest version of the Delta family of expendable
launch vehicles, was lost during first launch approximately one minute and 20
seconds into flight. The failed launch was insured, and the impact to earnings
is limited to the cost of accident investigation and corrective actions. The
control system has been identified as the likely cause, and corrective actions
are being taken to ensure that the Delta III is ready for the next scheduled
launch in early 1999.
In October, the U.S. Air Force announced the procurement of 19 Delta IV launches
under the Evolved Expendable Launch Vehicle (EELV) program valued at $1.38
billion. The Air Force entered into a $500 million agreement with the Company
to supplement development of the Delta IV family of launch vehicles to meet all
Air Force EELV requirements. First launch of the Boeing Delta IV is scheduled
for 2001 with a commercial payload.
During the third quarter, the Company announced the formation of the Space and
Communications Group, based in Seal Beach, California, and the Military Aircraft
and Missile Systems Group, headquartered in St. Louis, Missouri. Year-end 1998
results for ISDS will be reported as two separate segments, consistent with this
reorganization and the Company's internal performance reporting.
OIS Optical Imaging Systems, Inc., a sole source supplier of active matrix
liquid crystal displays for the AH-64D helicopter, and the F-15, F/A-18 E/F and
V-22 aircraft programs, ceased manufacturing operations on September 18, 1998.
Although the full impact of the loss of this supplier on the Company's ability
to fulfill its delivery obligations is currently under review, there is a
probability of some delivery delays and disruptions on the affected programs but
is not anticipated to be of a material nature.
The ISDS segment is highly sensitive to changes in national priorities, U.S.
Government defense and space budgets, and success in pursuing commercial-type
business opportunities.
18
<PAGE> 19
Liquidity and Capital Resources
- -------------------------------
The Company's financial liquidity position remains strong, with cash and short-
term investments totaling $2.7 billion at September 30, 1998, and total
long-term debt at 34% of total shareholders' equity plus debt. As part of a
reassessment of the long-term financing and capital needs, the Company has
decided to reduce its revolving credit line to $2.4 billion from its previous
level of $3 billion.
In the third quarter, the Company announced a share repurchase program with
Board authorization to repurchase up to 15 percent of the Company's outstanding
shares of common stock. During September, the Company repurchased 10.6 million
shares of stock (approximately 1 percent of outstanding stock) for $364 million.
Backlog
- -------
Contractual backlog of unfilled orders (which excludes purchase options and
announced orders for which definitive contracts have not been executed, and
unobligated U.S. Government contract funding) was as follows (dollars in
billions):
Sep. 30 June 30 Dec. 31
- ----------------------------------------------------------------------------
1998 1998 1997
- ----------------------------------------------------------------------------
Commercial Aircraft $ 92.9 $ 91.8 $ 93.8
Information, Space and
Defense Systems 27.6 30.0 27.8
- ----------------------------------------------------------------------------
Total contractual backlog $120.5 $121.8 $121.6
============================================================================
Unobligated U.S. Government contract funding not included in backlog totaled
$24.9 billion at September 30, 1998, compared with $24.9 billion at June 30,
1998, and $26.1 billion at December 31, 1997.
Year 2000 (Y2K) Date Conversion
- -------------------------------
The Y2K issue exists because many computer systems, applications and assets use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process financial and operations information incorrectly.
State of readiness: The Company recognized this challenge early, and major
business units started work in 1993. The Company's Y2K strategy to make systems
"Y2K-ready" includes a common companywide focus on policies, methods and
correction tools, and coordination with customers and suppliers. This focus has
been on all systems potentially impacted by the Y2K issue, including information
technology ("IT") systems and non-IT systems, such as embedded systems,
19
<PAGE> 20
facilities and factory floor systems. Each operating unit has responsibility
for its own conversion, in line with overall guidance and oversight provided by
a corporate-level steering committee. Approximately 14,000 IT and non-IT
systems have been identified, and the Company continues to substantially meet
its internal schedule for conversion and testing. This aggressive internal
schedule calls for Y2K-readiness of the Company's critical systems, with a few
exceptions, by the end of 1998; and full deployment of Y2K-ready assets and
ongoing testing in 1999.
A companywide-coordinated process to assess supplier readiness began in the
second quarter of 1998. The Company is unable to definitively determine that
all major suppliers will reach a Y2K-ready status that will ensure no disruption
from suppliers.
Costs to address Y2K issues: The Company's Y2K conversion efforts have not been
budgeted and tracked as separate projects, but have been occurring in
conjunction with normal sustaining activities. Total application sustaining
IT costs have averaged approximately $350 million per year. Y2K conversion
efforts have averaged approximately 10% of total sustaining IT costs for the
years 1996 through 1998, and are expected to represent a lower percentage in
1999. Discretely identifiable costs associated with Y2K conversion activities
are expected to total $16 million. The costs of non-IT conversion efforts
have also been incurred in conjunction with normal sustaining activities. The
Company does not expect a reduction in the costs of sustaining activities
resulting from the completion of Y2K conversion activities because of ongoing
sustaining activities. Reprioritizing sustaining activities to support Y2K
conversion activities has not had, and is not expected to have, an adverse
impact on operations.
Risks associated with Y2K issues: The Company believes there is low risk of any
internal critical system, embedded system, or other critical asset not being
Y2K-ready by the end of 1999. The Company continues to assess its risk
exposure attributable to external factors and suppliers. Although the Company
has no reason to conclude that any specific supplier represents a risk, the
most reasonably likely worst-case Y2K scenario would entail production
disruption due to inability of suppliers, some of whom represent the sole
source for certain items, to deliver critical parts. The Company is unable to
quantify such a scenario, but it could potentially result in a material
adverse impact on results of operations, liquidity or financial position of
the Company. Contingency plans for suppliers and mission critical systems
impacted by Y2K issues are currently under development. These plans will
include leveraging the existing communications and transportation
infrastructure created by the Company's Disaster Preparedness Program, which
is designed to respond to disaster scenarios caused by natural, technological
and man-made factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has financial instruments that are subject to interest rate risk,
principally short-term investments, fixed-rate notes receivable attributable to
customer financing, and debt obligations issued at a fixed rate. Historically,
the Company has not experienced material gains or losses due to interest rate
changes when selling short-term investments or fixed-rate notes receivable.
Additionally, the Company uses interest rate swaps to manage exposure to
interest rate changes. Based on the current holdings of short-term investments
and fixed-rate notes, as well as underlying swaps, the exposure to interest rate
risk is not material. Fixed-rate debt obligations issued by the Company are
generally not callable until maturity.
20
<PAGE> 21
The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies. As a
general policy, the Company substantially hedges foreign currency commitments of
future payments and receipts by purchasing foreign currency-forward contracts.
As of September 30, 1998, the notional value of such derivatives was $430
million, with a net unrealized gain of $8 million. Less than one percent of
receipts and expenditures are contracted in foreign currencies, and the market
risk exposure relating to currency exchange is not material.
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated statement of financial position as of September 30, 1998, the
consolidated statements of operations for the three- and nine-month periods
ended September 30, 1998 and 1997, and the consolidated statements of cash
flows for the nine- month periods ended September 30, 1998 and 1997, have been
reviewed by the registrant's independent accountants, Deloitte & Touche LLP,
whose report covering their review of the financial statements follows.
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, 1998, the related condensed consolidated statements of operations for the
three- and nine-month periods ended September 30, 1998 and 1997, and the related
condensed consolidated statements of cash flows for the nine-month periods ended
September 30, 1998 and 1997. These financial statements are the responsibility
of the Company's management.
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 as of
December 31, 1997, and the related consolidated statements of operations and
cash flows for the year then ended (not presented herein); and in our report
dated January 27, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated statements of financial position as of December
31, 1997, is fairly stated, in all material respects, in relation to the
consolidated statement of financial position from which it has been derived.
October 22, 1998
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
22
<PAGE> 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 to the Consolidated Financial Statements for a discussion
of current legal proceedings involving the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts.
The Boeing Company Bank Credit Agreements
(i) U.S. $ One Billion Six Hundred Million Amended and
Restated 364-Day Bank Credit Agreement among The Boeing
Company, as Borrower, the Banks party thereto, Citibank,
N.A., as Administrative Agent, and The Chase Manhattan
Bank, as Syndication Agent, dated as of September 30,
1998. Filed herewith.
Management Contracts and Compensatory Plans.
(ii) Consultant Services Agreement between the Company and
Boyd E. Givan, dated August 26, 1998, with an amendment in
the form of a letter from the Company dated September 14,
1998. Filed herewith.
(15) Letter from independent accountants regarding unaudited
interim financial information. Page 24.
(27) Financial Data Schedule for the nine-month period ending
September 30, 1998. Filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 22, 1998, to report,
under Item 5, the adoption of Corporate Policy Pol-14, on June 29,
1998.
- - - - - - -
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 5, 1998 /s/ Gary W. Beil
------------------- ----------------------------------
(Date) Gary W. Beil
Vice President and Controller
23
<PAGE> 24
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, 1998, the
consolidated statements of operations for the three- and nine-month periods
ended September 30, 1998 and 1997, and the statements of cash flows for the
nine-month periods ended September 30, 1998 and 1997, have been reviewed by
the registrant's independent accountants, Deloitte & Touche LLP, whose letter
regarding such unaudited interim financial information follows.
November 5, 1998
The Boeing Company
Seattle, Washington
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The Boeing Company and subsidiaries (the "Company") for the
three- and nine-month periods ended September 30, 1998, and 1997 as indicated in
our report dated October 22, 1998; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, 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 any registration
statement 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
24
<PAGE> 25
Exhibit (10)(i)
AMENDED AND RESTATED 364-DAY BANK CREDIT AGREEMENT
Dated as of September 30, 1998
THE BOEING COMPANY, a Delaware corporation ("TBC"), the banks,
financial institutions and other institutional lenders (collectively, the
"Banks") party hereto, CITIBANK, N.A., as administrative agent (together with
any successor thereto appointed pursuant to Article VII of the Existing Credit
Agreement referred to below, the "Administrative Agent") for the Banks (as
defined in the Existing Credit Agreement referred to below) and THE CHASE
MANHATTAN BANK, as syndication agent for the Banks, hereby agree as follows:
PRELIMINARY STATEMENTS
(1) TBC is party to a U.S. $One Billion Five Hundred Million 364-
Day Bank Credit Agreement dated as of December 8, 1997 (as amended, supplemented
or otherwise modified from time to time to (but not including) the date of this
Amendment and Restatement, the "Existing Credit Agreement") with the banks,
financial institutions and other institutional lenders party thereto and
Citibank, N.A., as Administrative Agent for the Banks and such other lenders.
Capitalized terms not otherwise defined in this Amendment and Restatement shall
have the same meanings as specified in the Existing Credit Agreement.
(2) The parties to this Amendment and Restatement desire to amend
the Existing Credit Agreement as set forth herein and to restate the Existing
Credit Agreement in its entirety to read as set forth in the Existing Credit
Agreement with the following amendments.
(3) The Borrower has requested that the Banks agree to extend
credit to it from time to time in an aggregate principal amount of up to
$1,600,000,000 for general corporate purposes of TBC and the Subsidiary
Borrowers not otherwise prohibited under the terms of this Agreement. The Banks
have indicated their willingness to agree to extend credit to the Borrowers from
time to time in such amount on the terms and conditions of this Amendment and
Restatement.
SECTION 1. Amendments to the Existing Credit Agreement. (a)
Section 1.01 of the Existing Credit Agreement is, effective as of the date of
this Amendment and Restatement and subject to the satisfaction of the conditions
precedent set forth in Section 2, hereby amended by deleting the definitions of
"Bank" and "Termination Date" set forth therein and replacing them,
respectively, with the following new definitions thereof:
"Bank"--Subject to the provisions of Section 2.18, any of the
banking institutions that is a signatory hereto or that, pursuant to
Section 2.13, 2.17, 2.18 or 2.19 shall become a "Bank" hereunder.
"Termination Date"--The earlier to occur of (i) September 29, 1999,
as such date may be extended from time to time pursuant to Section 2.19,
and (ii) the date of termination in whole of the Commitments pursuant to
Section 2.08 or 6.01.
25
<PAGE> 26
(b) Section 2.17 is amended by deleting therefrom the figure
"$1,500,000,000" and substituting therefor the figure "$1,600,000,000".
(c) Schedule I to the Existing Credit Agreement is, effective as
of the date of this Amendment and Restatement and subject to the satisfaction of
the conditions precedent set forth in Section 2, deleted in its entirety and
replaced with Schedule I to this Amendment and Restatement.
SECTION 2. Conditions of Effectiveness of this Amendment and
Restatement. This Amendment and Restatement shall become effective as of the
date first above written (the "Restatement Effective Date") when and only if:
(a) The Administrative Agent shall have received counterparts of
this Amendment and Restatement executed by the Borrower and all of the
Banks or, as to any of the Banks, advice satisfactory to the
Administrative Agent that such Bank has executed this Amendment and
Restatement.
(b) The Administrative Agent shall have received on or before the
Restatement Effective Date the following, each dated such date and (unless
otherwise specified below) in form and substance satisfactory to the
Administrative Agent and its counsel:
(i) A Base Rate A Note, a Eurodollar A Note, a Fixed Rate B
Note and a Eurodollar B Note drawn to the order of each Bank
executed and delivered by TBC to the Administrative Agent for
delivery to each Bank.
(ii) Copies of all documents, certified by an officer of TBC,
evidencing necessary corporate action by TBC and governmental
approvals, if any, with respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary
of TBC which shall certify the names of the officers of TBC
authorized to sign the Notes and the other documents to be delivered
hereunder, together with true specimen signatures of such officers
and facsimile signatures of officers authorized to sign by facsimile
signature. Each Bank may conclusively rely on such certificate
until it shall have received a further certificate of the Secretary
or an Assistant Secretary of TBC canceling or amending the prior
certificate and submitting signatures of the officers named in such
further certificate.
(iv) A favorable opinion of the chief legal officer of TBC
substantially in the form of Exhibit G to the Existing Credit
Agreement and as to such other matters as the Administrative Agent
may reasonably request, which opinion TBC hereby expressly instructs
such chief legal officer to prepare and deliver.
(v) A favorable opinion of Shearman & Sterling, counsel for
the Administrative Agent, substantially in the form of Exhibit H to
the Existing Credit Agreement.
26
<PAGE> 27
(c) The representations and warranties contained in Section 3.01
of the Existing credit Agreement are true and accurate on and as of each
such date as though made on and as of each such date (except to the extent
that such representations and warranties relate solely to an earlier
date).
(d) No event has occurred and is continuing, or would result from
the occurrence of the Restatement Effective Date which constitutes an
Event of Default or would constitute such an Event of Default but for the
requirement that notice be given or time elapse or both.
SECTION 3. Reference to and Effect on the Existing Credit Agreement
and the Notes. (a) On and after the effectiveness of this Amendment and
Restatement, each reference in the Existing Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Existing Credit Agreement, and each reference in the Notes to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Existing Credit Agreement, shall mean and be a reference to the Existing Credit
Agreement, as amended by this Amendment and Restatement.
(b) The Existing Credit Agreement and the Notes, as specifically
amended by this Amendment and Restatement, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) Without limiting any of the other provisions of the Existing
Credit Agreement, as amended by this Amendment and Restatement, any references
in the Existing Credit Agreement to the phrases "on the date hereof", "on the
date of this Agreement" or words of similar import shall mean and be a reference
to the date of the Existing Credit Agreement (which is December 8, 1997).
SECTION 4. Costs and Expenses. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Administrative
Agent in connection with the preparation, execution, delivery and
administration, modification and amendment of this Amendment and Restatement,
the Notes and the other documents to be delivered hereunder (including, without
limitation, the reasonable and documented fees and expenses of counsel for the
Administrative Agent with respect hereto and thereto) in accordance with the
terms of Section 8.03 of the Existing Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment and
Restatement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement. Delivery of an executed counterpart of a signature page
to this Amendment and Restatement by telecopier shall be effective as delivery
of a manually executed counterpart of this Amendment and Restatement.
SECTION 6. Governing Law. This Amendment and Restatement shall be
governed by, and construed in accordance with, the laws of the State of
New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Restatement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
27
<PAGE> 28
THE BORROWER
THE BOEING COMPANY
By ___________________________________
Name:
Title:
THE LENDERS
CITIBANK, N.A., Individually and
as Administrative Agent
By ___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, Individually
and as Syndication Agent
By ___________________________________
Name:
Title:
ABN AMRO BANK N.V.
By ___________________________________
Name:
Title:
THE BANK OF NEW YORK
By ___________________________________
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
By ___________________________________
Name:
Title:
28
<PAGE> 29
BANKBOSTON, N.A.
By ___________________________________
Name:
Title:
BANKERS TRUST COMPANY
By ___________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
By ___________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
By ___________________________________
Name:
Title:
CREDIT LYONNAIS
By ___________________________________
Name:
Title:
By ___________________________________
Name:
Title:
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLANDS
BRANCHES
By ___________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
29
<PAGE> 30
By ___________________________________
Name:
Title:
By ___________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By ___________________________________
Name:
Title:
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By ___________________________________
Name:
Title:
NATIONAL WESTMINSTER
BANK PLC, NEW YORK BRANCH
By ___________________________________
Name:
Title:
NATIONSBANK, N.A.
By ___________________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By ___________________________________
Name:
Title:
30
<PAGE> 31
THE SUMITOMO BANK, LIMITED
By ___________________________________
Name:
Title:
WACHOVIA BANK, N.A.
By ___________________________________
Name:
Title:
SCHEDULE I TO THE AMENDMENT AND RESTATEMENT
COMMITMENTS AND APPLICABLE LENDING OFFICES
Domestic Eurodollar
Name of Bank Commitment Lending Office Lending Office
ABN Amro $52,000,000 One Union Square 135 South LaSalle Street,
Bank N.V. 500 University Street, Suite 625
Suite 2323 Chicago, IL 60603
Seattle, WA 98101 Attn: Loan
Attn: James J. Rice Administration
Tel: (206) 587-2360 Tel: (312) 904-8855
Fax: (206) 682-5641 Fax: (312) 904-6893
The Bank of $80,000,000 10990 Wilshire Blvd, One Wall Street,
New York Suite 1125 22nd Floor
Los Angeles, CA 90024 New York, NY 10286
Attn: Robert J. Louk Attn: Sandra Morgan
Tel: (310) 996-8663 Tel: (212) 636-6743
Fax: (310) 996-8667 Fax: (212) 635-6877
The Bank of $120,000,000 1201 Third Avenue, 1201 Third Avenue,
Tokyo- Suite 1100 Suite 1100
Mitsubishi, Seattle, WA 98101 Seattle, WA 98101
Ltd Attn: David M. Purcell Attn: Ken Johnson
Tel: (206) 382-6049 Tel: (206) 382-6021
Fax: (206) 382-6067 Fax: (206) 382-6067
BankBoston, $66,000,000 100 Federal Street, 100 Federal Street,
N.A. Large Corporate 01-09-05 Large Corporate01-09-05
Boston, MA 02110 Boston, MA 02110
Attn: Judith Kelly Attn: Denise M. Dowd
Tel: (617) 434-5280 Tel: (617) 434-7462
Fax: (617) 434-6685 Fax: (617) 434-9933
31
<PAGE> 32
Bankers $66,000,000 One Bankers Trust Plaza, One Bankers Trust Plaza,
Trust 14th Floor 14th Floor
Company New York, NY 10006 New York, NY 10006
Attn: Anthony LoGrippo Attn: Hsing Huang
Tel: (212) 250-4886 Tel: (212) 250-2431
Fax: (212) 250-7218 Fax: (212) 250-7351
Banque $40,000,000 180 Montgomery Street, 180 Montgomery Street,
Nationale 3rd Floor 3rd Floor
de Paris San Francisco, CA 94194 San Francisco,CA 94194
Attn: D. Guy Gibb Attn: Don Hart
Tel: (415) 956-0707 Tel: (415) 956-2511
Fax: (415) 296-8954 Fax: (415) 989-9041
Canadian $126,000,000 350 S. Grand Avenue, 2727 Paces Ferry Road,
Imperial Suite 2600 Suite 1200, Bldg. 2
Bank of Los Angeles, CA 90071 Atlanta, GA 30339
Commerce Attn: Robert J. Wagner Attn: Clare Coyne
Tel: (213) 617-6248 Tel: (770) 319-4836
Fax: (213) 346-0157 Fax: (770) 319-4950
The Chase $144,000,000 270 Park Avenue 270 Park Avenue
Manhattan New York, NY 10019 New York, NY 10019
Bank Attn: Sherwood Exum Attn: Sherwood Exum
Tel: (212) 270-6075 Tel: (212) 270-6075
Fax: (212) 270-1469 Fax: (212) 270-1469
Citibank, $144,000,000 399 Park Avenue, 399 Park Avenue,
N.A. 12th Floor, Zone 2 12th Floor, Zone 2
New York, NY 10043 New York, NY 10043
Attn: Thomas B. Boyle Attn: Chris Young
Tel: (212) 559-6149 Tel: (212) 559-1477
Fax: (212) 793-1246 Fax: (212) 583-7185
Credit $100,000,000 1301 Avenue of the 1301 Avenue of the
Lyonnais Americas Americas
New York, NY 10019 New York, NY 10019
Attn: Bertrand Cousin Attn: Kenia A. Perez
Tel: (212) 261-7363 Tel: (212) 261-7313
Fax: (212) 261-7368 Fax: (212) 261-7368
Deutsche $40,000,000 31 West 52nd Street 31 West 52nd Street
Bank AG New New York, NY 10019 New York, NY 10019
York and/or Attn: Joel D. Makowsky Attn: Noble Samuel
Cayman Tel: (212) 469-7896 Tel: (212) 469-4091
Islands Fax: (212) 469-8212 Fax: (212) 469-4139
Branches
The $100,000,000 350 South Grand Avenue 350 South Grand Avenue
Industrial Suite 1500 Suite 1500
Bank of Los Angeles, CA 90071 Los Angeles, CA 90071
Japan Attn: Craig Papayanis Attn: Janice Luong
Tel: (213) 893-6441 Tel: (212) 893-6387
Fax: (213) 488-9840 Fax: (212) 688-9840
32
<PAGE> 33
The Long- $20,000,000 350 South Grand Avenue 350 South Grand Avenue
Term Credit Suite 3000 Suite 3000
Bank of Los Angeles, CA 90071 Los Angeles, CA 90071
Japan, Attn: Tamotsu Ukai Attn: Mitchell Davis
Ltd., Los Tel: (213) 689-6345 Tel: (213) 689-6238
Angeles Fax: (213) 626-1067 Fax: (213) 626-1067
Agency
The $126,000,000 520 Madison Avenue 520 Madison Avenue
Mitsubishi New York, NY 10022 New York, NY 10022
Trust and Attn: Joe Shammas Attn: Ming Hwa Chou
Banking Tel: (212) 891-8451 Tel: (212) 891-8263
Corporation Fax: (212) 644-6825 Fax: (212) 755-2349
National $52,000,000 175 Water Street 175 Water Street
Westminster New York, NY 10038 New York, NY 10038
Bank Plc Attn: Stephen Sayre Attn: Angela Bozorgmir
Tel: (212) 602-5521 Tel: (212) 602-5491
Fax: (212) 602-4354 Fax: (212) 602-4500
NationsBank, $126,000,000 444 South Flower Street, 901 Main Street
N.A. Suite 400 Dallas, TX 75202
Los Angeles, CA 90071 Attn: Karen Puente
Attn: George V. Hausler Tel: (214) 508-3089
Tel: (213) 236-4925 Fax: (214) 508-0944
Fax: (213) 624-5815
PNC Bank, $66,000,000 One PNC Plaza, 2nd Fl. One PNC Plaza, 6th Fl.
National 249 Fifth Avenue 249 Fifth Avenue
Association Pittsburgh, PA 15222 Pittsburgh, PA 15222
Attn: Philip K. Liebshcer Attn: Sally Hunter
Tel: (412) 762-3202 Tel: (412) 768-3807
Fax: (412) 762-6484 Fax: (412) 768-4586
The $52,000,000 777 South Figueroa, 777 South Figueroa,
Sumitomo Suite 2600 Suite 2600
Bank, Los Angeles, CA 90017 Los Angeles, CA 90017
Limited Attn: Miriam Delgado Attn: Miriam Delgado
Tel: (213) 955-0883 Tel: (213) 955-0883
Fax: (213) 623-6832 Fax: (213) 623-6832
Wachovia $80,000,000 191 Peachtree Street, NE 191 Peachtree Street, NE
Bank, N.A. Atlanta, GA 30303 Atlanta, GA 30303
Attn: John Whitner Attn: Gloria Freeman
Tel: (404) 332-6738 Tel: (404) 332-6485
Fax: (404) 332-6898 Fax: (404) 332-6898
___________
TOTAL OF $1,600,000,000
COMMITMENTS
33
<PAGE> 34
Exhibit (10) (ii)
Consulting Services Agreement Between the Company and Boyd E.
Givan, with an amendment in the Form of a letter from the
Company dated September 14, 1998
CONSULTANT SERVICES AGREEMENT
This agreement is entered between The Boeing Company (the Company)
and Boyd E. Givan (Consultant). The parties hereby agree as follows:
1. Consultant will retire from the Company effective September 1,
1998.
2. As soon as practicable following Consultant's retirement, the
Company will pay Consultant a lump sum (less applicable
withholdings) in the amount of four months of Consultant's base
salary at the time of retirement.
3. Consultant agrees to be available from time to time to provide
consulting services to senior executives of the Company on
various aspects of Company business, as requested or authorized
by P. M. Condit, Chairman and CEO.
4. Consultant agrees to continue to provide advice and support on
behalf of the Company, as appropriate, to the Private Sector
Council, the Conference Board Council of Financial Executives,
and the University of Washington School of Business Advisory
Board. Consultant will resign from each organization no later
than its next official meeting. Consultant will also continue to
serve, until he has completed the second year of his term, on the
Seattle Branch of the San Francisco Board of Directors of the
Federal Reserve Bank.
5. The parties also agree as follows:
A. Consultant will be eligible for a 1998 bonus payment if other
current executives receive such a payment.
B. The Company will seek approval of the Compensation Committee
of the Board of Directors to allow Consultant to retain his 1998
Performance Share grant under the terms and conditions of the
grant.
C. Consultant's Career Shares will vest upon his retirement.
D. The Company will provide Consultant with financial counseling
through calendar year 1999 and tax preparation services for his
1998 tax return.
6. Consultant agrees to comply with the Boeing Ethical Business
Conduct Policy and Guidelines and the procedures set forth
therein. In particular, Consultant agrees that he shall forfeit
all right to receive further payments of any kind under this
agreement if at any time after retirement he engages in an
34
<PAGE> 35
activity, whether individually or as an employee, consultant, or
otherwise, (a) that is deemed under the Policy or Guidelines to
be in violation thereof, (b) that is for or on behalf of any
competitor of the Company, or (c) that is in competition with any
significant aspect of the Company's business. Consultant also
agrees that, for a period of one year from the date of his
retirement, he shall not attempt to recruit, directly or
indirectly, any Company employee to leave the Company to join
Consultant or any firm with which Consultant is employed or
otherwise associated.
7. Consultant agrees to fully cooperate with the Company in the
defense of any litigation in which Consultant is named as a co-
defendant or in which Consultant is called to serve as a witness
or to provide information.
8. In addition to the requirements contained in paragraph 6,
Consultant agrees to refrain from communicating to any other
person or entity any proprietary, confidential, and/or trade
secret information or data belonging to the Company or entrusted
to it by others. Consultant also agrees to refrain from so
communicating any statement or opinion about the Company or its
employees that could reasonably be construed as disparaging or in
any way negative. Any violation of this paragraph 8 will also
result in the forfeiture of any and all further payments (or
potential payments) set forth in this agreement, as described in
paragraph 6.
9. In consideration of the foregoing, Consultant releases and waives
any and all claims he may now or hereafter have against the
Company which relate in any way to the terms, conditions, or
compensation of his employment with, or termination or retirement
from, the Company. This release and waiver covers any claims
arising out of any federal, state, or local statute, regulation,
or ordinance, including but not limited to any claims arising out
of Title VII of the Civil Rights Act of 1964 or the Age
Discrimination in Employment Act, and any claim arising out of
tort, contract, or common law.
10. Consultant acknowledges and agrees that he has the opportunity to
consider for twenty-one days whether to enter this agreement and
that he has voluntarily chosen to enter this agreement on this
date. Consultant may revoke this agreement for a period of seven
days following execution of this agreement; this agreement shall
become effective following expiration of this seven-day period.
Consultant acknowledges that he is voluntarily executing this
agreement, that he has carefully read and fully understands all
aspects of this agreement, that he has not relied on any
representations or statements not set forth herein or made by the
Company's agents or representatives, that he has been advised to
consult an attorney prior to executing this agreement, and that, in
fact, he has consulted with an attorney of his choice as to the
subject matter and effect of this agreement.
35
<PAGE> 36
Dated: August 26, 1998.
CONSULTANT THE BOEING COMPANY
/S/ Boyd E. Givan /s/ James B. Dagnon
_________________________ By_______________________
Boyd E. Givan James B. Dagnon
Senior Vice President-
People
LETTER AMENDMENT
September 14, 1998
Boyd E. Givan
P.O. Box 1495
Mercer Island, WA 98040
Re: Amendment to Consultant Services Agreement
Dear Boyd,
This will serve to confirm our agreement to change paragraph 2 of your
Consultant Services Agreement to read as follows:
As soon as practicable following consultant's retirement, the company will
pay consultant a lump sum (less applicable withholdings) in the amount of
$250,000.
In addition, the Company has agreed to pay you a lump sum in the amount of
$35,000, for your company-provided automobile. This amount reflects the
retail value established by the "blue book" reporting firm (grossed up
for any applicable taxes).
The additional sum was proposed by the Compensation Committee in appreciation
for your many years of outstanding service to The Boeing Company.
Sincerely,
/s/ James B. Dagnon
- ----------------------
James B. Dagnon
36
<PAGE> 37
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