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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Class of Security: Registered on
Common Stock, $5 par value New York Stock Exchange
8 3/8% Notes due March 1, 1996 New York Stock Exchange
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.
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of January 31, 1996, there were 344,460,471 common shares outstanding, and
the aggregate market value of the common shares (based upon the closing price of
these shares on the New York Stock Exchange) held by nonaffiliates of the
registrant was approximately $26.7 billion.
Part I and Part II incorporate information by reference to certain portions of
the Company's 1995 Annual Report to Shareholders. Part III incorporates
information by reference to the registrant's definitive proxy statement, to
be filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year.
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1 of 94 Exhibit Index on Page 21
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PART I
Item 1. Business
The Boeing Company, together with its subsidiaries (herein referred to as the
"Company"), is one of the world's major aerospace firms. The Company operates
in two principal industries: commercial aircraft, and defense and space.
Commercial aircraft operations - conducted through Boeing Commercial Airplane
Group - involve development, production and marketing of commercial jet
transports and providing related support services to the commercial airline
industry worldwide. Defense and space operations - conducted through Boeing
Defense & Space Group - involve research, development, production,
modification and support of military aircraft and helicopters and related
systems, space systems and missile systems. Defense and space sales are
principally through U.S. Government contracts. Revenues, operating profits
and other financial data of the Company's industry segments for the three
years ended December 31, 1995, are set forth on pages 54 and 55 of the
Company's 1995 Annual Report to Shareholders and are incorporated herein by
reference.
With respect to the commercial aircraft segment, the Company is a leading
producer of commercial transport aircraft and offers a family of commercial
jetliners designed to meet a broad spectrum of passenger and cargo requirements
of domestic and foreign airlines. This family of jet transport aircraft
currently includes the 737 and 757 standard-body models and the 767, 747, and
777 wide-body models.
The worldwide market for commercial jet transports is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth in developed and emerging
countries and political stability. Demand for the Company's commercial
aircraft is further influenced by world trade policies, government-to-government
relations, environmental constraints imposed upon airplane operations, airline
industry profitability, technological changes, and price and other competitive
factors.
Commercial jet transports are normally sold on a firm fixed-price basis with
an indexed price escalation clause. The Company's ability to deliver jet
transports on schedule is dependent upon a variety of factors, including
availability of raw materials, performance of suppliers and subcontractors, and
certifications by the Federal Aviation Administration. The introduction of new
commercial aircraft programs and major derivatives involves increased risks
associated with meeting development, production and certification schedules.
The Company's commercial aircraft sales are subject to intense competition
from aircraft manufacturers, including foreign companies which are nationally
owned or subsidized. To meet competition, the Company maintains a program
directed toward continually enhancing the performance and capability of its
products and has a family of commercial aircraft to meet varied and changing
airline requirements. Since the 1970s, the Company has maintained approximately
a 60% share of the available commercial jet transport market.
The Company continually evaluates opportunities to improve current models, and
conducts ongoing marketplace assessments to ensure that its family of jet
transports is well positioned to meet future requirements of the airline
industry. The fundamental strategy is to maintain a broad product line
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responsive to changing market conditions by maximizing commonality among the
Boeing family of airplanes. Additionally, the Company is committed to continue
to lead the industry in customer satisfaction by offering products that exhibit
the highest standards of quality, safety, technical excellence and economic
performance, and by providing excellent in-service support.
The major focus of development activities over the past three years has been
the 777 wide-body twinjet which entered service in May 1995. The new 777 model
is designed to meet airline requirements for an efficient, comfortable, high-
capacity airplane to be used in domestic and regional markets internationally.
Deliveries of the extended-range version 777-200 will begin in late 1996,
followed in 1998 by the 777-300 version with 20% greater passenger-carrying
capability.
Development of the 737-600/700/800 next-generation 737 family of short-to-
medium-range jetliners began in 1993. These new 737s will provide greater range,
increased speed, and reduced noise and emissions while maintaining 737 family
commonality. The 737-700, the middle-sized member of the family, will be the
first version to be placed into service, with initial deliveries scheduled for
late 1997. The 737-800, a larger version, is currently scheduled to be delivered
in early 1998. Initial delivery of the smallest version, the 737-600, is
currently scheduled for late 1998.
The Company continues to assess the market potential for new or derivative
aircraft that are larger and have more range than the 747-400. Because of the
relatively limited market for this size and range aircraft and the very
substantial investment levels that would be required to develop and produce an
all-new aircraft, this market segment may best be met with derivatives of the
747 model. The timing of a decision to proceed with a 747 derivative aircraft
and the development schedule will be dependent on customer demand and the
Company's ability to achieve favorable long-term financial returns on the
substantial development costs that would be required.
The Company's defense and space segment is highly sensitive to changes in
national priorities and U.S. Government defense and space budgets. The principal
contributors to defense and space sales in 1995 consisted of the International
Space Station program (for which the Company has the prime contractor role),
F-22 fighter aircraft engineering and manufacturing development activities,
production and remanufacturing of CH-47 helicopters, V-22 Osprey tiltrotor
transport development and test activities, E-3 AWACS updates, 767 AWACS
development and manufacturing, B-2 bomber subcontractor work, RAH-66 Comanche
helicopter development activities, and various facilities management and
information services contracts. U.S. Government classified projects also
continued to contribute to defense and space segment revenues. The Company's
activities on the F-22, RAH-66 and V-22 programs are under joint venture teaming
arrangements with other companies.
Defense and space developmental programs are normally performed under cost-
reimbursement-type contracts, although certain past developmental programs were
under fixed-price arrangements. Developmental contracts often contain incentives
related to cost performance and/or awards for other contract milestone
accomplishments. Production programs are generally performed under firm fixed-
price contracts or fixed-price contracts containing incentive provisions related
to costs. During 1994 and 1995, an increasing percentage of the Company's
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defense and space business was contracted under cost-reimbursement-type
contracts. The current major developmental programs, principally the
International Space Station, F-22 fighter, V-22 Osprey tiltrotor aircraft and
RAH-66 Comanche helicopter, primarily involve cost-reimbursement-type contracts.
The U.S. Government defense market environment is one in which continued
intense competition among defense contractors can be expected, especially in
light of U.S. Government budget constraints. The Company's ability to
successfully compete for and retain such business is highly dependent on its
technical excellence, demonstrated management proficiency, strategic alliances,
and cost-effective performance.
Company-sponsored research and development not recoverable under contracts and
charged directly to earnings as incurred amounted to $1.3 billion, $1.7 billion,
and $1.7 billion in 1995, 1994 and 1993, respectively. Research and development
expenditures for 1996 are currently projected to be in the $1.2 billion range.
The Company's backlog of firm contractual orders (in billions) at December 31
follows:
1995 1994
----- -----
Commercial aircraft $66.5 $60.6
Defense and space 5.8 5.7
----- -----
Total $72.3 $66.3
===== =====
Not included in contractual backlog are purchase options and announced orders
for which definitive contracts have not been executed and orders from customers
which have filed for bankruptcy protection. Additionally, U.S. Government and
foreign military firm backlog is limited to amounts obligated to contracts.
Unobligated values not included in backlog at December 31, 1995 and 1994,
totaled $7.6 billion and $5.9 billion.
In evaluating the Company's contractual backlog for commercial customers,
certain risk factors should be considered. Approximately 30% of the commercial
aircraft backlog units are scheduled for delivery beyond 1998. Changes in the
economic environment and the financial condition of airlines sometimes result in
customer requests for rescheduling or cancellation of contractual orders.
Contracts with the U.S. Government are subject to termination for default or
for convenience by the Government if deemed in its best interests. Contracts
which are terminated for convenience generally provide for payments to a
contractor for its costs and a proportionate share of profit for work
accomplished through the date of termination. Contracts which are terminated for
default generally provide that the Government pays only for the work it has
accepted, can require the contractor to pay the difference between the original
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contract price and the cost to reprocure the contract items net of the value of
the work accepted from the original contractor, and can hold a contractor liable
for damages. (See Item 3, Legal Proceedings, regarding the Government's partial
termination of the Peace Shield program for alleged default.) A termination for
default, if upheld, also may adversely affect a contractor's ability to compete
successfully for other Government contracts.
Historically, the Company has not experienced significant shortages of raw
materials essential to its business. Although the Company does not anticipate
any shortages of critical commodities over the longer term, this is difficult to
assess because many factors causing such possible shortages are outside its
control.
The Company is highly dependent on its suppliers and subcontractors in order
to meet commitments to its customers, and many major components and product
equipment items are procured or subcontracted on a sole-source basis with a
number of domestic and foreign companies. The Company maintains an extensive
qualification and performance surveillance system to control risk associated
with such reliance on third parties. Although the Company has occasionally
experienced problems with supplier and subcontractor performance, none has
resulted in material production delays.
While the Company owns numerous patents and has licenses under patents owned
by others relating to its products and their manufacture, it does not believe
that its business would be materially affected by the expiration of any patents
or termination of any patent license agreements. The Company has no trademarks,
franchises or concessions that are considered to be of material importance to
the conduct of its business.
The Company is subject to federal, state and local laws and regulations
designed to protect the environment and to regulate the discharge of materials
into the environment. The Company believes its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and the consequent financial liability to the Company. Compliance with
environmental laws and regulations requires continuing management effort and
expenditures by the Company. Compliance with environmental laws and regulations
has not had in the past, and, the Company believes, will not have in the future,
material effects on the capital expenditures, earnings, or competitive position
of the Company. (See Item 3, Legal Proceedings, for additional information
regarding environmental regulation.)
The Company is subject to business and cost classification regulation
associated with its U.S. Government defense and space contracts. Violations can
result in civil, criminal or administrative proceedings involving fines,
compensatory and treble damages, restitution, forfeitures, and suspension or
debarment from Government contracts.
Sales outside the United States (principally export sales from domestic
operations) by geographic area are included on page 54 of the Company's 1995
Annual Report to Shareholders and incorporated herein by reference. Less than 1%
of total sales were derived from non-U.S. operations of the Company for each of
the three years in the period ended December 31, 1995. Approximately 60% of the
Company's contractual backlog value at December 31, 1995, was with non-U.S.
customers. Sales outside the United States are influenced by U.S. Government
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foreign policy, international relationships, and trade policies by governments
worldwide. Relative profitability is not significantly different from that
experienced in the domestic market.
Approximately 14% of accounts receivable and customer financing combined
consisted of amounts due from customers outside the United States. These amounts
are payable in U.S. dollars, and, in management's opinion, related risks are
adequately covered by allowance for losses. The Company has not experienced
materially adverse financial consequences as a result of sales and financing
activities outside the United States.
The Company had approximately 105,000 employees at February 1, 1996, including
approximately 1,400 in Canada.
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Item 2. Properties
The locations and floor areas of the Company's principal operating properties
at January 1, 1996, are indicated in the following table.
Floor area in
thousands of square feet
Company-
owned Leased
-------- --------
United States:
Seattle, Washington, and
surrounding area 45,399 4,440
Wichita, Kansas 12,045 1,093
Philadelphia, Pennsylvania 3,455 382
Portland, Oregon 1,093
Huntsville, Alabama 686 77
Oakridge, Tennessee 492
Sunnyvale, California 461 356
Corinth & Irving, Texas 431 37
Macon, Georgia 399
Spokane, Washington 393 44
Vienna, Virginia 330 167
Chicago, Illinois 301
Glasgow, Montana 179
Canada:
Winnipeg, Manitoba 522 40
Arnprior, Ontario 162 53
With the exception of the Glasgow Industrial Airport located in Glasgow,
Montana, which is Company-owned, runways and taxiways used by the Company are
located on airport properties owned by others and are used by the Company
jointly with others. The Company's rights to use such facilities are provided
for under long-term leases with municipal, county or other government
authorities. In addition, the U.S. Government furnishes the Company certain
office space, installations and equipment at Government bases for use in
connection with various contract activities.
Facilities at the major locations support both principal industry segments.
Work related to a given program may be assigned to various locations, based upon
periodic review of shop loads and production capability.
Facilities and equipment expenditures have declined each year since 1992
following record-high levels of expenditures in the 1991-1992 time period,
reflecting the substantial completion by 1994 of the facilities and equipment
expansion for the new 777 program. No major plant expansions are currently
planned.
The Company's principal properties are well maintained and in good operating
condition. Unused or under-utilized facilities are not considered significant.
Existing facilities are sufficient to meet the Company's near-term operating
requirements.
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Item 3. Legal Proceedings
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most significant
proceedings are related to matters covered by insurance. Major contingencies are
discussed below.
In January 1991, the Company received from the U.S. Government a notice of
partial termination for default which terminated most of the work required under
contracts to develop and install a new air defense system for Saudi Arabia,
known as the Peace Shield program. In June 1991, the Government selected another
contractor to perform the work which is the subject of the contracts that have
been terminated for default, and the Government may assert claims related to the
reprocurement.
Management's position, supported by outside legal counsel which specializes in
government procurement law, is that the grounds for default asserted by the
Government in the Peace Shield termination are not legally supportable.
Accordingly, management and counsel are of the opinion that on appeal the
termination for default has a substantial probability of being converted to
termination for the convenience of the Government, which would eliminate any
Government claim for cost of reprocurement or other damages. Additionally, the
Company has a legal basis for a claim for equitable adjustment to the prices and
schedules of the contracts (the "Contract Claim"). Many of the same facts
underlie both the Contract Claim and the Company's appeal of the Government's
termination action. The Company filed its complaint in the United States Court
of Federal Claims to overturn the default termination in order to obtain payment
of the Contract Claim.
In conjunction with the notice of partial termination in January 1991, the
Government demanded the repayment of unliquidated progress payments in the
amount of $605 million plus interest. In April 1995, the parties executed an
agreement deferring the Company's potential obligation to repay the $605
million from January 25, 1991, until a decision of the court or earlier
settlement. The deferment agreement is subject to annual review by the
Government.
The parties have been engaged in the discovery phase of the litigation, with
the trial scheduled for March 1997, and have concurrently engaged in discussions
which could lead to final settlement. On October 20, 1995, the court determined
all activities in the lawsuit would be "suspended in light of the prospect of
settlement." There can be no assurance that the Government will agree to final
settlement on terms acceptable to the Company. If a final settlement is not
reached, the Company expects that its position will ultimately be upheld with
respect to the termination action and that it will recover on the Contract
Claim.
The Company's financial statements have been prepared on the basis of a
conservative estimate of the Contract Claim and the Company's position that
the termination was for the convenience of the Government. If a final
settlement is not reached, the Company cannot, at this time, reasonably
estimate the length of time that will be required to resolve the termination
appeal and the Contract Claim. In the event that final settlement does not
occur and the Company's appeal of the termination for default is not
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successful, the Company could realize a pretax loss on the program
approximating the value of the unliquidated progress payments plus related
interest and potential damages assessed by the Government.
The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations for more than
ten years.
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures
related to environmental remediation sites based on conservative estimates of
investigation, cleanup and monitoring costs to be incurred.
The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to the
Company's financial position. With respect to results of operations, related
charges have averaged less than 2% of annual net earnings. Such accruals as of
December 31, 1995, without consideration for the related contingent recoveries
from insurance carriers, are less than 2% of total liabilities.
Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for identified
contaminated sites. However, based on all known facts and expert analyses, the
Company believes it is not reasonably likely that identified environmental
contingencies will result in additional costs that would have a material adverse
impact to the Company's financial position or operating results and cash flow
trends.
The Company is subject to U.S. Government investigations of its practices from
which civil, criminal or administrative proceedings could result. Such
proceedings, if any, could involve claims by the Government for fines,
penalties, compensatory and treble damages, restitution and/or forfeitures.
Under Government regulations, a company, or one or more of its operating
divisions or subdivisions, can also be suspended or debarred from government
contracts, or lose its export privileges, based on the results of
investigations. The Company believes, based upon all available information, that
the outcome of such government disputes and investigations will not have a
material adverse effect on its financial position or continuing operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1995.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this item is included on page 60 and the inside back
cover of the Company's 1995 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. Selected Financial Data
Information required by this item is included on pages 56 and 57 of the
Company's 1995 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Information required by this item is included on pages 26-38 of the Company's
1995 Annual Report to Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and supplementary data,
included in the Company's 1995 Annual Report to Shareholders at the pages
indicated, are incorporated herein by reference:
Consolidated Statements of Net Earnings - years ended December 31,
1995, 1994 and 1993: Page 40.
Consolidated Statements of Financial Position - December 31, 1995 and
1994: Page 41.
Consolidated Statements of Cash Flows - years ended December 31, 1995,
1994 and 1993: Page 42.
Notes to Consolidated Financial Statements: Pages 43-55.
Independent Auditors' Report: Page 39.
Supplementary data regarding quarterly results of operations: Page 58.
Information regarding the commercial program method of accounting is included
in Exhibit (99).
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers
No family relationships exist between any of the executive officers,
directors or director nominees. The executive officers of the Company as of
February 26, 1996, are as follows:
Positions and offices held
Name Age and business experience
---- --- --------------------------
F. A. Shrontz 64 Chairman of the Board since
1988. Chief Executive Officer
since 1986; Director since 1985.
President from 1985 until 1988.
P. M. Condit 54 President and Director since
1992. Prior thereto Executive
Vice President and General
Manager - 777 Division, Boeing
Commercial Airplane Group since
1989.
D. P. Beighle 63 Senior Vice President since
1986. Secretary from 1981 until
1991.
L. W. Clarkson 57 Senior Vice President - Planning
& International Development
since April 1994. Prior thereto
Vice President - Planning &
International Development since
1992. Prior thereto Senior Vice
President - Government &
International Affairs, Boeing
Commercial Airplane Group since
1988.
R. A. Davis 62 Vice President - Engineering
and Technology since August
1994. Prior thereto Vice
President - Engineering and
Product Development, Boeing
Commercial Airplane Group since
1993. Prior thereto Vice
President - Engineering
Division, Boeing Commercial
Airplane Group since 1991.
B. E. Givan 59 Senior Vice President and Chief
Financial Officer since 1990.
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Positions and offices held
Name Age and business experience
---- --- --------------------------
C. G. King 61 Senior Vice President of the
Company and President of Boeing
Defense & Space Group since May
1993. Prior thereto Executive
Vice President, Boeing Defense
& Space Group since 1991.
L. G. McKean 60 Senior Vice President - Human
Resources since April 1994.
Prior thereto Vice President -
Human Resources since 1990.
J. D. Warner 56 President of Boeing Information
and Support Services since
April 1995. Prior thereto
President of Boeing Computer
Services since July 1993. Prior
thereto Executive Vice
President, Boeing Computer
Services since March 1993.
Prior thereto Vice President -
Computing, Boeing Commercial
Airplane Group since 1991.
R. B. Woodard 52 Senior Vice President of the
Company and President of Boeing
Commercial Airplane Group since
December 1993. Prior thereto
Executive Vice President, Boeing
Commercial Airplane Group since
March 1993. Prior thereto Vice
President and General Manager -
Renton Division, Boeing
Commercial Airplane Group since
1991.
Other information required by Item 10 involving the identification and
election of directors is incorporated herein by reference to the registrant's
definitive proxy statement, which will be filed with the Commission within 120
days after the close of the fiscal year.
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and Management *
Item 13. Certain Relationships and Related Transactions *
* Information required by Items 11, 12, and 13 is incorporated herein by
reference to the registrant's definitive proxy statement, which will be filed
with the Commission within 120 days after the close of the fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. Financial Statements
All consolidated financial statements of the Company as set
forth under Item 8 of this report on Form l0-K.
2. Financial Statement Schedules
Schedule Description Page
-------- ----------- ----
II Valuation and Qualifying Accounts 19
The auditors' report with respect to the above-listed financial statement
schedule appears on page 18 of this report. All other financial
statements and schedules not listed are omitted either because they are
not applicable, not required, or the required information is included in
the consolidated financial statements.
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3. Exhibits
(3) Articles of Incorporation and By-Laws.
(i) Restated Certificate of Incorporation. (Exhibit (3) of
the Form 10-K of the Company for the year ended December
31, 1991 (herein referred to as "1991 Form 10-K").)
(ii) By-Laws, as amended and restated on October 25, 1993.
(Exhibit (3)(ii) of the Form 10-K of the Company for the
year ended December 31, 1993 (herein referred to as
"1993 Form 10-K").)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
(i) Indenture, dated as of March 1, 1986, between the
Company and The Chase Manhattan Bank (National
Association), Trustee. (Exhibit (4) of the 1991 Form
10-K.)
(ii) Indenture, dated as of August 15, 1991, between the
Company and The Chase Manhattan Bank (National
Association), Trustee. (Exhibit (4) to the Company's
Current Report on Form 8-K dated August 27, 1991.)
(iii) Rights Agreement, dated as of July 27, 1987, between
the Company and The First National Bank of Boston, Rights
Agent. Incorporated by reference to the Company's
Registration Statement on Form 8-A filed July 20, 1987.
(File No. 1-442.)
(10) Material Contracts.
o The Boeing Company Bank Credit Agreements.
(i) Agreement Amended and Restated as of September 30, 1994
(the "Seven-Year Agreement"). (Exhibit (10)(i) of the
Form 10-Q of the Company for the quarter ended
September 30, 1994.)
(a) Amendment No. 1, dated as of
September 28, 1995, to the Seven-Year Agreement.
(Exhibit (10)(ii) to the Form 10-Q of the Company
for the quarter ended September 30, 1995.)
(b) Amendment No. 2, dated as of September 29, 1995, to
the Seven-Year Agreement. (Exhibit (10)(iv) to the
Form 10-Q of the Company for the quarter ended
September 30, 1995.)
(ii) Agreement Entered Into as of September 30, 1994 (the
"364-Day Agreement") (Exhibit (10)(ii) of the Form 10-Q
of the Company for the quarter ended September 30, 1994.)
(a) Amendment No. 1, dated as of September 28, 1995, to
the 364-Day Agreement. (Exhibit (10)(i) to the Form
10-Q of the Company for the quarter ended September
30, 1995.)
(b) Amendment No. 2, dated as of September 29, 1995, to
the 364-Day Agreement. (Exhibit (10)(iii) to the
Form 10-Q of the Company for the quarter ended
September 30, 1995.)
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o Management Contracts and Compensatory Plans.
(iii) 1984 Stock Option Plan.
(a) Plan, as amended February 23, 1987, and August 28,
1989. Filed herewith.
(b) Forms of stock option agreements. (Exhibit
(10)(vi)(b) of the Form 10-K of the Company for the
year ended December 31, 1992 (herein referred to as
"1992 Form 10-K").)
(iv) 1988 Stock Option Plan.
(a) Plan, as amended on December 14, 1992. (Exhibit
(10)(vii)(a) of the 1992 Form 10-K.)
(b) Form of Notice of Terms of Stock Option Grant.
(Exhibit (10)(vii)(b) of the 1992 Form 10-K.)
(v) 1992 Stock Option Plan for Nonemployee Directors.
(a) Plan. (Exhibit (19) of the Form 10-Q of the Company
for the quarter ended March 31, 1992.)
(b) Form of Stock Option Agreement. (Exhibit
(10)(viii)(b) of the 1992 Form 10-K.)
(vi) Supplemental Benefit Plan for Employees of The Boeing
Company. Plan, as amended December 14, 1992. (Exhibit
(10)(vi) of the Form 10-K of the Company for the year
ended December 31, 1994.)
(vii) Supplemental Retirement Plan for Executives of The Boeing
Company. Plan, as amended October 25, 1994. (Exhibit
(10)(vii) of the Form 10-K of the Company for the year
ended December 31, 1994.)
(viii) Deferred Compensation Plan for Employees of The Boeing
Company. Plan, as amended on October 31, 1994. (Exhibit
(10)(iii) of the Form 10-Q of the Company for the
quarter ended September 30, 1994.)
(ix) Deferred Compensation Plan for Directors of The Boeing
Company. Plan, as amended on October 31, 1994. (Exhibit
(10)(iv) of the Form 10-Q of the Company for the quarter
ended September 30, 1994.)
(x) 1993 Incentive Stock Plan for Employees.
(a) Plan, as amended on December 13, 1993. (Exhibit
(10)(ix)(a) of the 1993 Form 10-K.)
(b) Form of Notice of Stock Option Grant.
(i) Regular Annual Grant. (Exhibit (10)(ix)(b)(i)
of the 1993 Form 10-K.)
(ii) Supplemental Grant. (Exhibit (10)(ix)(b)(ii) of
the 1993 Form 10-K.)
(xi) Incentive Compensation Plan for Officers and Employees of
the Company and Subsidiaries.
Plan, as amended on October 31, 1994. (Exhibit (10)(v)
of the Form l0-Q of the Company for the quarter ended
September 30, 1994.)
(xii)SAR Deferral Arrangements of the Company.
(a) Form of SAR Deferral Agreement. Filed herewith.
(b) Plan for Employees, as amended. Filed herewith.
(c) Form of SAR deferral election notice. (Exhibit
(10)(xiv)(c) of the 1992 Form 10-K.)
(12) Computation of Ratio of Earnings to Fixed Charges. Page 20.
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(13) Portions of the 1995 Annual Report to Shareholders incorporated
by reference herein. Filed herewith.
(21) List of Company Subsidiaries. Pages 90-91.
(24) Independent Auditors' Consent and Report on Financial Statement
Schedule for use in connection with filings of Form S-8 under
the Securities Act of 1933. Page 18.
(99) Additional Exhibits
(i) Commercial Program Method of Accounting. Filed herewith.
(b) Reports on Form 8-K filed during quarter ended December 31, 1995:
None.
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Signatures
Pursuant to the requirements of Section 13 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, on the date indicated.
THE BOEING COMPANY
(Registrant)
By: /s/ Frank Shrontz By: /s/ B. E. Givan
------------------------------ -----------------------------
Frank Shrontz - Chairman of the B. E. Givan - Senior Vice
Board, Chief Executive Officer President and Chief Financial
and Director Officer
By: /s/ Gary W. Beil
-------------------------
Gary W. Beil - Vice President
and Controller
Date: February 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Stanley Hiller, Jr.
- ------------------------------- ---------------------------------
Robert A. Beck - Director Stanley Hiller, Jr. - Director
/s/ John E. Bryson /s/ George M. Keller
- ------------------------------- ---------------------------------
John E. Bryson - Director George M. Keller - Director
/s/ Philip M. Condit /s/ Donald E. Petersen
- ------------------------------- ---------------------------------
Philip M. Condit - Director and Donald E. Petersen - Director
President
/s/ John B. Fery /s/ Charles M. Pigott
- ------------------------------- ---------------------------------
John B. Fery - Director Charles M. Pigott - Director
/s/ Paul E. Gray /s/ Franklin D. Raines
- ------------------------------- ---------------------------------
Paul E. Gray - Director Franklin D. Raines - Director
/s/ Harold J. Haynes /s/ Rozanne L. Ridgway
- ------------------------------- ---------------------------------
Harold J. Haynes - Director Rozanne L. Ridgway - Director
/s/ George H. Weyerhaeuser
---------------------------------
George H. Weyerhaeuser - Director
Date: February 26, 1996
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INDEPENDENT AUDITORS' CONSENT
AND REPORT ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
and Shareholders
The Boeing Company:
We consent to the incorporation by reference in Registration Statement Nos. 2-
48576, 2-93923, 33-25332, 33-31434, 33-43854, and 33-58798 on Form S-8 of our
report dated January 25, 1996, on the consolidated financial statements of The
Boeing Company and subsidiaries, in The Boeing Company's 1995 Annual Report to
Shareholders and incorporated by reference in this Annual Report on Form 10-K
for the year ended December 31, 1995. We also consent to the incorporation of
the following report on the Company's financial statement schedule and the
reference to us appearing under the heading "Experts" in the Registration
Statements.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of The Boeing Company listed in
Item 14(a)2 in this Annual Report on Form 10-K for the year ended December 31,
1995. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
March 8, 1996
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SCHEDULE II - Valuation and Qualifying Accounts
The Boeing Company and Subsidiaries
Allowance for Doubtful Accounts and Customer Financing
(Deducted from assets to which they apply)
(Dollars in millions)
1995 1994 1993
- -----------------------------------------------------------------------------
Balance at January 1 $115 $126 $103
Charged to costs and expenses (4) 1 31
Collection of accounts
previously charged off 1
Deductions from reserves
(accounts charged off) 1 13 8
Balance at December 31 $110 $115 $126
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EXHIBIT (12) - Computation of Ratio of Earnings to Fixed Charges
The Boeing Company and Subsidiaries
(Dollars in millions)
Year ended December 31,
----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Earnings before
federal taxes on income $360* $1,143 $1,821 $2,256 $2,204
Fixed charges excluding
capitalized interest 170 154 75 62 66
Amortization of previously
capitalized interest 58 51 31 22 13
Less undistributed earnings
of affiliates (5) (3) 1 1 (1)
Plus distributed earnings
of affiliates - - - - -
------ ------ ------ ------ ------
Earnings available for
fixed charges $583 $1,345 $1,928 $2,341 $2,282
====== ====== ====== ====== ======
Fixed charges:
Interest expense $151 $ 130 $ 39 $ 14 $ 13
Interest capitalized during
the period 65 87 150 119 44
Rentals deemed
representative of an
interest factor 19 24 36 48 53
------ ------ ------ ------ ------
Total fixed charges $235 $ 241 $ 225 $ 181 $ 110
====== ====== ====== ====== ======
Ratio of earnings to fixed
charges 2.5* 5.6 8.6 12.9 20.8
====== ====== ====== ====== ======
* Includes $600 pretax charge associated with a special retirement program.
The ratio of earnings to fixed charges exclusive of the special retirement
charge was 5.0.
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EXHIBITS FILED WITH THIS REPORT ON FORM 10-K
Commission File Number 1-442
THE BOEING COMPANY
Exhibit Index
Annual
Report
to
Share- Form
holders 10-K
Exhibit Description Page Page
- -------------------------------------------------------------------------------
(10)(iii)(a) 1984 Stock Option Plan, as amended February 23,
1987, and August 28, 1989. 67
(10)(xii)(a) SAR Deferral Arrangements of the Company.
Form of SAR deferral Agreement. 74
(10)(xii)(b) SAR deferral Arrangement of the Company.
Plan for Employees, as amended. 81
(12) Computation of Ratio of Earnings to Fixed
Charges 20
(13) Portions of the 1995 Annual Report to Share-
holders incorporated by reference in Part I
and Part II
Market for Registrant's Common Equity and
Related Stockholder Matters * 65
Selected Financial Data 56 62
Management's Discussion and Analysis of
Financial Position and Results of
Operations 26 23
Consolidated Statements of Net Earnings 40 40
Consolidated Statements of Financial Position 41 41
Consolidated Statements of Cash Flows 42 42
Notes to Consolidated Financial Statements 43 43
Independent Auditors' Report 39 39
Supplementary data regarding quarterly
results of operations 58 64
(21) List of Company Subsidiaries 90
(24) Independent Auditors' Consent and Report on
Financial Statement Schedule for use in
connection with filings of Form S-8 under
the Securities Act of 1933. 18
(99) Additional exhibits. (i) Commercial Program Method
of Accounting. 86
Appendix of graphic and image material pursuant
to Rule 304(a) of Regulation S-T 92
* Listed on inside back cover of annual report
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Exhibit (13)
Portions of the 1995 Annual report the Shareholders
incorporated by reference in Part I and Part II
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Management's Discussion and Analysis
Results of Operations, Financial Condition and Business Environment
Results of Operations
REVENUES
Operating revenues for 1995 were $19.5 billion compared with $21.9 billion in
1994 and $25.4 billion in 1993. The declines in revenue for the past two years
were due to fewer commercial jet transport deliveries as a result of economic
conditions and airline industry overcapacity in most major market areas of the
world. Additionally, a ten-week strike during the fourth quarter of 1995 by the
International Association of Machinists and Aerospace Workers (IAM) resulted in
the delay of about 30 jet transport deliveries representing approximately $2
billion in reduced sales in 1995. Adjusting for the impact of the labor strike,
the Company's commercial jet transport market share has averaged approximately
60% in terms of sales value of deliveries over the three-year period.
Commercial jet transport deliveries by model:
1995 1994 1993
- -----------------------------------------------------
737 89 121 152
747 25 40 56
757 43 69 71
767 36 40 51
777 13 - -
- -----------------------------------------------------
Total 206 270 330
=====================================================
Commercial aircraft products and services accounted for 71%, 77% and 81% of
total operating revenues for the years 1995, 1994 and 1993.
Total commercial aircraft production declined from a rate of 32 1/2 aircraft
per month at the beginning of 1993 to 18 1/2 in the fourth quarter of 1995,
prior to the IAM labor strike. Production rates for all models are expected to
recover to prestrike levels during the first quarter of 1996.
Based on current schedules, total aircraft production will increase to 22 1/2
per month by early 1997. The following production rate increases are planned
for the second half of 1996: the 747 from 2 to 3 1/2 per month, the 767 from
3 1/2 to 4 per month, and the 737 from 7 to 8 1/2 per month. The 757
production rate will be decreased from 4 to 3 per month, also in the second
half of 1996. The 777 production rate is scheduled to reach 3 1/2 per month
by the third quarter of 1996 and 5 per month by early 1997.
Total commercial jet transport deliveries for 1996 are currently projected to be
approximately 215 aircraft. Commercial transportation sales trends are discussed
further in the Commercial Aircraft Business Environment and Trends section on
pages 31-34.
Sales by industry segment:
[Graphic and image material item Number 1
See appendix on page 92 for description.]
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FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995) that involves risk and uncertainty, including
projections for 1996 deliveries and sales and 1996 research and development
expenditures, and various business environment and trends projections. Actual
future results and trends may differ materially depending on a variety of
factors, including the Company's successful execution of internal performance
plans; product performance risks associated with regulatory certifications of
the Company's commercial aircraft by the U.S. Government and foreign
governments; other regulatory uncertainties; collective bargaining labor
disputes, performance issues with key suppliers and subcontractors;
governmental export and import policies; factors that result in significant and
prolonged disruption to air travel worldwide; global trade policies; worldwide
political stability and economic growth; changing priorities or reductions in
the U.S. Government defense and space budget; termination of government
contracts due to unilateral government action or failure to perform; and legal
proceedings.
Commercial aircraft sales by geographic region:
[Graphic and image material item Number 2
See appendix on page 92 for description.]
Defense and space segment revenues, including activities previously identified
as "Other industries" in prior years, were $5.6 billion for 1995, compared
with $5.1 billion and $4.9 billion for 1994 and 1993, respectively. The
International Space Station program was the major contributor to the increase
in defense and space revenues in 1994 and 1995, following NASA's selection of
Boeing Defense & Space Group as the prime contractor for the restructured
Space Station program in 1993. The 707 and 767 Airborne Warning and Control
System (AWACS) programs and the V-22 program also had increased sales in 1995.
Sales associated with B-2 bomber subcontract work declined in both 1994 and
1995. The Company's defense and space business is broadly diversified, and no
program accounted for more than 20% of total 1993-1995 defense and space
revenues. The International Space Station program represented approximately
25% of total 1995 sales.
The principal contributors to defense and space sales in 1995, in addition to
the Space Station program, included F-22 fighter aircraft engineering and
manufacturing development activities, production and remanufacturing of CH-47
helicopters, V-22 Osprey tiltrotor transport development and test activities,
E-3 AWACS updates, 767 AWACS development and manufacturing, B-2 bomber
subcontractor work, RAH-66 Comanche helicopter development activities, and
various facilities management and information services contracts (previously
reported as "Other industries"). U.S. Government classified projects also
continued to contribute to defense and space segment revenues. The Company's
activities on the F-22, RAH-66 and V-22 programs are under joint venture
teaming arrangements with other companies.
Defense and space activities are discussed further in the Defense and Space
Business Environment and Trends section on pages 34 and 35. Based on current
programs and schedules, the Company projects total 1996 revenues to be
approximately $22 billion.
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EARNINGS
Net earnings of $393 million for 1995 include the recognition of a $600 million
one-time pretax charge, or $390 million after-tax, for the special retirement
program offered in the first half of 1995. Excluding the one-time special
retirement program charge, net earnings for 1995 were $783 million, $73 million
lower than the 1994 net earnings of $856 million. The lower comparable earnings
were primarily due to the decline in commercial jet transport sales discussed
above. Also contributing to lower earnings was an increase in interest expense
of $21 million in 1995 due to less interest being capitalized on plant and
equipment investments.
These factors were partially offset by lower research and development expense,
an increase in other income of $87 million principally attributable to increased
interest income on investments, and a negative income tax provision. Research
and development expense of $1,267 million for 1995 was down $437 million from
1994, primarily due to reduced 777 developmental expenditures. The negative
effective income tax rate for 1995 was due to the recognition of higher tax
benefits, together with the lower relative pretax earnings after the second
quarter earnings charge for the special retirement program and the effect of the
labor strike in the fourth quarter. The tax benefit recognized for 1995 included
a research and experimentation tax credit of $90 million, primarily associated
with the initial 777 development program that was substantially completed in
1995, and Foreign Sales Corporation tax benefits of $75 million. Without the
special retirement program charge, the effective tax rate for 1995 would have
been 18.4%, compared with 25.1% in 1994. Research and experimentation tax credit
and Foreign Sales Corporation tax benefits were $60 million and $65 million,
respectively, for 1994.
The special retirement program was offered during the first half of 1995 to
achieve desired workforce reductions corresponding with the lower production
rates and major process improvement initiatives. Approximately 9,500 employees
- - 9% of total employees - accepted the early retirement offer. Funding of the
program will occur over a minimum of ten years through the Company's retirement
plan and will not have a significant impact on annual cash flow.
The overall operating profit margin, exclusive of research and development
expense and the special retirement program expense, was 11.1% for 1995 compared
with 13.0% for 1994. The lower overall operating profit margin was primarily
attributable to defense and space segment sales being a higher percentage of
total sales (28% in 1995, 23% in 1994) and the commencement of 777 jet transport
deliveries together with fewer deliveries of all other commercial aircraft
models. The overall profit margin before research and development expense for
the defense and space segment is normally lower than for the commercial aircraft
segment. With regard to the 777 program, new jet transport programs normally
have lower operating profit margins than established programs due to initial
tooling amortization and higher unit production costs in the early years of a
program.
Significant efficiencies have been gained through process improvements, but the
commercial jet transport market remains extremely competitive, resulting in
continued price pressure. The Company will continue to pursue major productivity
gains to help ensure that its favorable market position is maintained at
acceptable profit margins.
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The diversified programs of the defense and space segment continue to
demonstrate solid technical and cost performance. The defense and space segment
operating profit margin was 6.6% in 1995 exclusive of the special retirement
program expense, compared with 6.0% in 1994. Although the operating profit
margin associated with the Company's managing role for the Space Station
program is relatively low (due to fee structure for subcontracts), favorable
performance was recognized on other programs in 1995.
Net earnings:
[Graphic and image material item Number 3
See appendix on page 92 for description.]
Net earnings of $856 million for 1994 were $388 million lower than in 1993,
primarily due to the fewer commercial aircraft deliveries, a higher level of
research and development expenditures, increased debt expense, and lower
corporate investment income. These factors were partially offset by improved
defense and space earnings and a lower effective federal income tax rate.
Although commercial aircraft sales levels were down substantially in 1994
relative to 1993, the combined operating profit margin on commercial aircraft
programs, before research and development expenditures for new and derivative
models, was maintained through efficiencies gained by process improvements
throughout the segment's operations. The lower effective federal income tax
rate in 1994 was principally due to the recognition of a research and
experimentation tax credit of $60 million in 1994, whereas no research and
experimentation credit was recognized in 1993.
Research and development expensed:
[Graphic and image material item Number 4
See appendix on page 93 for description.]
Research and development expenditures charged directly to earnings include
design, developmental and related test activities for new and derivative
commercial jet transports, other company-sponsored product development, and
basic defense and space research and development not recoverable under U.S.
Government flexibly priced contracts. Research and development associated with
new commercial models and derivatives was maintained at relatively high levels
over the past three years even though sales were declining during this period.
These substantial investment levels are helping to ensure the Company is well
positioned to meet future commercial airline market requirements.
The principal commercial developmental program during the 1993-1995 time period
has been the new 777 wide-body twinjet. During 1993, the 777 development program
transitioned from primarily structural and systems design activities to
primarily systems integration and test activities. Flight testing of the Pratt &
Whitney-powered 777 began in mid-1994, and continued through the first half of
1995. Flight testing of General Electric-powered and Rolls-Royce-powered 777s
continued through 1995. Other commercial development programs in 1994 and 1995
included the 777-200ER extended-range version of the 777, the 737-600/700/800
next-generation 737 family, and a freighter version of the 767. Additionally, in
1995 development efforts commenced for the larger capacity 777-300.
The defense and space segment plans to selectively pursue commercial-type
business opportunities where it can utilize its technical and large-scale
integration capabilities. Such business pursuits, which are outside the
traditional U.S. Government contracting environment, may require increased
levels of research and development expenditures for the defense and space
segment over the next few years.
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Total research and development expenditures for 1996 are currently projected to
be in the $1.2 billion range. Research and development activities are discussed
further in the Strategic Investments for Long-Term Value section on pages 36-38.
Essentially all of the Company's business is performed under contract, and
therefore operating results trends are not significantly influenced by the
effects of inflation. Additional information relating to sales and earnings
contributions by business segment can be found in Note 18 to the Consolidated
Financial Statements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, becomes effective in 1996. The Company does not plan to adopt the
expense-recognition alternative for stock options as permitted by the standard.
CONTRACTUAL BACKLOG
Contractual backlog:
[Graphic and image material item Number 5
See appendix on page 93 for description.]
Total contractual backlog of unfilled orders at December 31, 1995, was $72.3
billion, compared with $66.3 billion at the end of 1994. Of the total 1995
backlog, $66.5 billion or 92% related to the commercial aircraft segment,
compared with $60.6 billion or 91% in 1994. Not included in contractual backlog
are purchase options and announced orders for which definitive contracts have
not been executed. Commercial backlog includes orders for deliveries that extend
several years into the future. Approximately 30% of the commercial aircraft
backlog units are scheduled for delivery beyond 1998.
U.S. Government and foreign military backlog is limited to amounts obligated to
contracts. Unobligated contract values not included in backlog at December 31,
1995 and 1994, totaled $7.6 billion and $5.9 billion.
LIQUIDITY AND CAPITAL RESOURCES
The primary factors that affect the Company's investment requirements and
liquidity position, other than operating results associated with current sales
activity, include the timing of new and derivative commercial jet transport
programs requiring both high developmental expenditures and initial inventory
buildup; cyclical growth and expansion requirements; customer financing
assistance; and the timing of federal income tax payments.
CASH FLOW SUMMARY
Following is a summary of cash flow based on changes in cash and short-term
investments. This cash flow summary is not intended to replace the Consolidated
Statements of Cash Flows on page 42 that is prepared in accordance with
generally accepted accounting principles, but is intended to highlight and
facilitate discussion of the principal cash flow elements.
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(Dollars in billions) 1995 1994 1993
=============================================================================
Net earnings $ 0.4 $ 0.9 $ 1.2
Non-cash charges to earnings (a) 1.8 1.2 1.2
- -----------------------------------------------------------------------------
Net earnings adjusted for non-cash items 2.2 2.1 2.4
Facilities and equipment expenditures (b) (0.6) (0.8) (1.3)
Change in gross inventory (c) (2.7) (0.8) 0.6
Change in customer advances (d) 0.8 (0.7) (1.3)
- -----------------------------------------------------------------------------
Increase in net inventory (1.9) (1.5) (0.7)
Net changes in receivables, liabilities and
deferred income taxes (e) 0.4 0.3 (0.4)
Pension funding in excess of expense (0.2) (0.1) (0.1)
Change in customer financing (f) 1.5 (0.2) (0.9)
Cash dividends (0.3) (0.3) (0.3)
- -----------------------------------------------------------------------------
Net cash flow before new debt 1.1 (0.5) (1.3)
Long-term debt issued 0.8
- -----------------------------------------------------------------------------
Increase (decrease) in cash and short-term
investments $ 1.1 $ (0.5) $ (0.5)
=============================================================================
Cash and short-term
investments at end of year $ 3.7 $ 2.6 $ 3.1
=============================================================================
(a) Non-cash charges to earnings as presented here consisted of depreciation
and retiree health care accruals for all years and the special
retirement program charge for 1995. The Company has not funded Statement
of Financial Accounting Standards No. 106 retiree health care accruals
and, at this time, has no plan to fund these accruals in the future.
The special retirement program charge will be funded over a minimum of
ten years. Retirement plan funding in excess of retirement plan
expense is separately indicated.
(b) Facilities and equipment expenditures have declined each year since 1992
following record-high levels of expenditures in the 1991-1992 time
period, reflecting the substantial completion by 1994 of the facilities
and equipment expansion for the 777 program. No major plant expansions
are currently planned.
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(c) Inventory balances on the 737, 747, 757 and 767 commercial jet transport
programs declined substantially in 1993 and 1994 due to production rate
reductions and improvements in production inventory flow times. These
declines were partially offset during 1993 and more than offset in
1994 by substantial production inventory and tooling buildup on the
new 777 program. The substantial inventory buildup for the 777 program
continued through 1995. Additionally, curtailed deliveries at the end of
1995 due to the ten-week IAM strike resulted in higher inventory levels
for all other commercial programs. Defense and space segment
inventories declined in 1993, and remained relatively level during the
1994-1995 time period.
(d) Commercial customer advances declined during 1993 and 1994 as backlog
and deliveries for commercial aircraft programs in total declined. The
increase in commercial customer advances during 1995 was principally
associated with the 777 program. Approximately 30 777s are scheduled
for delivery in 1996, compared with 13 deliveries in 1995. With regard
to defense and space contract activity, the ratio of progress billings
to gross inventory did not significantly change during this period.
(e) Over the three-year period 1993-1995, changes in accounts receivable,
accounts payable, other liabilities and deferred taxes resulted in a net
increase in cash of $0.3 billion, largely attributable to an increase
in accounts payable and other liabilities of $1.0 billion during this
time. Offsetting this principal positive cash flow factor were the
effects of increases in deferred tax assets of $0.6 billion during this
same time period.
Federal income tax payments over the past several years have
substantially exceeded the tax provisions on book income, due
principally to certain tax law changes previously enacted, resulting
in the acceleration of the recognition of taxable income related to
long-term contracts and inventory costing. The completion in the next
two years of contracts executed under prior tax regulations is
projected to result in additional tax payments exceeding income tax
expense.
(f) The changes in customer financing balances have been largely driven both
by commercial aircraft market conditions and the ability of the Company
to sell customer financing assets. The Company generated $2.6 billion,
$0.8 billion and $0.6 billion of cash in 1995, 1994 and 1993 from
principal repayments and by selling customer financing receivables. As
of December 31, 1995, the Company had outstanding commitments of
approximately $3.6 billion to arrange or provide financing related to
aircraft on order or under option for deliveries scheduled through 2002.
However, not all these commitments are likely to be utilized. The
Company will continue to sell customer financing assets from time to
time when capital markets are favorable in order to maintain maximum
capital resource flexibility. Outstanding loans and commitments are
secured by the underlying aircraft.
Property, plant and equipment - net additions:
[Graphic and image material item Number 6
See appendix on page 93 for description.]
Customer financing - net changes:
[Graphic and image material item Number 7
See appendix on page 93 for description.]
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LIQUIDITY AND CAPITAL RESOURCES SUMMARY
The $2.3 billion of long-term debt, primarily issued in the 1990-1993 time
period, is unsecured, and has an average maturity of approximately 30 years.
Total long-term debt as of year-end 1995, excluding $250 million with a March
1996 maturity, amounted to 19% of total book capital (shareholders' equity plus
borrowings). The Company believes it has substantial additional long-term
borrowing capability, although no additional debt issuances are anticipated at
this time. Revolving credit line agreements with a group of major banks,
totaling $2.0 billion, remain available but unused.
The Company believes its internally generated liquidity, together with access to
external capital resources, will be sufficient to satisfy existing commitments
and plans, and to provide adequate financial flexibility to take advantage of
potential strategic business opportunities should they arise.
CONTINGENT ITEMS
As discussed in Note 17 to the Consolidated Financial Statements, the U.S.
Government terminated for alleged default most of the work required under
contracts for a Saudi Arabia air defense system known as the Peace Shield
program and selected another contractor to perform the terminated work. In
conjunction with the notice of partial termination, the Government demanded that
the Company repay $605 million of Peace Shield unliquidated progress payments.
In April 1995, an agreement was executed deferring the Company's potential
obligation to repay the $605 million from January 25, 1991, until a decision of
the court or earlier settlement. The deferment agreement is subject to annual
review by the Government. Management believes that the Government's grounds for
default are not legally supportable and on appeal the Government's position
will be overturned. The Company filed its complaint in the United States Court
of Federal Claims to overturn the default termination and submitted a Contract
Claim for equitable adjustment to the contract prices and schedules. The
Company's financial statements assume that the termination for default will be
overturned and that the Contract Claim will be settled in the Company's favor.
The parties have been engaged in the discovery phase of the litigation, with the
trial scheduled for March 1997, and have concurrently engaged in discussions
which could lead to final settlement. On October 20, 1995, the court determined
all activities in the lawsuit would be "suspended in light of the prospect of
settlement." There can be no assurance that the Government will agree to final
settlement on terms acceptable to the Company. If a final settlement is not
reached, the Company expects that its position will ultimately be upheld with
respect to the termination action and that it will recover on the Contract
Claim. If the Company's appeal of the termination for default is not
successful, the Company could realize a pretax loss on the program
approximating the value of the unliquidated progress payments plus related
interest and potential damages.
The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Based on in-depth studies, expert analyses
and legal reviews, the Company routinely assesses its contingencies,
obligations and commitments to clean up sites, including assessments of the
probability of recoveries from other responsible parties who have and have not
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agreed to a settlement and recoveries from insurance carriers. The Company's
policy is to immediately recognize identified exposures related to
environmental cleanup sites based on conservative estimates of investigation,
cleanup and monitoring costs to be incurred. The costs incurred in connection
with such activities have not had a material impact to the Company's financial
position. Based on all known facts and expert analyses, the Company believes
it is not reasonably likely that identified environmental contingencies will
result in a materially adverse impact on the Company's future financial
position or operating results and cash flow trends.
COMMERCIAL AIRCRAFT BUSINESS ENVIRONMENT AND TRENDS
The worldwide market for commercial jet transports is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth in developed and
emerging countries and political stability. Demand for the Company's commercial
aircraft is further influenced by world trade policies,
government-to-government relations, environmental constraints imposed upon
airplane operations, airline industry profitability, technological changes, and
price and other competitive factors.
GLOBAL ECONOMIC AND PASSENGER TRAFFIC TRENDS
Since the 1970s, world air travel has grown in parallel with prevailing economic
conditions. Major slumps occurred in tandem with the two petroleum
price-driven world recessions and the most recent worldwide recession in
developed countries, which followed the high economic growth of the late
1980s. The current world economic recovery has been moderate in the United
States and slow in Europe. Japan is projected to experience a modest recovery
beginning in 1996. Current economic indications suggest that most Asian
economies will continue to experience rapid expansion.
As the world economy has improved, airline passenger traffic has been
increasing. Following the decline in passenger traffic in 1991, the first
annual decline since the start of the jet era, worldwide passenger traffic has
grown steadily. For the four-year period 1992-1995, the average annual growth
rate for worldwide passenger traffic (excluding traffic in the nations of the
Commonwealth of Independent States and the three Baltic republics) was
approximately 6 1/2%. The Company's forecast of the average long-term growth
rate in passenger traffic is approximately 5.6% annually for the balance of
the decade and slightly less than 5% for the balance of the 20-year forecast
period, based on average worldwide economic real growth of 3.2% over the
period.
Significant excess capacity in the worldwide aircraft fleet developed during
the recent global recession following several years of record-setting delivery
levels of new jet transports. At the end of 1993, approximately 1,100 commercial
jet transports out of the total world fleet of over 11,000 aircraft were in out-
of-service status. By the end of 1995, that number had declined to
approximately 730. Due to noise constraints, inferior economics of older
aircraft and the market requirement for readily available used aircraft, the
Company currently estimates that less than one-fourth of the stored aircraft
are potentially practical alternatives to new aircraft for airlines seeking
added capacity.
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Based on global economic growth projections over the long term, and taking
into consideration increasing utilization levels of the worldwide aircraft
fleet and requirements to replace older aircraft, the Company projects the
total commercial jet transport market opportunity over the next 20 years at
more than $1,000 billion in 1995 dollars.
AIRLINE PROFITABILITY
The airline industry's ability to achieve substantial levels of profitability
will be an important factor in determining whether the Company's long-term
market forecast will be realized. In addition to aggressive cost reduction
measures being taken by many airlines, continued growth in passenger traffic,
together with stable fare structures, are important conditions if the airline
industry is to sustain acceptable earnings levels.
Through a combination of passenger traffic growth, improved revenue, lower fuel
costs and aggressive cost reduction measures, the airline industry showed
significant improvement in operating profitability over the past few years.
Airlines' net earnings (after interest costs on debt) also showed a marked
improvement in both 1994 and 1995. In the aggregate, the industry achieved
approximately a break-even level of net earnings in 1994 and a substantial
positive level of earnings in 1995, following four years of net losses. Most
airline industry analysts project additional gains in 1996.
Worldwide airline industry core operating profits:
[Graphic and image material item Number 8
See appendix on page 94 for description.]
AIRCRAFT REPLACEMENT DUE TO NOISE REGULATIONS
There are approximately 3,600 Stage 2 aircraft worldwide that cannot operate in
conformity with legislated noise requirements to be phased in by the year 2002.
Approximately 2,100 of these aircraft are in the United States and most of the
remainder operate in Europe. Airlines have the option of hushkitting Stage 2
aircraft, replacing them, or selling or removing them from service without
replacement. The Company projects that about one-half of the U.S. Stage 2
aircraft will eventually be hushkitted, and the remainder, primarily older
aircraft, will be replaced.
INDUSTRY COMPETITIVENESS AND WORLD TRADE POLICIES
Since the 1970s, the Company has maintained approximately a 60% share of the
available commercial jet transport market. This market share has been maintained
throughout the economic cycles of the commercial jet transport market, including
the difficult market environment in recent years that has resulted in lower
production rates and excess production capacity for all jet transport
manufacturers. With regard to new orders, this market environment results in
intense pressures on pricing and other competitive factors. The Company's focus
on improving processes and other cost reduction efforts are intended to enhance
the ability to pursue pricing strategies that enable the Company to maintain
market share at satisfactory margins.
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The Company's extensive customer support services network for airlines
throughout the world plays a key role in maintaining high customer satisfaction.
Online access to engineering drawings and parts lists needed for aircraft
maintenance is already available to airline customers, and in 1996, service
bulletins and maintenance manuals will also be delivered online. To help airline
customers more effectively manage their operating costs, new facilities and
systems now provide for next-day shipment for routine spare parts orders, and
the highest priority orders are processed and ready for shipment within two
hours. A new regional customer service center was opened in Beijing in 1994 to
serve growing airline requirements in China and other Asian countries, and the
center is currently being expanded to stock 30,000 spare parts. The Company now
has 17 field service bases located throughout China. In 1995 the Company opened
an avionics center in Singapore that is able to service a significant number of
Asian customers.
Over the past five years, sales outside the United States have accounted for
more than 70% of the Company's total commercial aircraft sales, and
approximately 60% of the contractual backlog at year-end 1995 was with customers
based outside the United States. Continued access to global markets is extremely
important to the Company's future ability to fully realize its sales potential
and projected long-term investment returns.
In 1992 the U.S. Government and the European Community announced agreement on
interpreting the commercial aircraft code of the General Agreement on Tariffs
and Trade (GATT). The 1992 agreement bans government production subsidies and
limits development in the form of loans to 33% of development costs. The Company
would have preferred a ban on all government subsidies for commercial airplane
programs, but the controls embodied in the 1992 agreement were considered
important in limiting future government subsidies to Airbus Industrie, the
Company's European competitor.
The World Trade Organization (WTO), based in Geneva, was inaugurated in 1995.
Consisting of approximately 110 nations, the WTO was established to promote
open and nondiscriminatory trade among its members. The WTO contains an
improved subsidies code, applicable to all members, that provides important
protections against injurious subsidies by governments, as well as improved
dispute settlement procedures to resolve disagreements between nations.
Company forecasts indicate that the airlines of China represent a significant
potential for commercial jet transport orders over the next 20 years; however,
China is not currently a member of the WTO. The Company believes the accession
of China to the WTO and the granting of permanent Most-Favored-Nation trading
status by the U.S. Government would help ensure an open market and effective
trade policies. However, if government and trade relations between the United
States and China deteriorate significantly, the Company's ability to sell
commercial aircraft to airlines in China could become severely constrained.
Airlines of Russia and other States of the former Soviet Union operate a limited
number of western-built aircraft, principally under operating leases with
leasing firms. Because of high customs taxes and financing constraints, the
potential for new aircraft orders has been severely limited. In January 1996,
the U.S. Government reached a trade agreement with the Russian Federation that
provides for future aircraft tariff reductions. The Company expects that the
airlines and aircraft manufacturing industry of this region will eventually be
integrated into the international economy.
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SUMMARY
Although market uncertainties remain, particularly with respect to the airline
industry's profitability and open market access, the long-term market outlook
remains favorable. The Company is well positioned in all segments of the
commercial jet transport market, and intends to remain the airline industry's
preferred supplier through emphasis on product offerings and customer service
that provide the best overall value in the industry.
DEFENSE AND SPACE BUSINESS ENVIRONMENT AND TRENDS
Procurement budget - Department of Defense and NASA:
[Graphic and image material item Number 9
See appendix on page 94 for description.]
Uncertain defense priorities and severe U.S. Government budget pressures
continue to characterize the business environment for the defense and space
segment. Since 1992, total procurement and research funding for U.S. Government
defense and space programs has declined nearly 20%. As a consequence, over the
last few years, some of the Company's programs have been subject to
stretch-out, curtailment or termination. Although a number of programs remain
subject to future stretch-out and curtailment, the Company's defense and space
business is broadly diversified among priority government programs involving
military aircraft, helicopters, information and electronic systems, and space
systems. Additionally, the Company's programs are balanced between potential
future production programs and ongoing modernization activities for existing
defense systems. At this time, total U.S. Government defense and space funding
for procurement and research programs is expected to be relatively constant
over the next five years.
During 1994 and 1995, an increasing percentage of the Company's defense and
space business was contracted under cost-reimbursement-type contracts. The
current major developmental programs, principally the International Space
Station, F-22 fighter, V-22 Osprey tiltrotor aircraft and RAH-66 Comanche
helicopter, primarily involve cost-reimbursement-type contracts.
In addition to the developmental programs mentioned above, the major
revenue-producing programs for 1995 included production and remanufacturing of
CH-47 helicopters, updating and modifying various military aircraft and
systems, production of 767 Airborne Warning and Control System (AWACS) for the
Government of Japan, continuing B-2 bomber subcontract work, other program
support and classified project activities.
Significant restructuring in the form of mergers, acquisitions and strategic
alliances are continuing throughout the industry as a result of the reduced
opportunities for new programs. Internal consolidations and restructuring of
the Company's defense and space operations have helped position the Defense &
Space Group to effectively compete in the current market environment. The
Company continues to examine whether its long-term strategy is best pursued
through internal means or through acquisitions, dispositions or alliances.
Joint venture arrangements with other companies are expected to continue to be
common for major developmental programs and follow-on production activities.
Currently, the Company's activities in the F-22, V-22 and RAH-66 developmental
programs are under joint venture arrangements.
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Sales to foreign governments represented 19% of total 1995 defense and space
sales, compared with an average of 10% for the prior three years, principally
due to foreign government sales associated with the 767 AWACS and CH-47 programs
in 1995.
In 1993 NASA selected Boeing to become the prime contractor for the restructured
International Space Station program, which now includes Russian participation.
The selection as prime contractor for the International Space Station was an
acknowledgment of Boeing Defense & Space Group's ability to effectively manage
large, complex integration projects, and represents an assignment of great
importance to both the Company and the country's manned space program. Boeing
is responsible for the design, development and integration of the Space
Station, as well as completion of its original work package to build the
habitat and laboratory modules. In early 1995, the International Space Station
contract was definitized with NASA at a target price of $5.6 billion. First
launch of a Space Station component is currently scheduled for 1997.
The F-22 fighter, being developed in partnership with Lockheed Martin,
remains a high priority defense program. The Air Force completed its Air
Vehicle Critical Design Review in the first quarter of 1995, and first flight
is currently scheduled to occur in early 1997. Low-rate initial production is
scheduled to begin approximately two years later.
The 767 AWACS program is expected to provide important business opportunities
over the long term in international markets and ultimately with the U.S.
Government. Currently, four 767 AWACS have been ordered by the Government of
Japan. The first two 767 airframes have been delivered and are undergoing
modification for installation of the AWACS system. Completion of the first 767
AWACS system aircraft is scheduled for 1998. In October 1995, the U.S. Air Force
placed into service the first 707 AWACS to incorporate a major block of
enhancements, the first significant AWACS enhancements in 10 years. U.S.
Government and NATO 707 AWACS upgrades continue to be a significant defense and
space activity. Revenues for these upgrades increased in 1995.
The V-22 Osprey tiltrotor aircraft, being developed in partnership with Bell
Helicopter Textron, has maintained strong congressional support. The V-22 will
satisfy U.S. Marine Corps and Special Operations Forces medium-lift requirements
with exceptional mobility and rapid deployment. Critical Design Review for the
V-22 was successfully completed in late 1994, and the current engineering and
manufacturing development contract will provide four production-representative
aircraft for operational tests scheduled to begin in late 1996.
The RAH-66 Comanche, a reconnaissance light-attack helicopter for the U.S. Army,
is being jointly developed with Sikorsky. First flight of the Comanche prototype
occurred in January 1996.
The CH-47 Chinook helicopter program currently consists of modernizing and
remanufacturing earlier model Chinooks and production of new CH-47s. In July
1995, the Company received a contract award from Britain's Ministry of Defence
for 14 new Chinook helicopters. These deliveries will begin in 1997. Near-term
sales prospects are principally with foreign governments.
Other business activities include developing large-scale information systems and
providing management services, principally for government agencies.
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STRATEGIC INVESTMENTS FOR LONG-TERM VALUE
Over the past several years, the Company has made significant investments to
meet future airline product requirements and to aggressively pursue business and
process improvement opportunities. Although constraining earnings and requiring
substantial cash resources in the near term, these investments are building
long-term value by streamlining operations and positioning the Company to
maintain its leadership position.
NEW PRODUCT DEVELOPMENT
The Company continually evaluates opportunities to improve current models, and
conducts ongoing marketplace assessments to ensure that its family of jet
transports is well positioned to meet future requirements of the airline
industry. The fundamental strategy is to maintain a broad product line
responsive to changing market conditions by maximizing commonality among the
Boeing family of airplanes. Additionally, the Company is determined to
continue to lead the industry in customer satisfaction by offering products
that exhibit the highest standards of quality, safety, technical excellence,
economic performance, and in-service support.
The major focus of development activities over the past three years has been the
777 wide-body twinjet which entered service in May 1995. The new 777 model is
designed to meet airline requirements for an efficient, comfortable,
high-capacity airplane to be used in domestic and regional markets
internationally. Deliveries of the extended-range version 777-200 will begin in
late 1996, followed in 1998 by the 777-300 version with 20% greater
passenger-carrying capability. As of January 25, 1996, orders for 250 and
options for 138 777s have been announced by 20 customers.
Development of the 737-600/700/800 next-generation 737 family of short-to-
medium-range jetliners began in 1993. These new 737s will provide greater range,
increased speed, and reduced noise and emissions while maintaining 737 family
commonality. The 737-700, the middle-sized member of the family, will be the
first version to be placed into service, with initial deliveries scheduled for
late 1997 to Southwest Airlines. The 737-800, a larger version, is currently
scheduled to be delivered in early 1998 to Hapag-Lloyd. Initial delivery of the
smallest version, the 737-600, is currently scheduled for late 1998 to SAS. As
of January 25, 1996, orders for 302 and options for 206 next-generation
737-600/700/800s have been announced by 13 customers.
Other derivatives recently developed include freighter versions of the 747-400
and 767. The initial 747-400 freighter was delivered in 1993, and first
delivery of the 767 freighter occurred in the fourth quarter of 1995.
The Company continues to assess the market potential for new or derivative
aircraft that are larger and have more range than the 747-400. Because of the
relatively limited market for this size and range aircraft and the very
substantial investment levels that would be required to develop and produce an
all-new aircraft, this market segment may best be met with derivatives of the
747 model. The timing of a decision to proceed with a 747 derivative aircraft
and the development schedule will be dependent on customer demand and the
Company's ability to achieve favorable long-term financial returns on the
substantial development costs that would be required.
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While product development activities are principally oriented toward maintaining
and enhancing the competitiveness of the Boeing subsonic fleet, the Company is
also involved in studying the technological and economic issues associated with
development of commercial supersonic aircraft.
The major developmental programs in the defense and space segment, funded
principally under cost-reimbursement-type contracts, include International Space
Station, F-22 fighter aircraft, V-22 Osprey tiltrotor transport and RAH-66
Comanche helicopter.
Opportunities for major new U.S. Government defense and space programs in the
near term are relatively limited; however, the Company is aggressively seeking
ways to capitalize on its existing broad program base and its competitive
strength with regard to military and space technology. In recent years,
significant resources have been applied in technologies for affordable military
aircraft, which has led to award of key conceptual design contracts, including
Joint Attack Strike Technology (JAST), a tri-service Defense Department
initiative to provide design concepts for an affordable lightweight fighter.
During 1995 Boeing completed a series of critical tests with a large-scale JAST
model in preparation for the Government's selection of two competing
contractors in 1996 for the Concept Demonstration phase of the program.
Other new business opportunities being pursued or studied include both
military and commercial applications. On the military side, potential
applications using the Company's commercial aircraft, particularly the 767,
continue to be assessed. In the commercial space arena, Boeing is leading an
industrial team to offer highly automated commercial satellite launching from
a seagoing launch platform. Team members include Kvaerner a.s. of Norway,
RSC-Energia of Russia, and Yuzhnoye of Ukraine. First launch is currently
scheduled for 1998. The market requirements and developmental risks associated
with a commercial tiltrotor aircraft based on V-22 technology are also being
studied. In 1997 the Company will begin producing a phased-array antenna that
can provide live television to airline passengers, as well as providing other
in-flight communications applications.
MAJOR PROCESS IMPROVEMENTS
The Company remains strongly committed to continuous quality improvement in all
aspects of its business and to maintaining a strong focus on customer needs,
including product capabilities, technology, in-service economics and product
support. Major long-term productivity gains are being aggressively pursued,
with substantial resources committed to investments in training, restructuring
of processes, new technology, and organizational realignment.
The 777, the 737-700 and other recent developmental programs have included early
commitment of resources for integrated product teams, design interface with
customer representatives, use of advanced three-dimensional digital product
definition and digital pre-assembly computer applications, and increased use of
automated manufacturing processes. Although these measures have required
significant current investments, substantial long-term benefits are anticipated
from reductions in design changes and rework, and improved quality of internally
manufactured and supplier parts.
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A major initiative has been launched to greatly simplify and streamline
commercial aircraft configuration control, production management, and related
systems. Organizations have been realigned and substantial resources have been
dedicated to ensure the new processes and systems are successfully implemented
over the next few years.
The Defense & Space Group continues to aggressively pursue important process
improvements through integrated product teams to provide cost-effective
solutions that maintain technological superiority. One example is a rapid
prototyping process that facilitates quick and effective cross-disciplinary
integration in creating new product prototypes.
------
SHAREHOLDER VALUE AS CORPORATE PERFORMANCE MEASURE
The Company's long-range mission is to be the number one aerospace company in
the world and among the premier industrial concerns in terms of quality,
profitability and growth. The Company has recently revised its fundamental goal
with respect to growth and profitability, now defined as increasing shareholder
value over the long term. Corporate level and internal operating performance
measurements and strategic planning processes are aligned with or directly based
on enhancing long-term shareholder value.
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Independent Auditors' Report
Board of Directors and Shareholders, The Boeing Company:
We have audited the accompanying consolidated statements of financial position
of The Boeing Company and subsidiaries as of December 31, 1995 and 1994, and the
related statements of net earnings and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Boeing Company and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
January 25, 1996
Seattle, Washington
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in millions except per share data)
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Sales and other operating revenues $19,515 $21,924 $25,438
Costs and expenses 18,613 20,773 23,747
Special retirement program expense 600
- ------------------------------------------------------------------------------
Earnings from operations 302 1,151 1,691
Other income, principally interest 209 122 169
Interest and debt expense (151) (130) (39)
- ------------------------------------------------------------------------------
Earnings before federal taxes on income 360 1,143 1,821
Federal taxes on income (33) 287 577
- ------------------------------------------------------------------------------
Net earnings $ 393 $ 856 $ 1,244
==============================================================================
Earnings per share $1.15 $2.51 $ 3.66
==============================================================================
Cash dividends per share $1.00 $1.00 $ 1.00
==============================================================================
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)
December 31, 1995 1994
- ------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 3,730 $ 2,084
Short-term investments 559
Accounts receivable 1,470 1,664
Current portion of customer financing 205 250
Deferred income taxes 840 878
Inventories 14,001 11,269
Less advances and progress billings (7,068) (6,290)
- ------------------------------------------------------------------------------
Total current assets 13,178 10,414
Customer financing 1,660 3,071
Property, plant and equipment, at cost 13,744 13,588
Less accumulated depreciation (7,288) (6,786)
Deferred income taxes 58
Other assets 746 1,176
- ------------------------------------------------------------------------------
$22,098 $21,463
==============================================================================
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $ 6,245 $ 6,267
Advances in excess of related costs 510 273
Income taxes payable 389 281
Current portion of long-term debt 271 6
- ------------------------------------------------------------------------------
Total current liabilities 7,415 6,827
Deferred income taxes 51
Accrued retiree health care 2,441 2,282
Long-term debt 2,344 2,603
Shareholders' equity:
Common shares, par value $5.00 -
600,000,000 shares authorized;
349,256,792 shares issued 1,746 1,746
Additional paid-in capital 615 586
Retained earnings 7,746 7,696
Less treasury shares, at cost -
1995 - 5,304,135; 1994 - 8,377,637 (209) (328)
- ------------------------------------------------------------------------------
Total shareholders' equity 9,898 9,700
- ------------------------------------------------------------------------------
$22,098 $21,463
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 393 $ 856 $ 1,244
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Special retirement program expense 600
Depreciation and amortization -
Plant and equipment 976 1,081 953
Leased aircraft, other 57 61 72
Changes in assets and liabilities -
Short-term investments 559 207 137
Accounts receivable 194 (49) (187)
Inventories, net of advances and
progress billings (1,954) (1,545) (733)
Accounts payable and other liabilities (24) 413 606
Advances in excess of related costs 237 47 (413)
Income taxes payable and deferred 37 (117) (334)
Other assets (168) (11) (135)
Accrued retiree health care 159 134 144
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,066 1,077 1,354
- ------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing additions (1,239) (975) (1,560)
Customer financing reductions 2,638 770 626
Plant and equipment, net additions (629) (795) (1,317)
Other 8
- ------------------------------------------------------------------------------
Net cash provided (used) by investing activities 770 (1,000) (2,243)
- ------------------------------------------------------------------------------
Cash flows - financing activities:
Debt financing 6 (21) 837
Shareholders' equity -
Cash dividends paid (342) (340) (340)
Stock options exercised, other 146 26 23
- ------------------------------------------------------------------------------
Net cash provided (used) by financing activities (190) (335) 520
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,646 (258) (369)
Cash and cash equivalents at beginning of year 2,084 2,342 2,711
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,730 $2,084 $2,342
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
(Dollars in millions except per share data)
Note 1 - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany profits, transactions and balances have been
eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions and
estimates that directly affect the amounts reported in the consolidated
financial statements. Significant estimates for which changes in the near
term are considered reasonably possible and that may have a material impact on
the financial statements are addressed in these notes to the consolidated
financial statements.
Sales and other operating revenues
Sales under commercial programs and U.S. Government and foreign military
fixed-price contracts are generally recorded as deliveries are made. 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
Defense and space 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 jet transport 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 all commercial jet transport
programs is determined based on estimated average total cost and revenue for the
current program commitment quantity. For new commercial jet transport programs,
the program quantity is initially based on an established number of units
representing what is believed to be a conservative market projection. Program
commitment quantities generally represent deliveries for the next three to five
years, although the initial program quantity for new programs will normally
include orders and deliveries over periods up to ten years. The initial program
quantity for the new 777 program has been established at 400 units, the same
initial program quantity as for the 747 program in 1969 and for the 767 and 757
programs in 1982. The commercial program method of accounting, an industry-
developed practice adopted by the Company in the 1960s and applied to all
commercial jet transport programs since that time, requires the demonstrated
ability to reliably estimate and manage the cost-revenue relationship for the
defined program quantity. The program method of accounting effectively
amortizes or averages tooling and special equipment costs, as well as unit
production costs, over the program quantity. Because of the higher unit
production costs experienced at the beginning of a new program and the
substantial investment required for initial tooling and special equipment, new
commercial jet transport programs normally have lower operating profit margins
than established programs. The estimated program average costs and revenues are
reviewed and reassessed quarterly, and changes in estimates are recognized over
current and future deliveries comprising the program quantity.
Inventories
Inventoried costs on long-term commercial jet transport programs and U.S.
Government and foreign military contracts include direct engineering, production
and tooling costs, and applicable overhead. In addition, for U.S. Government
fixed-price-incentive contracts, inventoried costs include research and
development and general and administrative expenses estimated to be recoverable.
Inventoried costs associated with commercial jet transport 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 except to the extent estimated to be directly
recoverable under U.S. Government flexibly priced contracts.
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.
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Postretirement benefits
The Company's funding policy for pension plans is to contribute, at a
minimum, the statutorily required amount to an irrevocable trust. Benefits
under the plans are generally based on years of credited service, age at
retirement and average of last five years' earnings. The actuarial cost
method used in determining the net periodic pension cost is the projected unit
credit method.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments, such as
certificates of deposit, time deposits, treasury notes and other money market
instruments, which generally have maturities of less than three months.
Short-term investments
Short-term investments principally consist of U.S. Government Treasury
obligations, with unrealized gains and losses reflected in other income.
Capital assets
Property, plant and equipment are recorded at cost, including applicable
construction-period interest, and depreciated principally over the following
estimated useful lives: new buildings and land improvements, from 20 to 45
years; machinery and equipment, from 3 to 10 years. The principal methods of
depreciation are as follows: buildings and land improvements, 150% declining
balance; machinery and equipment, sum-of-the-years' digits.
Per share data
Net earnings per share are computed based on the weighted average number of
shares outstanding of 342,159,741; 340,574,779; and 339,736,640 for the years
ended December 31, 1995, 1994 and 1993, respectively. There is no material
dilutive effect on net earnings per share due to common stock equivalents.
Note 2 - Accounts Receivable
Accounts receivable at December 31 consisted of the following:
1995 1994
- ------------------------------------------------------------------------------
Accounts receivable under
U.S. Government contracts $1,059 $1,200
Accounts receivable from commercial
and foreign military customers 411 464
- ------------------------------------------------------------------------------
$1,470 $1,664
==============================================================================
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Accounts receivable included the following as of December 31, 1995 and 1994,
respectively: amounts not currently billable of $119 and $137 relating primarily
to sales values recorded upon attainment of performance milestones that differ
from contractual billing milestones and withholds on U.S. Government contracts
($65 and $109 not expected to be collected within one year); $162 and $212
relating to claims and other amounts on U.S. Government contracts subject to
future settlement ($19 and $212 not expected to be collected within one year);
and $46 and $41 of other receivables not expected to be collected within one
year.
Note 3 - Inventories
Inventories as of December 31, 1995 and 1994, consisted of $13,107 and $10,352
relating to long-term commercial programs and U.S. Government and foreign
military contracts, and $894 and $917 relating to commercial spare parts,
general stock materials and other inventories. General and administrative and
research and development expenses included in inventories represented less than
1% of total inventories. Interest capitalized as construction-period tooling
costs amounted to $33, $36 and $50 in 1995, 1994 and 1993, respectively.
As of December 31, 1995, there were no significant deferred production costs
in excess of estimated average cost of deliveries or unamortized tooling costs
not recoverable from existing firm orders for commercial programs other than the
777 and 737-600/700/800 programs. The program quantity for the 777 program for
determining deferred production costs in excess of aggregate estimated average
cost and over which total tooling costs will be amortized and absorbed in cost
of sales has been established at 400 units. Inventory costs relating to the 777
program included unamortized tooling of $3,241 and $3,089 at December 31, 1995
and 1994, and $1,440 at December 31, 1995 of deferred production costs incurred
on in-process and delivered units in excess of the estimated average cost of
such units determined as described in Note 1. It is estimated that $2,285 of
such amounts will be recovered from firm orders received after December 31,
1995. As of December 31, 1995, 183 777s were under firm contract, and 13 777s
had been delivered. The program quantity for the 737-600/700/800 program for
determining the deferred production costs in excess of aggregate estimated
average cost and over which total tooling costs will be amortized will be
established when deliveries commence in 1997. Inventory costs relating to the
737-600/700/800 program included tooling of $274 at December 31, 1995. As of
December 31, 1995, 212 737-600/700/800s were under firm contract.
As of December 31, 1995 and 1994, inventory balances included $324 and $318
subject to claims or other uncertainties related to U.S. Government contracts,
principally for the Peace Shield program. (See Note 17.)
The estimates underlying the average costs of deliveries reflected in the
inventory valuations may differ materially from amounts eventually realized for
the reasons outlined in Note 18.
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Note 4 - Customer Financing
Long-term customer financing, less current portion, at December 31 consisted of
the following:
1995 1994
- ------------------------------------------------------------------------------
Notes receivable $ 721 $1,189
Investment in sales-type leases 351 1,235
Operating lease aircraft, at cost, less
accumulated depreciation of $326 and $269 688 747
- ------------------------------------------------------------------------------
1,760 3,171
Less valuation allowance (100) (100)
- ------------------------------------------------------------------------------
$1,660 $3,071
==============================================================================
Financing for aircraft is collateralized by security in the related asset, and
historically, the Company has not experienced a problem in accessing such
collateral. The operating lease aircraft category includes new and used jet and
commuter aircraft, spare engines and spare parts.
Scheduled principal payments from notes receivable and sales-type leases for
the next five years are as follows:
1996 1997 1998 1999 2000
------------------------------------
$205 $63 $49 $36 $38
====================================
The Company has entered into interest rate swaps with third-party investors
whereby the interest rate terms differ from the terms in the original
receivable. These interest rate swaps related to $67 of customer financing
receivables as of December 31, 1995.
Interest rates on fixed-rate notes ranged from 7.87% to 13.215%, and effective
interest rates on variable-rate notes ranged from the London Interbank Offered
Rate (LIBOR) to 4.05% above LIBOR.
Sales and other operating revenues included interest income associated with
notes receivable and sales-type leases of $160, $183 and $153 for 1995, 1994 and
1993, respectively.
The valuation allowance is subject to change depending on estimates of
collectability and realizability of the customer financing balances.
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Note 5 - Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
1995 1994
- ------------------------------------------------------------------------------
Land $ 404 $ 400
Buildings 5,791 5,662
Machinery and equipment 7,251 7,090
Construction in progress 298 436
- ------------------------------------------------------------------------------
$13,744 $13,588
==============================================================================
Interest capitalized as construction-period property, plant and equipment
costs amounted to $32, $51 and $100 in 1995, 1994 and 1993, respectively.
Note 6 - Taxes on Income
The provision for federal taxes on income consisted of the following:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Taxes paid or currently payable $ 38 $251 $1,113
Change in deferred taxes (71) 36 (536)
- -----------------------------------------------------------------------------
$(33) $287 $ 577
=============================================================================
State taxes on income, which are relatively minor in amount, are included in
general and administrative expense. The provisions for federal taxes on income
were less than those which result from application of the statutory corporate
tax rates due to the following:
1995 1994 1993
- -----------------------------------------------------------------------------
Statutory tax rate 35.0 % 35.0 % 35.0 %
Foreign Sales Corporation tax benefit (20.8) (5.7) (3.3)
Research benefit (25.0) (5.2)
Rate change impact on deferred balances (0.5)
Other 1.6 1.0 0.5
- -----------------------------------------------------------------------------
Effective tax rate (9.2)% 25.1 % 31.7 %
=============================================================================
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The deferred tax assets, net of deferred tax liabilities, resulted from an
alternative minimum tax credit carryforward and from temporary tax differences
associated with the following:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Inventory and long-term contract methods
of income recognition $ 191 $ 473 $ 381
Pension benefit accruals (206) (347) (323)
Retiree health care accruals 854 799 752
Other employee benefits accruals 291 220 223
Customer financing (362) (318) (158)
Alternative minimum tax
credit carryforward 130
Domestic International Sales Corporation (12)
- -----------------------------------------------------------------------------
Net deferred tax assets $ 898 $ 827 $ 863
=============================================================================
The alternative minimum tax credit carryforward produces a future tax benefit
that may be carried forward indefinitely.
The temporary tax differences associated with inventory and long-term contract
methods of income recognition encompass related costing differences, including
timing and depreciation differences.
Valuation allowances were not required due to the nature of and circumstances
associated with the temporary tax differences.
In response to an Internal Revenue Service clarification of a transition rule
relating to the repeal of investment tax credit under the Tax Reform Act of
1986, the Company is conducting a comprehensive study regarding prior years'
investments that may qualify for additional investment tax credit. The study
will likely result in recognition of additional prior years' investment tax
credit benefits. Income taxes have been settled with the Internal Revenue
Service for all years through 1978, and Internal Revenue Service field
examinations have been completed through 1987. The Company believes adequate
provision has been made for all open years. Favorable resolution of certain
claims by the Company could potentially result in reductions in future tax
provisions. Federal income tax payments (refunds) and transfers were $(91),
$401 and $908 in 1995, 1994 and 1993, respectively.
Note 7 - Other Assets
Other assets at December 31 consisted of the following:
1995 1994
- -----------------------------------------------------------------------------
Prepaid pension expense $ 698 $1,115
Investments, other 48 61
- -----------------------------------------------------------------------------
$ 746 $1,176
=============================================================================
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Note 8 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities at December 31 consisted of the
following:
1995 1994
- -----------------------------------------------------------------------------
Accounts payable $3,017 $3,207
Accrued compensation and employee benefit costs 1,374 1,164
Lease and other deposits 508 640
Other 1,346 1,256
- -----------------------------------------------------------------------------
$6,245 $6,267
=============================================================================
Note 9 - Long-Term Debt
Long-term debt at December 31 consisted of the following:
1995 1994
- -----------------------------------------------------------------------------
Unsecured debentures and notes:
8 3/8% due Mar. 1, 1996 $ 250 $ 250
6.35% due Jun. 15, 2003 299 299
8 1/10% due Nov. 15, 2006 175 175
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Other notes 127 121
Less current portion (271) (6)
- -----------------------------------------------------------------------------
$2,344 $2,603
=============================================================================
The $300 debentures due August 15, 2024, are redeemable at the holder's
option on August 15, 2012. All other debentures and notes are not
redeemable prior to maturity. The $100 notes due August 15, 2042, with a
stated rate of 7.50% were issued to a private investor in connection with an
interest rate swap arrangement that resulted in an effective synthetic rate of
7.865%.
Maturities of long-term debt for the next five years are as follows:
1996 1997 1998 1999 2000
------------------------------------
$271 $14 $14 $11 $11
====================================
Interest payments were $210, $210 and $175 in 1995, 1994 and 1993,
respectively.
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The Company has $2,000 currently available under credit-line agreements with a
group of commercial banks. Under these agreements, revised as of September 29,
1995, $1,000 is available until September 27, 1996, and $1,000 is available
until September 30, 2002. There are compensating balance arrangements, and
retained earnings totaling $1,458 are free from dividend restrictions. The
Company has complied with restrictive covenants contained in the various debt
agreements.
Note 10 - Postretirement Plans
Pensions
The Company has various noncontributory plans covering substantially all
employees. All major plans are funded and have plan assets that exceed
accumulated benefit obligations. The following table reconciles the plans'
funded status to the prepaid expense balance at December 31.
1995 1994
- -----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $(8,816) $(6,826)
Nonvested (806) (647)
- -----------------------------------------------------------------------------
Accumulated benefit obligation (9,622) (7,473)
Effect of projected future salary increases (1,421) (1,517)
- -----------------------------------------------------------------------------
Projected benefit obligation (11,043) (8,990)
Plan assets at fair value - primarily equities,
fixed income obligations and cash equivalents 11,506 9,290
- -----------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 463 300
Unrecognized net actuarial (gain) loss (80) 463
Unrecognized prior service cost 388 439
Unrecognized net asset at January 1, 1987, being recognized
over the plans' average remaining service lives (73) (87)
- -----------------------------------------------------------------------------
Prepaid pension expense recognized in the Consolidated
Statements of Financial Position $ 698 $ 1,115
=============================================================================
The pension provision included the following components:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Service cost (current period attribution) $ 293 $ 352 $ 307
Interest accretion on projected benefit obligation 760 669 632
Actual return on plan assets (2,830) (101) (923)
Net deferral and amortization of actuarial gains
and losses 2,078 (596) 257
- -----------------------------------------------------------------------------
Net pension provision $ 301 $ 324 $ 273
=============================================================================
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The actuarial present value of the projected benefit obligation at December
31, 1995, 1994 and 1993, respectively, was determined using a weighted average
discount rate of 7.0%, 8.5% and 7.25%, and a rate of increase in future
compensation levels of 5.0%, 5.75% and 5.0%. The expected long-term rate of
return on plan assets at December 31, 1995, 1994 and 1993, respectively, was
8.0%, 8.0% and 8.5%.
The pension plans provide that, in the event there is a change in control of
the Company which is not approved by the Board of Directors and the plans are
terminated within five years thereafter, the assets in the plans first will be
used to provide the level of retirement benefits required by the Employee
Retirement Income Security Act, and then any surplus will be used to fund a
trust to continue present and future payments under the postretirement medical
and life insurance benefits in the Company's group insurance programs.
The Company has an agreement with the Government with respect to certain of
the Company pension plans. Under the agreement, should the Company terminate
any of the plans (although the Company has no intention of doing so) under
conditions in which the plan's assets exceed that plan's obligations, the
Government will be entitled to a fair allocation of any of the plan's assets
based on plan contributions that were reimbursed under Government contracts.
Also, the Revenue Reconciliation Act of 1990 imposes a 20% nondeductible excise
tax on the gross assets reverted if the Company establishes a qualified
replacement plan or amends the terminating plan to provide for benefit
increases; otherwise, a 50% tax is applied. Any net amount retained by the
Company is treated as taxable income.
A special retirement program was offered during the first half of 1995 to
encourage early retirements, resulting in a pretax charge of $600. The special
retirement program will be funded over a minimum of ten years through the
Company's retirement plan. The projected benefit obligation at June 30, 1995,
the date at which the special retirement program expense was recognized, was
determined using a weighted average discount rate of 7.75%.
The Company has certain unfunded and partially funded plans with a projected
benefit obligation of $233 and $132; plan assets of $38 and $5; and unrecognized
prior service costs and actuarial losses of $85 and $39 as of December 31, 1995
and 1994, respectively, based on actuarial assumptions consistent with the
funded plans. The net provision for the unfunded plans was $27 and $23 for 1995
and 1994.
The principal defined contribution plans are the Company-sponsored 401(k)
plans and a funded plan for unused sick leave. Under the terms of the Company-
sponsored 401(k) plans, eligible employees were allowed to contribute up to 12%
of their base pay (15% beginning in 1996). The Company contributes amounts
equal to 50% of the employee's contribution to a maximum of 4% of the employee's
pay, subject to statutory limitations. The provision for these defined
contribution plans in 1995, 1994 and 1993 was $190, $206 and $213, respectively.
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Other postretirement benefits
The Company's postretirement benefits other than pensions consist of health
care coverage for eligible retirees and qualifying dependents. Except for
employees covered by the United Auto Workers bargaining agreement for whom
lifetime benefits are provided, retiree health care is provided principally
until age 65.
The retiree health care cost provision was $246, $218 and $230 for 1995, 1994
and 1993, respectively. The components of expense were as follows:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Service cost (current period attribution) $ 92 $ 91 $ 92
Interest accretion on accumulated retiree
health care obligation 157 136 144
Net deferral and amortization of actuarial gains (3) (9) (6)
- -----------------------------------------------------------------------------
Net provision for retiree health care $246 $218 $230
=============================================================================
Benefit costs were calculated based on assumed cost growth for retiree health
care costs of an 8.9% annual rate for 1996, decreasing to a 5.0% annual growth
rate by the year 2008. A 1% increase or decrease in the assumed annual trend
rates would increase or decrease the accumulated retiree health care obligation
by $271, $231 and $218 as of December 31, 1995, 1994 and 1993, respectively,
with a corresponding effect on the retiree health care expense of $41, $37 and
$39. The accumulated retiree health care obligation at December 31, 1995,
1994 and 1993 was determined using a weighted average discount rate of 7.0%,
8.5% and 7.25%, respectively.
The accumulated retiree health care obligation at December 31 consisted of the
following components:
1995 1994
- -----------------------------------------------------------------------------
Retirees and dependents $ 890 $ 562
Fully eligible active plan participants 201 360
Other active plan participants 1,121 1,039
- -----------------------------------------------------------------------------
Total accumulated retiree health care
obligation 2,212 1,961
Unrecognized net actuarial gain 229 321
- -----------------------------------------------------------------------------
Accrued retiree health care $2,441 $2,282
=============================================================================
The special retirement program offered during the first half of 1995 did not
result in an additional retiree health care cost due to offsetting unrecognized
actuarial gains.
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Note 11 - Research and Development, General and Administrative Expenses
Expenses charged directly to earnings as incurred included the following:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Research and development $1,267 $1,704 $1,661
General and administrative 1,020 1,126 1,102
=============================================================================
Note 12 - Shareholders' Equity
Changes in shareholders' equity consisted of the following:
Common Stock
---------------- Additional Treasury Stock
Par Paid-In Retained ----------------
Shares in thousands) Shares Value Capital Earnings Shares Amount
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 349,257 $1,746 $418 $6,276 9,836 $(384)
============================================================================================================
Net earnings 1,244
Cash dividends declared (340)
Treasury shares issued for incentive
stock plans, net (11) (717) 28
Tax benefit related to incentive stock plans 3
Stock appreciation rights expired or surrendered 3
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 349,257 $1,746 $413 $7,180 9,119 $(356)
============================================================================================================
Net earnings 856
Cash dividends declared (340)
Treasury shares issued for incentive
stock plans, net (9) (741) 28
Tax benefit related to incentive stock plans 3
Stock appreciation rights expired or surrendered 4
Transfer from contingent stock repurchase
provision 175
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 349,257 $1,746 $586 $7,696 8,378 $(328)
============================================================================================================
Net earnings 393
Cash dividends declared (343)
Treasury shares issued for incentive
stock plans, net (11) (3,074) 119
Incentive stock plan accrual 11
Tax benefit related to incentive stock plans 20
Stock appreciation rights expired or surrendered 9
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 349,257 $1,746 $615 $7,746 5,304 $(209)
============================================================================================================
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In 1992 the Company issued put options on five million shares of its stock,
exercisable on specific dates in 1994, giving another party the right to sell
shares of Boeing stock to the Company at contractually specified prices. As of
December 31, 1993, the temporary equity account "Contingent stock repurchase
commitment" of $175 was the amount the Company would have been obligated to pay
if all the put options were exercised. All of the put options expired in 1994
and none were exercised. The proceeds from the issuance of the put options were
recorded as paid-in capital.
In July 1987, the Company adopted a Stockholder Rights Plan and declared a
dividend distribution of one Right for each outstanding share of common stock.
Under certain conditions, each Right may be exercised to purchase one one-
hundredth of a share of Series A Junior Participating Preferred Stock at a
purchase price of $150, subject to adjustment. The Rights will be exercisable
only if a person or group has acquired, or obtained the right to acquire, 20% or
more of the outstanding shares of common stock; following the commencement of a
tender or exchange offer for 30% or more of such outstanding shares of common
stock; or after the Board of Directors of the Company declares any person, alone
or together with affiliates and associates, to be an Adverse Person. If the
Board of Directors declares an Adverse Person, or a person or group acquires
more than 30% of the then outstanding shares of common stock (except pursuant to
an offer which the independent directors determine to be fair to and otherwise
in the best interests of the Company and its shareholders), each Right will
entitle its holder to receive, upon exercise, common stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. The Company will be
entitled to redeem the Rights at 5 cents per Right at any time prior to the
earlier of the expiration of the Rights in August 1997 or ten days following the
time that a person has acquired or obtained the right to acquire a 20% position.
The Company may not redeem the Rights if the Board of Directors has previously
declared a person to be an Adverse Person. The Rights do not have voting or
dividend rights, and until they become exercisable, have no dilutive effect on
the earnings of the Company.
Information concerning stock options and stock appreciation rights (SARs),
issued to officers and other employees at exercise prices equal to market value
of the stock at grant date, is presented in the following table.
(Shares in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Number of shares under option:
Outstanding at beginning of year 14,337 13,265 12,001
Granted 2,866 2,225 2,531
Exercised (3,114) (767) (743)
Canceled or expired (232) (252) (278)
Exercised as SARs (261) (134) (246)
- -----------------------------------------------------------------------------
Outstanding at end of year 13,596 14,337 13,265
=============================================================================
Exercisable at end of year 8,058 6,820 5,715
=============================================================================
Exercise prices per share for options
outstanding at end of year:
High $60.06 $60.06 $60.06
Low $20.69 $19.67 $12.63
=============================================================================
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(Shares in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Stock appreciation rights:
Outstanding at end of year 744 1,258 1,703
Exercisable at end of year 744 1,178 1,480
=============================================================================
Number of shares authorized for future
grants under stock option and incentive
compensation plans at end of year 14,037 16,813 16,695
=============================================================================
Ten million shares of authorized preferred stock remain unissued.
Note 13 - Derivative Financial Instruments
The derivative financial instruments held by the Company at December 31,
1995, consisted of simple and specifically tailored interest rate swaps
(associated with certain customer financing receivables and long-term debt) to
achieve a desired balance of fixed and variable rate positions. The interest
rate swaps are accounted for as integral components of the associated
receivable and debt, with interest accrued and recognized based upon the
effective rates. Due to the component nature of these interest rate swaps,
there are no associated gains or losses. (See Note 4, Note 9 and Note 16.)
Note 14 - Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business, principally relating to customer financing
activities. Financial instruments with off-balance-sheet risk include financing
commitments, credit guarantees, and participations in customer financing
receivables with third-party investors which involve interest rate terms
different from the underlying receivables.
Irrevocable financing commitments related to aircraft on order, including
options, scheduled for delivery through 2002 totaled $3,632 and $3,205 as of
December 31, 1995 and 1994. The Company anticipates that not all of these
commitments will be utilized and that it will be able to arrange for third-party
investors to assume a portion of the remaining commitments, if necessary. None
of these financing commitments have potentially adverse interest rate terms.
Participations in customer financing receivables with third-party investors
which involve interest rate terms different from the underlying receivables
totaled $79 and $109 as of December 31, 1995 and 1994.
The Company's maximum exposure to credit-related losses associated with credit
guarantees, without regard to collateral, totaled $211 and $114 as of December
31, 1995 and 1994. Because substantially all financial instruments subject to
credit risk are adequately collateralized, the probability of significant loss
arising from these financial instruments is considered remote.
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Note 15 - Significant Group Concentrations of Credit Risk
Substantially all financial instruments involving potential credit risk are
with commercial airline customers and the U.S. Government. As of December 31,
1995, virtually all off-balance-sheet financial instruments described in Note 14
related to commercial aircraft customers. Of the $2,647 in accounts receivable
and customer financing receivables included in the Consolidated Statements of
Financial Position, $1,394 related to commercial aircraft customers and $1,059
related to the U.S. Government. No single commercial airline customer is
associated with more than 25% of all financial instruments relating to customer
financing. Financing for aircraft is collateralized by security in the related
asset, and historically, the Company has not experienced a problem in accessing
such collateral.
Note 16 - Disclosures about Fair Value of Financial Instruments
As of December 31, 1995 and 1994, the carrying amount of accounts receivable
was $1,470 and $1,664 and the fair value of accounts receivable was estimated to
be $1,445 and $1,594. The lower fair value reflects a discount due to deferred
collection for certain receivables that will be collected over an extended
period. The carrying value of accounts payable is estimated to approximate fair
value.
The carrying amount of notes receivable, net of valuation allowance, is
estimated to approximate fair value. Although there are generally no quoted
market prices available for customer financing notes receivable, the valuation
assessments were based on the respective interest rates, risk-related rate
spreads and collateral considerations.
As of December 31, 1995 and 1994, the carrying amount of long-term debt was
$2,615 and $2,609, and the fair value of long-term debt, based on current market
rates for debt of the same risk and maturities, was estimated at $2,996 and
$2,486. The Company's long-term debt, however, is generally not callable until
maturity.
With regard to financial instruments with off-balance-sheet risk, it is not
practicable to estimate the fair value of future financing commitments, and all
other off-balance-sheet financial instruments are estimated to have only a
nominal fair value. The terms and conditions reflected in the outstanding
guarantees and commitments for financing assistance are not materially different
from those that would have been negotiated as of December 31, 1995.
Note 17 - 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. Major
contingencies are discussed below.
In January 1991, the Company received from the U.S. Government a notice of
partial termination for default which terminated most of the work required under
contracts to develop and install a new air defense system for Saudi Arabia,
known as the Peace Shield program. In June 1991, the Government selected
another contractor to perform the work which is the subject of the contracts
that have been terminated for default, and the Government may assert claims
related to the reprocurement.
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Management's position, supported by outside legal counsel which specializes
in government procurement law, is that the grounds for default asserted by
the Government in the Peace Shield termination are not legally supportable.
Accordingly, management and counsel are of the opinion that on appeal the
termination for default has a substantial probability of being converted to
termination for the convenience of the Government, which would eliminate any
Government claim for cost of reprocurement or other damages. Additionally, the
Company has a legal basis for a claim for equitable adjustment to the prices and
schedules of the contracts (the "Contract Claim"). Many of the same facts
underlie both the Contract Claim and the Company's appeal of the Government's
termination action. The Company filed its complaint in the United States Court
of Federal Claims to overturn the default termination in order to obtain payment
of the Contract Claim.
In conjunction with the notice of partial termination in January 1991, the
Government demanded the repayment of unliquidated progress payments in the
amount of $605 plus interest. In April 1995, the parties executed an agreement
deferring the Company's potential obligation to repay the $605 from January 25,
1991, until a decision of the court or earlier settlement. The deferment
agreement is subject to annual review by the Government.
The parties have been engaged in the discovery phase of the litigation, with
the trial scheduled for March 1997, and have concurrently engaged in discussions
which could lead to final settlement. On October 20, 1995, the court determined
all activities in the lawsuit would be "suspended in light of the prospect of
settlement." There can be no assurance that the Government will agree to final
settlement on terms acceptable to the Company. If a final settlement is not
reached, the Company expects that its position will ultimately be upheld with
respect to the termination action and that it will recover on the Contract
Claim.
The Company's financial statements have been prepared on the basis of a
conservative estimate of the Contract Claim and the Company's position that the
termination was for the convenience of the Government. If a final settlement is
not reached, the Company cannot, at this time, reasonably estimate the length of
time that will be required to resolve the termination appeal and the Contract
Claim. In the event that final settlement does not occur and the Company's
appeal of the termination for default is not successful, the Company could
realize a pretax loss on the program approximating the value of the unliquidated
progress payments plus related interest and potential damages assessed by the
Government.
The Company is subject to federal and state requirements for protection of the
environment, including those for discharge of hazardous materials and
remediation of contaminated sites. Due in part to their complexity and
pervasiveness, such requirements have resulted in the Company being involved
with related legal proceedings, claims and remediation obligations for more than
ten years.
The Company routinely assesses, based on in-depth studies, expert analyses and
legal reviews, its contingencies, obligations and commitments for remediation of
contaminated sites, including assessments of ranges and probabilities of
recoveries from other responsible parties who have and have not agreed to a
settlement and of recoveries from insurance carriers. The Company's policy is
to immediately accrue and charge to current expense identified exposures related
to environmental remediation sites based on conservative estimates of
investigation, cleanup and monitoring costs to be incurred.
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The costs incurred and expected to be incurred in connection with such
activities have not had, and are not expected to have, a material impact to the
Company's financial position. With respect to results of operations, related
charges have averaged less than 2% of annual net earnings. Such accruals as of
December 31, 1995, without consideration for the related contingent recoveries
from insurance carriers, are less than 2% of total liabilities.
Because of the regulatory complexities and risk of unidentified contaminated
sites and circumstances, the potential exists for environmental remediation
costs to be materially different from the estimated costs accrued for identified
contaminated sites. However, based on all known facts and expert analyses, the
Company believes it is not reasonably likely that identified environmental
contingencies will result in additional costs that would have a material adverse
impact to the Company's financial position or operating results and cash flow
trends.
The Company is subject to U.S. Government investigations of its practices from
which civil, criminal or administrative proceedings could result. Such
proceedings, if any, could involve claims by the government for fines,
penalties, compensatory and treble damages, restitution and/or forfeitures.
Under government regulations, a company, or one or more of its operating
divisions or subdivisions, can also be suspended or debarred from government
contracts, or lose its export privileges, based on the results of
investigations. The Company believes, based upon all available information, that
the outcome of such government disputes and investigations will not have a
material adverse effect on its financial position or continuing operations.
Note 18 - Industry Segment Information
The Company operates in two principal industries: commercial aircraft, and
defense and space. Commercial aircraft operations principally involve
development, production and marketing of commercial jet transports and providing
related support services, principally to the commercial airline industry
worldwide. Defense and space operations involve research, development,
production, modification and support of military aircraft and helicopters and
related systems, space systems and missile systems, principally through U.S.
Government contracts. No single product line in the defense and space segment
represented more than 10% of consolidated revenues, operating profits or
identifiable assets.
The commercial aircraft segment is subject to both operational and external
business-environment risks. Operational risks that can seriously disrupt the
Company's ability to make timely delivery of its commercial jet transports and
meet its contractual commitments include execution of internal performance
plans, and 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, and performance issues with key suppliers and subcontractors. While
the Company's principal operations are in the United States and Canada, some
key suppliers and subcontractors are located in Europe and Japan. External
business-environment risks include adverse governmental export and import
policies, factors that result in significant and prolonged disruption to air
travel worldwide, and other factors that affect the economic viability of the
commercial airline industry. Examples of factors relating to external business-
environment risks include the volatility of aircraft fuel prices, global trade
policies, and worldwide political stability and economic growth.
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In addition to the foregoing risks associated with the commercial aircraft
segment, the defense and space segment is subject to changing priorities or
reductions in the U.S. Government defense and space budget, and termination of
government contracts due to unilateral government action (termination for
convenience) or failure to perform (termination for default). Civil, criminal
or administrative proceedings involving fines, compensatory and treble damages,
restitution, forfeitures and suspension or debarment from government contracts
may result from violations of business and cost classification regulations on
U.S. Government contracts.
As of January 25, 1996, the principle collective bargaining agreements were
with the International Association of Machinists and Aerospace Workers (IAM)
representing 33% of employees (current agreement expiring September 1999),
Seattle Professional Engineering Employees Association (SPEEA) bargaining units
representing 19% of employees (current agreement expiring December 1999) and
United Auto Workers (UAW) representing 2% of employees (current agreement
expiring September 1999).
Foreign sales by geographic area consisted of the following:
Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Asia, other than China $4,491 $6,149 $7,689
China 721 1,254 1,181
Europe 1,901 3,277 4,698
Oceania 485 887 635
Africa 127 135 264
Western Hemisphere 474 142 149
- -----------------------------------------------------------------------------
$8,199 $11,844 $14,616
=============================================================================
Defense sales were approximately 27%, 9% and 6% of total sales in Europe for
1995, 1994 and 1993, respectively. Defense sales were approximately 12%, 3% and
2% of total sales in Asia, other than China, for 1995, 1994 and 1993,
respectively. Exclusive of these amounts, defense and space sales were
principally to the U.S. Government.
Financial information by segment for the three years ended December 31, 1995,
is summarized on page 61. Corporate income consists principally of interest
income from corporate investments. Activities previously identified as "Other
industries" have been combined with defense and space because the amounts were
not material and such remaining activities were organizationally aligned into
the defense and space segment in 1995. Corporate assets consist principally
of cash, cash equivalents, short-term investments and deferred income taxes.
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Year ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------
Revenues
Commercial aircraft $13,933 $16,851 $20,568
Defense and space 5,582 5,073 4,870
- -----------------------------------------------------------------------------
Operating revenues 19,515 21,924 25,438
Corporate income 209 122 169
- -----------------------------------------------------------------------------
Total revenues $19,724 $22,046 $25,607
=============================================================================
Operating profit
Commercial aircraft $ 391 $ 1,022 $ 1,646
Defense and space 124 305 235
- -----------------------------------------------------------------------------
Operating profit 515 1,327 1,881
Corporate income 209 122 169
Debt and other corporate expense (364) (306) (229)
- -----------------------------------------------------------------------------
Earnings before taxes $ 360 $ 1,143 $ 1,821
=============================================================================
Identifiable assets at December 31
Commercial aircraft $14,195 $14,440 $12,686
Defense and space 3,220 3,412 3,727
- -----------------------------------------------------------------------------
17,415 17,852 16,413
Corporate 4,683 3,611 4,037
- -----------------------------------------------------------------------------
Consolidated assets $22,098 $21,463 $20,450
=============================================================================
Depreciation
Commercial aircraft $ 837 $ 902 $ 710
Defense and space 196 240 297
- -----------------------------------------------------------------------------
Total depreciation $ 1,033 $ 1,142 $ 1,007
=============================================================================
Capital expenditures, net
Commercial aircraft $ 493 $ 619 $ 1,120
Defense and space 136 176 197
- -----------------------------------------------------------------------------
Total capital expenditures, net $ 629 $ 795 $ 1,317
=============================================================================
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Ten-Year Summary (page 1 of 2)
(Dollars in millions except per share data)
(Share data restated for applicable stock splits)
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
Operations
Sales and other operating revenues
Commercial aircraft $13,933 $16,851 $20,568 $24,133 $22,970
Defense and space 5,582 5,073 4,870 6,051 6,344
- ------------------------------------------------------------------------------
Total $19,515 $21,924 $25,438 $30,184 $29,314
- ------------------------------------------------------------------------------
Net earnings $ 393* $ 856 $ 1,244 $1,554**$ 1,567
Per share 1.15* 2.51 3.66 4.57** 4.56
Percent of sales 2.0% 3.9% 4.9% 5.2% 5.3%
- ------------------------------------------------------------------------------
Cash dividends paid $ 342 $ 340 $ 340 $ 340 $ 343
Per share 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------
Other income, principally interest 209 122 169 230 263
- ------------------------------------------------------------------------------
Research and development expensed 1,267 1,704 1,661 1,846 1,417
General and administrative expensed 1,020 1,126 1,102 1,232 1,291
- ------------------------------------------------------------------------------
Additions to plant and equipment 629 795 1,317 2,160 1,850
Depreciation of plant and equipment 976 1,081 953 870 768
- ------------------------------------------------------------------------------
Salaries and wages 5,341 5,799 6,087 6,318 6,502
Average employment 109,400 119,400 134,400 148,600 159,100
==============================================================================
Financial position at December 31
Total assets $22,098 $21,463 $20,450 $18,147 $15,924
Working capital 5,763 3,587 2,601 1,947 2,462
Net plant and equipment 6,456 6,802 7,088 6,724 5,530
- ------------------------------------------------------------------------------
Cash and short-term investments 3,730 2,643 3,108 3,614 3,453
Total debt 2,615 2,609 2,630 1,793 1,317
Customer financing 1,865 3,321 3,177 2,295 1,197
- ------------------------------------------------------------------------------
Shareholders' equity 9,898 9,700 8,983 8,056 8,093
Per share 28.77 28.45 26.41 23.74 23.71
Common shares outstanding
(in millions) 344.0 340.9 340.1 339.4 341.3
==============================================================================
Contractual backlog
Commercial aircraft $66,540 $60,614 $69,000 $81,991 $92,161
Defense and space 5,805 5,696 4,528 5,939 5,755
- ------------------------------------------------------------------------------
Total $72,345 $66,310 $73,528 $87,930 $97,916
==============================================================================
Cash dividends have been paid on common stock every year since 1942.
* Includes $600 pretax charge associated with a special retirement program.
Net earnings excluding the effect were $783 or $2.29 per share.
** Exclusive of the cumulative effect of adopting Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. Net earnings including the effect were $552
or $1.62 per share.
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Ten-Year Summary (page 2 of 2)
(Dollars in millions except per share data)
(Share data restated for applicable stock splits)
1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------
Operations
Sales and other operating revenues
Commercial aircraft $21,230 $14,268 $11,324 $ 9,873 $ 9,816
Defense and space 6,365 6,008 5,638 5,632 6,628
- ------------------------------------------------------------------------------
Total $27,595 $20,276 $16,962 $15,505 $16,444
- ------------------------------------------------------------------------------
Net earnings $ 1,385 $ 675***$ 614 $ 480 $ 665
Per share 4.01 1.96*** 1.79 1.38 1.90
Percent of sales 5.0% 3.3% 3.6% 3.1% 4.0%
- ------------------------------------------------------------------------------
Cash dividends paid $ 328 $ 269 $ 237 $ 217 $ 186
Per share .95 .77 7/9 .68 8/9 .62 2/9 .53 1/3
- ------------------------------------------------------------------------------
Other income, principally interest 448 347 378 308 304
- ------------------------------------------------------------------------------
Research and development expensed 827 754 751 824 757
General and administrative expensed 1,246 1,066 954 891 681
- ------------------------------------------------------------------------------
Additions to plant and equipment 1,586 1,362 690 738 795
Depreciation of plant and equipment 636 584 541 486 433
- ------------------------------------------------------------------------------
Salaries and wages 6,487 6,082 5,404 5,028 4,374
Average employment 161,700 159,200 147,300 136,100 118,500
==============================================================================
Financial position at December 31
Total assets $14,591 $13,278 $12,608 $12,566 $10,910
Working capital 1,396 1,689 1,507 2,246 2,819
Net plant and equipment 4,448 3,481 2,703 2,554 2,281
- ------------------------------------------------------------------------------
Cash and short-term investments 3,326 1,863 3,963 3,435 4,172
Total debt 315 280 258 270 277
Customer financing 1,133 868 1,131 1,215 282
- ------------------------------------------------------------------------------
Shareholders' equity 6,973 6,131 5,404 4,987 4,826
Per share 20.30 17.73 15.67 14.55 13.83
Common shares outstanding
(in millions) 343.6 345.8 344.8 342.6 349.0
==============================================================================
Contractual backlog
Commercial aircraft $89,997 $71,308 $44,066 $25,611 $18,472
Defense and space 7,197 9,255 9,535 7,593 7,916
- ------------------------------------------------------------------------------
Total $97,194 $80,563 $53,601 $33,204 $26,388
==============================================================================
*** Exclusive of the cumulative effect of adopting Statement of Financial
Accounting Standards No. 96, Accounting for Income Taxes. Net earnings
including the effect were $973 or $2.82 per share.
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Quarterly Financial Data (Unaudited)
(Dollars in millions except per share data)
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------
Sales and other
operating revenues $4,539 $4,381 $5,558 $5,037 $5,120 $5,063 $5,396 $6,345
Earnings from operations 140 223 (287)* 226 222 226 270 433
Net earnings 218 225 (231)* 181 157 185 222 292
- -------------------------------------------------------------------------------
Net earnings per share .63 .66 (.68)* .53 .46 .54 .65 .86
Cash dividends per share .25 .25 .25 .25 .25 .25 .25 .25
- -------------------------------------------------------------------------------
Market price:
High 80.00 72.38 65.38 54.00 48.38 48.25 50.13 48.75
Low 62.00 60.38 52.63 44.38 42.63 42.50 43.13 42.13
Quarter end 78.38 68.25 62.63 53.75 47.00 43.25 46.25 44.50
===============================================================================
* Includes $600 pretax charge associated with a special early retirement
incentive. Excluding the one-time charge, net earnings were $254 and net
earnings per share were $.74. The after-tax effect of the one-time special
retirement charge for the full year 1995 was $390, or $1.14 per share.
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Market for Registrant's Common Equity and Related Stockholder Matters
The Boeing Company General Offices
7755 East Marginal Way South
Seattle, Washington 98018
(206) 655-2121
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston
The transfer agent is responsible for shareholder records, issuance of stock
certificates, and distribution of dividends and IRS Form 1099. Requests
concerning these matters are most efficiently answered by contacting:
The First National Bank of Boston
c/o Boston EquiServe, L.P.
Mail Stop 45-02-64
P.O. Box 644
Boston, Massachusetts 02102-0644
(800) 733-5001 or (617) 575-3400
Boeing shareholders can obtain answers to frequently asked questions,
transfer instructions and stock prices through Boston EquiServe's home page
on the World Wide Web at .
DUPLICATE SHAREHOLDER ACCOUNTS
Shareholders with duplicate accounts may call the Bank of Boston for
instructions on consolidating those accounts. The company recommends that
registered shareholders always use the same form of their names in all stock
transactions to be handled in the same account. Shareholders may also request
the Bank to eliminate excess mailings of annual and midyear reports going to
shareholders in the same household.
EQUAL OPPORTUNITY EMPLOYER
Boeing is an equal opportunity employer and seeks to attract and retain the
best-qualified people regardless of race, sex, age, religion, national origin
or veteran status.
COMPANY SHAREHOLDER SERVICES
Pre-recorded shareholder information and quarterly earnings data are available
toll-free from Boeing Shareholder Services at (800) 457-7723.
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ANNUAL MEETING
The annual meeting of Boeing shareholders will be held in the auditorium of the
company's 2-22 building, located at 7755 East Marginal South, Seattle,
Washington, at 11:00 a.m. on April 29, 1996. Formal notice of the meeting,
proxy statement, form of proxy, and annual report were mailed to shareholders
beginning March 15, 1996.
Written inquiries may be sent to
Shareholder Services
Mail Stop 10-13
Investor Relations
Mail Stop 10-16
The Boeing Company
P.O. Box 3707
Seattle, Washington 98124-2207
STOCK EXCHANGES
The company's common stock is traded principally on the New York Stock
Exchange; the trading symbol is BA. Boeing common stock is also listed on the
Amsterdam, Brussels, London, Swiss and Tokyo stock exchanges. Additionally,
the stock is traded on the Boston, Chicago, Cincinnati, Pacific and
Philadelphia exchanges. The number of shareholders of record as of January
31, 1996, was 73,060.
GENERAL AUDITORS
Deloitte & Touche LLP
700 Fifth Avenue, Suite 4500
Seattle, Washington 98104-5044
(206) 292-1800
BOEING ON WORLD WIDE WEB
For more information about Boeing, including an electronic copy of the annual
report, visit our web site at .
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Exhibit (10) (iii) (a)
1984 Stock Option Plan, as amended February 23, 1987,
and August 28, 1989.
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THE BOEING COMPANY
1984 STOCK OPTION PLAN
As Amended February 23, 1987, and
August 28, 1989
1. Purpose. The purpose of this Plan is to promote the
interests of the Company and its stockholders by attracting,
retaining, and stimulating the performance of selected
employees, giving such employees the opportunity to acquire
a proprietary interest in the Company's business and an
increased personal interest in its continued success and
progress.
2. Administration.
a. This Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee").
Except for the terms and conditions explicitly set
forth in this Plan, the Committee shall have the
authority, in its discretion, to determine all matters
relating to the options to be granted under this Plan,
including selection of the individuals to be granted
options, the number of shares to be subject to each
option, the date of grant, and all other terms and
conditions of the options. Grants under this Plan to
employees need not be identical in any respect, even
when made simultaneously. The Committee will also
determine and approve the granting of Stock
Appreciation Rights to selected employees and determine
whether the grant of options will consist of an
Incentive Stock Option as described in Section 422A of
the Internal Revenue Code of 1954, as amended
(hereinafter referred to as the "Code"), or a Non-
Qualified Stock Option, which shall consist of any
option granted under this Plan other than an Incentive
Stock Option.
b. Options and Stock Appreciation Rights shall be
evidenced by written agreements which shall contain
such terms and conditions as may be determined by the
Committee. Each agreement shall be signed on behalf of
the Company by an officer or officers delegated such
authority by the Committee using either manual or
facsimile signature.
c. All decisions made by the Committee pursuant to the
provisions of the Plan and all determinations and
selections made by the Committee pursuant to such
provisions and related orders or resolutions of the
Board shall be final and conclusive. No director
eligible to receive options or Stock Appreciation
Rights shall vote upon the granting of an option or
right to himself or vote on the adoption of the Plan or
any amendments made to the Plan.
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3. Eligibility and Participation. The group of employees
eligible to receive options and Stock Appreciation Rights
shall consist of those employees who are officers or other
key employees of the Company or key employees of those
subsidiaries designated by the Compensation Committee as
eligible to participate in the Plan.
4. Shares Subject to the Plan.
a. The stock to be offered under the Plan shall be shares
of the Company's authorized common stock and may be
unissued shares or shares now held or subsequently
acquired by the Company as treasury shares, as the
Board of Directors may from time to time determine.
Subject to adjustment as provided in Section 14 hereof,
the aggregate number of shares to be delivered under
the Plan shall not exceed 2 million five hundred
thousand (2,500,000) shares; and no more than 5% of
such number of shares may be issued to any one
individual except as it may be adjusted under Section
14 of this Plan. If an option expires or terminates
for any reason during the term of the Plan and prior to
the exercise thereof in full, the shares subject to but
not delivered under such option shall be available for
options thereafter granted. The shares under a related
option which are surrendered upon the exercise of a
Stock Appreciation Right shall be charged against the
aggregate number of shares available which may be
delivered under the Plan.
b. Any shares of common stock delivered upon exercise of a
Stock Appreciation Right may be unissued shares or
treasury shares, as the Board of Directors may from
time to time determine, and shall be charged against
the aggregate number of shares of stock available for
purposes of the Plan.
5. Stock Appreciation Rights. The Committee may also grant
Stock Appreciation Rights to employees who have been or are
granted options under the Plan. In exchange for the
surrender in whole or in part of the privilege of exercising
the related option to purchase shares of the Company's
common stock, the granted Stock Appreciation Right shall
entitle an employee to payment of an amount equal to the
appreciation in value of the surrendered options (the excess
of the fair market value of such options at the time of
surrender over their aggregate option price). Such payment
may be made in cash, check, or in shares of common stock
valued at the fair market value as of the date of the
surrender, or partly in cash (or check) and partly in shares
of common stock, as determined by the Committee in its sole
discretion. The Committee may establish a maximum
appreciation value which would be payable under granted
rights. For Stock Appreciation Rights exercised during any
10-day window period following
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the Company's release of quarterly financial information,
the Committee may, in its sole discretion, establish a
uniform fair market value of the Company's common stock for
such period. The uniform fair market value shall not be
less than the fair market value otherwise available to an
optionee and shall not be greater than the highest daily
mean price during such 10-day period of the sales prices of
the common stock as reported in The Wall Street Journal;
provided, however, that with respect to Stock Appreciation
Rights granted in connection with Incentive Stock Options,
the fair market value shall not exceed the maximum fair
market value that may be used without causing the Incentive
Stock Option to lose its qualified status under Section 422A
of the Code.
6. Incentive Stock Options.
a. An option designated by the Committee as an "Incentive
Stock Option" is intended to qualify as an "Incentive
Stock Option" within the meaning of Subsection (b) of
Section 422A of the Code.
b. An Incentive Stock Option shall not be granted to an
individual who on the date of grant owns stock
possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any
subsidiary within the meaning of Section 425(d) of the
Code.
c. An Incentive Stock Option granted prior to January 1,
1987, shall not be exercisable while there is
outstanding (within the meaning of Section 422A(c)(7)
of the Code) any other Incentive Stock Option within
the meaning of Subsection (b)(7) of Section 422A of the
Code, which was granted before the granting of such
Incentive Stock Option.
d. As to all Incentive Stock Options granted prior to
January 1, 1987, under the terms of this Plan, the
aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the stock for
which any grantee may be granted Incentive Stock
Options in any calendar year shall not exceed $100,000
plus any "unused limit carryover" to such year,
determined in accordance with Section 422A(c)(4) of the
Code. For all Incentive Stock Options granted after
December 31, 1986, the aggregate fair market value
(determined at the time the option is granted) of the
stock with respect to which Incentive Stock Options are
exercisable for the first time by the grantee during
any calendar year (under this Plan and all other
Incentive Stock Option Plans of the Company and any
related or predecessor corporation) shall not exceed
$100,000. Any option which exceeds these annual limits
shall not qualify as an Incentive Stock Option.
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e. Should Section 422A of the Code be modified during the
term of this Plan, the Plan may be amended to conform
to such modification, if approved by the Board of
Directors, upon recommendation by the Committee.
7. Term of Option Period. The term during which options and
Stock Appreciation Rights may be granted under this Plan
shall expire on October 31, 1988, and the option period
during which each option and Stock Appreciation Right may be
exercised shall, subject to the provisions of Section 13
hereof, be such period, expiring not later than the tenth
anniversary of the date the option or Stock Appreciation
Right is granted, as may be determined by the Committee.
8. Option Price. The price at which shares may be purchased
upon exercise of a particular option shall be such price,
not less than 100% of the fair market value of such shares
at the time such option is granted, as may be fixed by the
Committee.
9. Fair Market Value. Except as otherwise provided, for
purposes of this Plan fair market value shall be determined
under the applicable method provided by Regulations under
Section 2031 of the Code.
10. Stock as Form of Exercise Payment. An employee who owns
shares of The Boeing Company common stock may use the
previously acquired shares, value to be determined as the
fair market value, as a form of payment to exercise stock
options under the Plan. However, the Committee, in its
discretion, may restrict or rescind this right upon
notification to the employee-participants in the Plan.
An option may be exercised with stock only by delivering
whole shares of Company stock having a fair market value
equal to or less than the exercise price. If an option is
exercised by delivery of stock having a fair market value
less than the exercise price, the shortfall must be made up
in cash.
11. Exercise of Options and Rights.
a. Each option and Stock Appreciation Right granted shall
be exercisable in whole or in part at any time or from
time to time during the option period as the Committee
may determine, provided that the election to exercise
an option or Stock Appreciation Right shall be made in
accordance with applicable Federal laws and
regulations, and further provided that each option
shall contain a provision that will prevent exercise of
the option unless the optionee remains in the employ of
the Company or its subsidiary at least one year after
the granting of the option.
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b. No option may at any time be exercised with respect to
a fractional share or exercised in part with respect to
fewer than fifty shares unless less than 50 shares
remain in the option grant being exercised. In the
event that shares are issued pursuant to the exercise
of a Stock Appreciation Right, no fractional shares
shall be issued; however, a fractional Stock
Appreciation Right exercised for cash may be exercised.
c. No shares shall be delivered pursuant to the exercise
of any option or Stock Appreciation Right, in whole or
in part, until qualified for delivery under such
securities laws and regulations as may be deemed by the
Committee to be applicable thereto and until, in the
case of the exercise of an option, payment in full of
the option price thereof or stock as a form of payment
as provided in Section 10 herein is received
by the Company in cash (or check) or stock. No holder
of an option or Stock Appreciation Right, or his/her
legal representative, legatee, or distributee shall be
or be deemed to be a holder of any shares subject to
such option or Stock Appreciation Right unless and
until he/she has received a certificate or certificates
therefor.
12. Transferability of Options and Rights. Options and Stock
Appreciation Rights granted under the Plan may not be
transferred except by will or the laws of descent and
distribution and, during the lifetime of the employee to
whom granted, may be exercised only by him/her or by his/her
guardian or legal representative.
13. Termination of Employment. The terms and conditions under
which an option or Stock Appreciation Right may be exercised
after the termination of employment shall be determined by
the Committee.
14. Changes in Common Stock. The aggregate number and class of
shares on which options may be granted under this Plan, the
number and class of shares covered by each outstanding
option, and the exercise price per share thereof (but not
the total price), and each such option, shall all be
proportionately adjusted for any increase or decrease in the
number of issued shares of common stock of the Company
resulting from a split-up or consolidation of shares or any
like capital adjustment or the payment of any such stock
dividend, or any other increase or decrease in the number of
shares of common stock of the Company without the receipt of
consideration by the Company.
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15. Amendment and Discontinuance. The Board of Directors may
amend, suspend, or discontinue the Plan, but may not,
without the approval of the holders of the Company's common
stock, make any amendment thereof which operates: (a) to
increase the total number of shares which may be granted
under the Plan, (b) to extend the term of the Plan or the
maximum option period provided in Section 7 hereof, (c) to
decrease the minimum option price provided in Section 8
hereof, or (d) to materially modify the requirements as to
eligibility for participation in the Plan. No amendment to
the Plan shall, except with the consent of the optionee,
adversely affect rights under an option previously granted.
16. Term of Plan. The Plan shall become effective October 31,
1983, subject to the approval by the holders of the
Company's common stock at a meeting to be held within one
year of the date of adoption of the Plan.
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Exhibit (10) (xii) (a)
SAR Deferral Arrangement of the Company. Form of SAR Deferral
Agreement
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SAR DEFERRAL AGREEMENT
This Agreement is made this _______ day of _______, 1988, between _______
(the "Employee") and The Boeing Company (the
"Company"), in consideration for the mutual covenants contained herein.
1. Purpose. The purpose of this Agreement is to enable Employee to defer
payment of all or a portion of amounts otherwise receivable by
Employee upon the exercise of Stock Appreciation Rights ("SARs") that
were granted under the Company's 1979 and 1984 Stock Option Plans
(the "1979 and 1984 Plans"), whether such SARs were granted with or
without accompanying stock options. This Agreement shall apply only
to those SARs (hereafter the "Eligible SARs") granted to Employee
under the 1979 and 1984 Plans, evidenced by Letter Agreements between
Employee and the Company, which are not vested (i.e., exercisable) as
of the above date, and for which Employee makes a SAR deferral
election under Section 2. To the extent provided herein, this
Agreement shall constitute an amendment of the Letter Agreements
which relate to the Eligible SARs.
2. SAR Deferral Election. Employee elects and agrees to defer receipt of
the amounts (the "SAR Amounts") which would otherwise be paid to
Employee upon the exercise of Eligible SARs as provided below:
EXAMPLE:
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1985 grant SARs vested in 1986 n/a (SARs already vested)
SARs vested in 1987 n/a (SARs already vested)
SARs to vest 1988 60%
SARs to vest 1989 25%
SARs to vest 1990 100%
EMPLOYEE ELECTION (to be completed by Employee):
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1983 grant SARs vested in 1984 n/a (SARs already vested)
SARs vested in 1985 n/a (SARs already vested)
SARs vested in 1986 n/a (SARs already vested)
SARs vested in 1987 n/a (SARs already vested)
SARs to vest 1988 ____ %
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SAR Deferral
Agreement Page 2
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1984 grant SARs vested in 1985 n/a (SARs already vested)
SARs vested in 1986 n/a (SARs already vested)
SARs vested in 1987 n/a (SARs already vested)
SARs to vest 1988 ____ %
SARs to vest 1989 ____ %
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1985 grant SARs vested in 1986 n/a (SARs already vested)
SARs vested in 1987 n/a (SARs already vested)
SARs to vest 1988 n/a (SARs already vested)
SARs to vest 1989 ____ %
SARs to vest 1990 ____ %
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1986 grant SARs vested in 1987 n/a (SARs already vested)
SARs to vest 1988 ____ %
SARs to vest 1989 ____ %
SARs to vest 1990 ____ %
SARs to vest 1991 ____ %
Percentage of Each
Vesting Unit's SAR
SAR Grant Vesting Units Amount to be Deferred
--------- ------------- ---------------------
1987 grant SARs to vest 1988 ____ %
SARs to vest 1989 ____ %
SARs to vest 1990 ____ %
SARs to vest 1991 ____ %
SARs to vest 1992 ____ %
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SAR Deferral Agreement
Page 3
Employee agrees that if he exercises any stock options accompanying the
Eligible SARs instead of exercising the SARs, then the shares acquired
upon exercise of the stock options relating to the SAR Amounts that
would otherwise have been deferred pursuant to the above election,
shall be restricted in that they may not be sold before the later of
January 1 of the calendar year following the date such options were
exercised or the day following the 6-month anniversary of the date of
exercise.
For purposes of this Section 2, the order of priority for any
exercise with respect to a vesting unit shall be as follows:
(i) For any exercise of SARs, the SAR Amount first shall be deferred up
to the number of SARs in the vesting unit multiplied by the
deferral percentage, less the number of SARs previously deferred
and the number of restricted shares previously acquired in that
vesting unit. Any excess SAR Amount not subject to deferral shall
be paid to the Employee.
(ii) For any exercise of stock options, the restriction shall apply to
the shares first acquired in that exercise, up to the number of
SARs in the vesting unit multiplied by the deferral percentage,
less the number of SARs previously deferred and the number of
restricted shares previously acquired in that vesting unit. Any
additional shares shall not be restricted.
(iii) For any exercise of both SARs and stock options, clause (i)
shall first apply.
Employee understands and agrees that his election under this Section 2
is irrevocable. Employee further understands and agrees that to the
extent that SARs (including SARs which become vested due to retirement)
are exercised after termination of employment, amounts otherwise
receivable upon such exercise shall remain subject to any deferral
elections made under this Section 2.
3. Payment Election. Employee elects and agrees to receive his deferred
SAR Amounts with accumulated interest in annual installments to be paid
(Employee to complete Option #1 or #2 below):
Option #1 _______ On or about each January 15 for ___ years (which may
(initial) be one or more years), beginning the year after my
employment with the Company terminates.
Option #2 _______ On or about each January 15 for ___ years (which may
(initial) be one or more years), beginning ___ years (may not
exceed 10) after the year in which my employment
terminates.
Employee understands and agrees that he may request a change in the
above payment election, but that such request shall be subject to the
approval of the Compensation Committee of the Board of Directors (the
"Committee").
4. Administration of the Plan. Any SAR Amount deferred under the Plan shall
be credited to Employee's account under this Agreement at the time (if
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SAR Deferral Agreement
Page 4
any) the deferred SAR is exercised. As of March 31, June 30, September
30 and December 31 of each year, Employee's account will be credited
with interest on all amounts in that account during the preceding
quarter.
Interest will be computed during each calendar year as the mean
between the high and the low during the first 11 months of the
previous year of yields on Aa Industrial Bonds as reported in the
most recent issue of Moody's Industrials as published by Moody's
Investors Service, Inc. rounded to the nearest 1/4 of one percent.
The Company will notify Employee annually of the established interest
rate.
5. Payments. Amounts accumulated under the Plan, together with accumulated
interest, shall be paid in annual installments pursuant to the election
in Section 3 above. The amount payable to the Employee each year shall
be computed by multiplying a fraction, the numerator of which is one
and the denominator of which is the number of years remaining in the
payment period, by the balance in the account on January 1. The
Employee's account shall be debited at the time of payment.
The Committee, upon determination of a Former Employee's or surviving
Beneficiary's permanent and total disability, other hardship or
unanticipated and significant change of circumstances beyond the control
of the Former Employee or surviving Beneficiary, at the request of the
Former Employee, the surviving Beneficiary, or the legal representative
of either, may in its sole discretion (i) shorten or lengthen the time
before which deferred SAR Amounts may be paid, or (ii) shorten or
lengthen the period over which such payments are to be made.
6. Beneficiaries. Employee elects and agrees that upon his death the
Company shall pay his account under this Agreement to:
____________________________________________________________,
(state name and relationship)
his beneficiary, in annual installments over the number of years, and
commencing with the year, selected by Employee under Section 3. This
is the "standard" option which will automatically be used unless
Employee completes Option #1 or #2 below.
Option #1 _______ To pay ___ % of my account in one lump sum
(initial) within 15 months of my death, and to pay the balance
(if any) of my account in annual installments over the
number of years, and commencing with the year,
selected by me under Section 3.
Option #2 _______ To pay ___ % of my account in ___ equal
(initial) installments to be spread out as evenly as practicable
over the 15-month period following my death, with the
balance (if any) of my Account to be paid in annual
installments over the number of years, and commencing
with the year, selected by me under Section 3.
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SAR Deferral Agreement
Page 5
Employee understands that he may submit a change to any part of the
election under this Section 6 at any time, and that such change shall
not be subject to Committee approval.
7. Amendment by the Company. This Agreement may be unilaterally amended
from time to time by the Committee, but no amendment shall affect the
rights of Employee with respect to an election under Section 2 governing
SARs which are vested but unexercised at the time of such amendment,
without the approval of Employee. Notwithstanding the foregoing, this
Agreement may be terminated at any time by the Board of Directors
pursuant to Section 8.
Termination and Suspension. This Agreement will continue in effect until
terminated by resolution of the Board of Directors. Such resolution may
provide (i) that all amounts accumulated prior to such termination will
be paid out to Employee on or about the termination date and that any
remaining election under Section 2 will be null and void, or (ii) that
all amounts accumulated prior to such termination, and all SAR Amounts
thereafter deferred pursuant to an election under Section 2 which
pertains to SARs which are vested but unexercised as of the termination
date, will continue to be subject to the provisions of the Agreement as
if the Agreement had not been terminated, and in such case the Agreement
will be considered to be "suspended" until all credited amounts are
distributed pursuant to the terms herein, at which time the Agreement's
termination will be complete.
9. Employee's and Beneficiary's Rights. SAR Amounts deferred and
accumulated interest thereon shall remain the property of the Company
and neither Employee nor his Beneficiary shall acquire any property
interest in the account or any other assets of the Company, the
Employee's and his Beneficiary's right being limited to receiving from
the Company payments measured as set forth in this Agreement. The
deferral arrangement under this Agreement is unfunded, and to the extent
that any Employee or his Beneficiary acquires a right to receive
benefits, such right shall be no greater than the right of any
unsecured general creditor of the Company.
The right of Employee, his legal representative, and his Beneficiary,
to receive payments under this Agreement shall not be subject to
anticipation, sale, assignment, pledge, encumbrance or charge nor
shall such right be liable for or subject to the debts, contracts,
liabilities or torts of the Employee, his legal representative or
Beneficiaries.
10.Powers of the Committee. The Committee shall have full power and
authority to construe and interpret this Agreement. Decisions of the
Committee shall be final and binding upon all parties, their successors,
heirs and assigns. Approval of any changes pursuant to Paragraphs 3 and
5 shall be in the sole discretion of the Committee.
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80
SAR Deferral Agreement
Page 6
11. Contingencies. Employee understands and agrees that this Agreement and
Employee's elections hereunder are conditioned upon (i) the Board of
Directors agreeing to the form of this Agreement and (ii) the Company
obtaining an SEC no-action letter in a form satisfactory to the Company
which applies to this Agreement and the elections hereunder. Unless both
these contingencies are satisfied, this Agreement and Employee's
elections hereunder shall be null and void.
Date: _________________ ______________________________
Employee
______________________________
Social Security Number
The Boeing Company
By: _______________________
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Exhibit (10) (xii) (b)
SAR Deferral Arrangement of the Company. Plan for Employees,
as amended.
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SAR DEFERRAL PLAN FOR
EMPLOYEES OF THE BOEING COMPANY
1. Purpose. The purpose of the SAR Deferral Plan for Employees
of The Boeing Company (the "Plan") is to provide for
deferral of payment of all or a portion of amounts
otherwise receivable by Employees upon the exercise of
Stock Appreciation Rights ("SARs") that are granted under
the Company's 1988 and future Stock Option Plans, whether
such SARs are granted with or without accompanying stock
options.
2. Eligibility. Any Employee granted SARs pursuant to the 1988
and future Stock Option Plans is eligible to elect to
participate in the Plan.
3. Election to Participate.
a. An eligible Employee may elect to participate in the Plan
to defer all or a portion of the amount otherwise
receivable upon the exercise of SARs (the "SAR
Amount") by executing and delivering to the Company an
irrevocable election notice (i) before the date of
grant of the SARs, or (ii) subject to approval by the
Compensation Committee of the Board of Directors (the
"Committee"), before the date the Employee becomes
vested in the SARs, provided that an election made by
this clause (ii) will apply only with respect to SARs
that have not become vested (i.e., exercisable) as of
the date the election notice is executed and delivered.
A separate election notice must be executed with
respect to each SAR grant that is evidenced by a
separate letter agreement. To the extent that SARs
(including SARs which become vested due to retirement)
are exercised after termination of employment, amounts
otherwise receivable upon such exercise shall remain
subject to any deferral election made under this
Section 3.
b. On each election notice the Employee shall specify,
separately for each vesting unit of SARs, the
percentage of the SAR Amounts to be deferred if all or
part of such SARs are exercised instead of any
accompanying stock options (e.g., 25% of the SARs that
first become vested in year one, 75% of the SARs that
first become vested in year two, and so on). The
Employee shall also acknowledge that if all or part of
the stock options accompanying the SARs are exercised
instead of the SARs, then the shares acquired upon
exercise of the stock options relating to the SAR
Amounts that would otherwise have been deferred
pursuant to the election shall be restricted in that they may
not be sold before the later of January 1 of the calendar year
following the date such option was exercised or the day
following the 6-month anniversary of the date of exercise.
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c. For purposes of paragraph b above, the order of priority for
any exercise with respect to a vesting unit shall be as
follows:
(i) For any exercise of SARs, the SAR Amount first shall be
deferred up to the number of SARs in the vesting unit
multiplied by the deferral percentage, less the number of
SARs previously deferred and the number of restricted
shares previously acquired in that vesting unit. Any
excess SAR Amount not subject to deferral shall be paid to
the Employee.
(ii) For any exercise of stock options, the restriction shall
apply to the shares first acquired in that exercise, up
to the number of SARs in the vesting unit multiplied by
the deferral percentage, less the number of SARs
previously deferred and the number of restricted shares
previously acquired in that vesting unit. Any additional
shares shall not be restricted.
(iii) For any exercise of both SARs and stock options, clause
(i) shall first apply.
d. On the first election notice executed by an Employee, the Employee
shall state the number of years (which may be one or more years)
over which the deferred SAR Amounts are to be paid, and shall
specify the year in which payments are to commence, which year
shall be no earlier than the first calendar year and no later
than the tenth calendar year following the calendar year in
which an Employee's active employment with the Company
terminates. All payments shall be made in annual installments as
described in Section 5. The selected number of years for
installment payments and the year when such payments are to
commence will apply to the SAR Amount being deferred by such
election notice and to all future deferrals hereunder; provided,
however, that an Employee may subsequently request a change in
the number of years selected for installment payments and the
year when such payments are to commence. Such request shall be
subject to the approval of the Committee, and if approved, shall
be applicable to the Employee's total SAR Deferral Account,
including past and future SAR Amounts deferred hereunder.
4. Administration of the Plan. Any SAR Amount deferred under the Plan
shall be credited to the Employee's SAR Deferral Account at the time
(if any) the deferred SAR is exercised. As of March 31, June 30,
September 30 and December 31 of each year, a Participant's SAR
Deferral Account will be credited with interest on all amounts in
that account during the preceding quarter.
Interest will be computed during each calendar year as the mean
between the high and the low during the first 11 months of the
previous year of yields on Aa Industrial Bonds as reported in the most
recent issue of Moody's Industrials as published by Moody's Investors
Service, Inc. rounded to the nearest 1/4 of one percent. The Company
will notify Participants annually of the established interest rate.
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5. Payments. Amounts accumulated under the Plan, together with
accumulated interest, shall be paid in annual installments commencing
on or about January 15 of the calendar year following the calendar
year in which an Employee's active employment with the Company
terminates, unless the Employee elected a later commencement date as
provided under Section 3. The amount payable to the Employee each year
shall be computed by multiplying a fraction, the numerator of which is
one and the denominator of which is the number of years remaining in
the payment period, by the balance in the account on January 1. The
Employee's account shall be debited at the time of payment.
The Committee, upon determination of a Former Employee's or surviving
Beneficiary's permanent and total disability, other hardship or
unanticipated and significant change of circumstances beyond the
control of the Former Employee or surviving Beneficiary, at the
request of the Former Employee, the surviving Beneficiary, or the
legal representative of either, may in its sole discretion (i) shorten
or lengthen the time before which deferred SAR Amounts may be paid, or
(ii) shorten or lengthen the period over which such payments are to be
made.
6. Beneficiaries. Participants may designate a Beneficiary or
Beneficiaries to receive upon the Participant's death, pursuant to the
payment provisions of the following paragraph, the amount otherwise
due to the Participant. If no Beneficiary has been designated, all such
amounts shall be paid to the Participant's personal representative.
Participants may change their designated Beneficiary at any time.
A Participant may elect in writing to have one or more fixed payments
made to any designated Beneficiary. Such payments would be payable
within fifteen months of the Participant's death. Any amount
remaining in the account will be payable to the Participant's
designated Beneficiary in annual installments over the period and
commencing with the year selected by the Participant for himself,
subject to changes approved by the Committee pursuant to Section 5.
7. Amendment of the Plan. This Plan may be amended from time to time by
resolution of the Board of Directors, but no amendment shall affect
the rights of Participants hereunder with respect to election notices
governing SARs which are vested but unexercised at the time of such
amendment.
8. Termination and Suspension of the Plan. This Plan will continue in
effect until terminated by resolution of the Board of Directors. Such
resolution may provide (i) that all amounts accumulated prior to such
termination will be paid out to all Participants on or about the
termination date and that any outstanding SAR deferral election
notices will be null and void, or (ii) that all amounts accumulated
prior to such termination, and all SAR Amounts thereafter deferred
pursuant to election notices executed prior to the termination date
and which pertain to SARs which are vested but unexercised as of the
termination date, will continue to be subject to the provisions of the
Plan as if the Plan had not been terminated, and in such case the Plan
will be considered to be "suspended" until all credited amounts are
distributed pursuant to the terms of the Plan, at which time the
Plan's termination will be complete.
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9. Participant's and Beneficiary's Rights. SAR Amounts deferred and
accumulated interest thereon shall remain the property of the Company
and no Participant or Beneficiary shall acquire any property interest
in the account or any other assets of the Company, the Participant's
or Beneficiary's right being limited to receiving from the Company
payments measured as set forth in this Plan. The Plan is unfunded, and
to the extent that any Participant or Beneficiary acquires a right to
receive benefits, such right shall be no greater than the right of any
unsecured general creditor of the Company.
The right of a Participant, his legal representative, and any
Beneficiary or Beneficiaries designated by him, to receive payments
under this Plan shall not be subject to anticipation, sale,
assignment, pledge, encumbrance or charge nor shall such right be
liable for or subject to the debts, contracts, liabilities or torts
of the Participant, his legal representative or Beneficiaries.
10.Powers of the Committee. The Committee shall have full power and
authority to construe and interpret this Plan. Decisions of the
Committee shall be final and binding upon all parties, their
successors, heirs and assigns. Approval of any changes pursuant to
Paragraphs 3 and 5 shall be in the sole discretion of the Committee.
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Exhibit (99) Additional Exhibits (i)
Commercial Program Method of Accounting
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EXHIBIT (99)
Commercial Program Method of Accounting
The Company's accounting practice relative to its major commercial aircraft
programs is a method of accounting developed through industry practice beginning
in the 1960s, but is not specifically addressed in formal accounting standards
such as statements of financial accounting standards by the Financial Accounting
Standards Board. Although this specialized accounting method is not
specifically addressed in existing standards, in 1974 the Securities and
Exchange Commission (SEC) codified, through Accounting Series Release No. 164,
specifically delineated disclosure requirements for the program method of
accounting, following the SEC's formal due process procedures.
The Company's commercial aircraft program method of accounting is described in
Note 1, "Summary of Significant Accounting Policies - Contract and Program
Accounting," to the Consolidated Financial Statements filed under the Form
10-K for the fiscal year ended December 31, 1995. The relevant disclosure in
Note 1 is as follows:
Commercial jet transport 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 all commercial jet transport
programs is determined based on estimated average total cost and revenue for
the current program commitment quantity. For new commercial jet transport
programs, the program quantity is initially based on an established number of
units representing what is believed to be a conservative market projection.
Program commitment quantities generally represent deliveries for the next
three to five years, although the initial program quantity for new programs
will normally include orders and deliveries over periods up to ten years. The
initial program quantity for the new 777 program has been established at 400
units, the same initial program quantity as for the 747 program in 1969 and
for the 767 and 757 programs in 1982. The commercial program method of
accounting, an industry-developed practice adopted by the Company in the 1960s
and applied to all commercial jet transport programs since that time, requires
the demonstrated ability to reliably estimate and manage the cost-revenue
relationship for the defined program quantity. The program method of
accounting effectively amortizes or averages tooling and special equipment
costs, as well as unit production costs, over the program quantity. Because
of the higher unit production costs experienced at the beginning of a new
program and the substantial investment required for initial tooling and
special equipment, new commercial jet transport programs normally have lower
operating profit margins than established programs. The estimated program
average costs and revenues are reviewed and reassessed quarterly, and changes
in estimates are recognized over current and future deliveries comprising the
program quantity.
Related disclosures are included in Note 3, "Inventories," to the Consolidated
Financial Statements filed under the Form 10-K for the fiscal year ended
December 31, 1995. Specific disclosures are limited to those programs for which
deferred production costs in excess of estimated average cost of deliveries or
unamortized tooling costs not recoverable from existing firm orders are material
in amount.
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The accounting theory underlying the program method of accounting is essentially
the same as "contract accounting," which is addressed in the AICPA Statement
of Position 81-1. The important difference in methodology is the definitional
size of the "accounting contract" over which costs are averaged. The program
"accounting contract" is not limited to production units under contract (as is
normally the case with contract accounting), but rather is often based on a
quantity in excess of the units covered by firm backlog. The Company began
using the program method of accounting over 30 years ago, and has applied the
accounting method to all its major commercial programs (707, 727, 737, 747, 757,
767 and 777), and only its major commercial programs.
The program method of accounting was originally applied by the Company in
connection with the 707 program to provide an appropriate matching of sales and
cost of sales. The Company believes the application of the program method of
accounting is appropriate only under certain circumstances, typically for
production programs having the following characteristics:
(a) The production program represents a major commitment of the Company
based on an evaluation of the estimated overall rate of return or
profitability of the program as a whole. (Initial contractual
orders are normally not adequate to allow for recovery of the
related production costs.)
(b) Initial and early production stages require investment of substantial
resources relative to the Company's financial position. Due to the
nature of the production item (generally involving high technology,
labor intensive processes), earlier production units require
substantially more effort (labor and non-labor resources) than
subsequent units such that an improvement curve benefit will be
realized with significant cost implications over a period of several
years. Design and fabrication of special tools and equipment are
commonly necessary, for which virtually no economic benefits can be
realized other than in connection with the particular production
program.
(c) Because of market constraints or competitive factors, the substantial
investment of resources can only be recovered over a several-year
market quantity. Sales prices are principally market determined,
and are relatively constant in real terms over the program life.
(d) Because of the substantial and long-term investment of resources
necessary for such production programs, which normally includes
significant pre-production design and developmental costs, the market
will have no more than a few producers for that basic product.
Proposed criteria for use of the program method of accounting were documented in
a 1980 AICPA Task Force draft of a proposed Statement of Position on "Program
Accounting." The Company believes that the proposed criteria for use, as
outlined below, provide appropriate guidance:
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Criteria for Use of Program Accounting
1) The program method of accounting may be used in circumstances in which a
contractor has invested substantial resources to design and produce multiple
units of a product that
o requires substantial research and development as well as
initial production tooling and facility costs unique to its production,
o is based on anticipation of decreasing unit costs arising
from the effects of a learning curve,
o requires a substantial period to produce the number of units
in the program, and
o is intended to be sold on the basis of level pricing, which
requires that the pricing of the product, except for the effects of
changes in the general price level, will be level over all units or
will correlate closely with changes in the specific prices of direct
costs of production.
2) At the beginning of a program the Company will have identified a number of
anticipated customers, but will have obtained firm contracts for the
production and delivery of a number of units of the product that will not,
by themselves, permit recovery of the initial and early investment in the
production effort. The program accounting method may be used only if a
contractor
o can demonstrate a demand for the product expressed in a number
of units, or a range of the number of units, over the program's
estimated sales life that will permit recovery of costs incurred under
the program,
o has previously financed and produced similar products,
o has documented its ability to finance and produce the program
product, and
o is able to make reasonably dependable estimates of (a) the
number of units to be produced and sold, (b) the length of time to
produce and sell them, and (c) their associated production costs,
revenues and gross margin.
The Company believes that the above stringent criteria are necessary for the
appropriate application of program accounting, and the Company's use of program
accounting is consistent with these criteria.
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EXHIBIT (21) - List of Company Subsidiaries
The Boeing Company and Subsidiaries
(All Wholly-Owned)
Place of Date
Name Incorporation Incorporated
- -------------------------------------------------------------------------------
Aileron Inc. Delaware 1989
Aldford Limited* Bermuda 1993
Aldford-1 Corporation Delaware 1993
Amwell Limited* Bermuda 1993
Amwell-1 Corporation Delaware 1993
Andsell Limited* Bermuda 1993
Andsell-1 Corporation Delaware 1993
ARGOSystems, Inc. California 1969
Arneway Limited* Bermuda 1993
Arneway-1 Corporation Delaware 1993
Astro Limited Bermuda 1975
Astro-II, Inc. Vermont 1984
Beaufoy Limited* Bermuda 1993
Beaufoy-1 Corporation Delaware 1993
BCS Richland, Inc. Washington 1975
BE&C Engineers, Inc. Delaware 1978
Boeing Aerospace Operations, Inc. Washington 1972
Boeing Agri-Industrial Company Oregon 1973
Boeing Canada Technology Ltd.* Ontario 1929
Boeing China, Inc. Delaware 1986
Boeing Commercial Space Company Delaware 1987
BOEING DEFENSE & SPACE-CORINTH CO. Delaware 1987
BOEING DEFENSE & SPACE-IRVING CO. Delaware 1979
Boeing Defense & Space - Oak Ridge, Inc. Delaware 1980
Boeing Domestic Sales Corporation Washington 1974
Boeing Equipment Holding Company Washington 1968
Boeing Financial Corporation Washington 1965
Boeing Georgia, Inc. Delaware 1980
Boeing Information Services, Inc. Delaware 1981
Boeing International Corporation Delaware 1953
Boeing International Sales Corporation Washington 1971
Boeing Investment Company, Inc. Delaware 1985
Boeing Leasing Company Delaware 1988
Boeing Louisiana, Inc. Delaware 1986
Boeing Middle East Limited Delaware 1982
Boeing Nevada, Inc. Delaware 1989
Boeing of Canada Ltd. Delaware 1986
Boeing Offset Company, Inc. Delaware 1985
* Second-tier subsidiaries
** Third-tier subsidiaries
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EXHIBIT (21) - List of Company Subsidiaries (Continued)
The Boeing Company and Subsidiaries
(All Wholly-Owned)
Place of Date
Name Incorporation Incorporated
- -------------------------------------------------------------------------------
Boeing Operations International, Incorporated Delaware 1981
Boeing Petroleum Services, Inc. Delaware 1984
Boeing Precision Gear, Inc. Delaware 1994
Boeing Sales Corporation Guam 1984
Boeing Sales Corporation, Limited Bermuda 1993
Boeing Technology International, Inc. Washington 1973
Braham Limited* Bermuda 1993
Braham-1 Corporation Delaware 1993
Energy Enterprises, Inc. Delaware 1991
Gainford Limited* Bermuda 1993
Gainford-1 Corporation Delaware 1993
Gaucho-1 Inc. Delaware 1994
GAUCHO-2 Inc. Delaware 1994
Grape Limited* Bermuda 1993
Grape Corporation Delaware 1993
Hanway Corporation Delaware 1993
Longacres Park, Inc. Washington 1948
Mandarin-1 Corporation Delaware 1993
Mandarin-2 Corporation Delaware 1993
Mandarin-3 Corporation Delaware 1993
Mandarin-4 Corporation Delaware 1993
Mandarin-5 Corporation Delaware 1993
Mandarin-6 Corporation Delaware 1993
Montana Aviation Research Company Delaware 1991
RGL-1 Corporation Delaware 1993
RGL-2 Corporation Delaware 1993
RGL-3 Corporation Delaware 1993
RGL-4 Corporation Delaware 1993
RGL-5 Corporation Delaware 1993
RGL-6 Corporation Delaware 1993
Rainier Aircraft Leasing, Inc. Delaware 1992
UTL Canada, Inc.* (in process of dissolution) Canada 1987
Wingspan, Inc.* Delaware 1994
2433265 Manitoba Ltd.** Manitoba 1989
692567 Ontario Limited* Ontario 1986
757UA, Inc.* Delaware 1989
767ER, Inc. Delaware 1987
* Second-tier subsidiaries
** Third-tier subsidiaries
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Appendix of graphic and image material pursuant
to Rule 304(a) of Regulation S-T
Graphic and image material item Number 1
Sales by industry segment:
A bar chart for the five years 1991-1995 indicating sales by industry
segment (Dollars in billions):
1991 1992 1993 1994 1995
Commercial Aircraft 22.970 24.133 20.568 16.851 13.933
Defense and Space 6.344 6.051 4.870 5.073 5.582
Total 29.314 30.184 25.438 21.924 19.515
Graphic and image material item Number 2
Commercial aircraft sales by geographic region:
A bar chart for the five years 1991-1995 indicating sales by type of
customer (Dollars in billions):
1991 1992 1993 1994 1995
United States 5.851 7.205 6.371 5.490 6.813
Asia 5.179 6.772 8.741 7.215 4.658
Europe 8.300 6.953 4.416 2.994 1.381
Oceania 1.654 1.908 0.631 0.884 0.482
Other 1.986 1.295 0.409 0.268 0.599
Total 22.970 24.133 20.568 16.851 13.933
Graphic and image material item Number 3
Net earnings:
A bar chart of net earnings for the five years 1991-1995 (Dollars in
billions):
1991 - 1.567; 1992 - 1.554(*); 1993 - 1.244; 1994 - 0.856; 1995 - 0.393 (1)
(*) Exclusive of the cumulative effect of the accounting change for retiree
health care.
(1) Excluding special retirement program charge, 1995 - .783
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Graphic and image material item Number 4
Research and development expensed:
A bar chart of research and development expensed for the five
years 1991-1995 (Dollars in billions):
1991 - 1.417; 1992 - 1.846; 1993 - 1.661; 1994 - 1.704; 1995 - 1.267
Graphic and image material item Number 5
Contractual backlog:
A bar chart for the five years 1991-1995 indicating contractual backlog
(Dollars in billions):
1991 1992 1993 1994 1995
Commercial Aircraft 92.161 81.991 69.000 60.614 66.540
Defense and Space 5.755 5.939 4.528 5.696 5.805
Total 97.916 87.930 73.528 66.310 72.345
Graphic and image material item Number 6
Property, plant and equipment -- net additions:
A bar chart for the five years 1991-1995 indicating property, plant and
equipment -- net additions and depreciation (Dollars in billions):
1991 1992 1993 1994 1995
Net additions 1.850 2.160 1.317 0.795 0.629
Depreciation 0.768 0.870 0.953 1.081 0.976
Graphic and image material item Number 7
Customer financing -- net changes:
A bar chart for the five years 1991-1995 indicating customer financing -
net additions (Dollars in billions):
1991 1992 1993 1994 1995
Net additions 0.100 1.140 0.934 0.205 (1.399)
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Graphic and image material item Number 8
Worldwide airline industry core operating profits:
A bar chart for the 20 years 1975 - 1995 indicating worldwide airline industry
core operating profits (Dollars in billions):
1975 1976 1977 1978 1979 1980 1981 1982 1983
0.730 2.156 2.629 3.070 0.736 (0.634) (0.692) (0.160) 2.000
1984 1985 1986 1987 1988 1989 1990 1991 1992
5.100 4.100 4.600 7.200 10.200 7.600 (1.500) (0.500) (1.500)
1993 1994 1995*
2.500 8.000 11.700
* Estimate
Graphic and image material item Number 9
Procurement budget - Department of Defense and NASA:
A bar chart for the six years 1990 - 1995 indicating Procurement budgets -
Department of Defense and NASA (Dollars in billions):
1990 - 135.0; 1991 - 126.0; 1992 - 117.0; 1993 - 107.0; 1994 - 94.0;1995 - 94.0
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