-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gx/w4/PIMAqMd3YDwTPzPoH+g456QrQl8PGrnhe+RmJNqX3ZLrksik+PWaL9uxaD bvi4AS/4up86eXq+GMt3Xg== 0000012927-98-000024.txt : 19981109 0000012927-98-000024.hdr.sgml : 19981109 ACCESSION NUMBER: 0000012927-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOEING CO CENTRAL INDEX KEY: 0000012927 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT [3721] IRS NUMBER: 910425694 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00442 FILM NUMBER: 98739425 BUSINESS ADDRESS: STREET 1: P O BOX 3707 MS 1F 31 CITY: SEATTLE STATE: WA ZIP: 98124 BUSINESS PHONE: 2066552121 MAIL ADDRESS: STREET 1: 7755 EAST MARGINAL WAY SOUTH CITY: SEATTLE STATE: WA ZIP: 98108 FORMER COMPANY: FORMER CONFORMED NAME: BOEING AIRPLANE CO DATE OF NAME CHANGE: 19730725 10-Q 1 FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1998 1 .............................................................................. .............................................................................. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 Commission file number 1-442 THE BOEING COMPANY 7755 East Marginal Way South Seattle, Washington 98108 Telephone: (206) 655-2121 State of incorporation: Delaware IRS identification number: 91-0425694 The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. As of October 30, 1998, there were 999,133,781 shares of common stock, $5.00 par value, issued and outstanding. 1 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE BOEING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions except per share data) (Unaudited) Nine months ended Three months ended September 30 September 30 - ----------------------------------------------------------------------------- 1998 1997 1998 1997 - ----------------------------------------------------------------------------- Sales and other operating revenues $39,047 $34,073 $12,717 $11,371 Operating costs and expenses 35,079 30,418 11,265 11,244 General and administrative expense 1,488 1,623 528 650 Research and development expense 1,431 1,464 455 456 Share-based plans 106 42 43 40 - ----------------------------------------------------------------------------- 38,104 33,547 12,291 12,390 - ----------------------------------------------------------------------------- Earnings (loss) from operations 943 526 426 (1,019) Other income, principally interest 241 303 92 120 Interest and debt expense (341) (365) (114) (122) - ----------------------------------------------------------------------------- Earnings (loss) before income taxes 843 464 404 (1,021) Income taxes 188 144 57 (325) - ----------------------------------------------------------------------------- Net earnings (loss) $ 655 $ 320 $ 347 $ (696) ============================================================================= Basic earnings (loss) per share $.67 $.33 $.36 $(.72) ============================================================================= Diluted earnings (loss) per share $.67 $.33 $.36 $(.72) ============================================================================= Cash dividends per share $.42 $.42 $.14 $.14 ============================================================================= See notes to consolidated financial statements. 2 3 THE BOEING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in millions except per share data) September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- (Unaudited) Assets - ----------------------------------------------------------------------------- Cash and cash equivalents $ 2,435 $ 4,420 Short-term investments 279 729 Accounts receivable 3,255 3,121 Current portion of customer and commercial financing 126 261 Deferred income taxes 1,674 1,765 Inventories, net of advances and progress billings 10,531 8,967 - ----------------------------------------------------------------------------- Total current assets 18,300 19,263 Customer and commercial financing 4,373 4,339 Property, plant and equipment, net 8,552 8,391 Deferred income taxes 232 15 Goodwill 2,333 2,395 Prepaid pension expense 3,409 3,271 Other assets 424 350 - ----------------------------------------------------------------------------- $37,623 $38,024 ============================================================================= Liabilities and Shareholders' Equity - ----------------------------------------------------------------------------- Accounts payable and other liabilities $10,909 $11,548 Advances in excess of related costs 1,484 1,575 Income taxes payable 674 298 Short-term debt and current portion of long-term debt 534 731 - ----------------------------------------------------------------------------- Total current liabilities 13,601 14,152 Accrued retiree health care 4,789 4,796 Long-term debt 6,261 6,123 Shareholders' equity: Common shares, par value $5.00 - 1,200,000,000 shares authorized; Shares issued - 1,011,870,159 and 1,000,029,538 5,059 5,000 Additional paid-in capital 1,171 1,090 Treasury shares, at cost - 11,668,743 and 164,667 (417) (9) Retained earnings 8,518 8,147 Unearned compensation (18) (20) ShareValue Trust shares - 38,005,571 and 26,385,260 (1,341) (1,255) - ----------------------------------------------------------------------------- Total shareholders' equity 12,972 12,953 - ----------------------------------------------------------------------------- $37,623 $38,024 ============================================================================= See notes to consolidated financial statements. 3 4 THE BOEING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions) (Unaudited) Nine months ended September 30 - ----------------------------------------------------------------------------- 1998 1997 - ----------------------------------------------------------------------------- Cash flows - operating activities: Net earnings $ 655 $ 320 Adjustments to reconcile net earnings to net cash provided by operating activities: Share-based plans 106 42 Depreciation and amortization 1,225 1,106 Changes in assets and liabilities - Short-term investments 450 153 Accounts receivable (134) (442) Inventories, net of advances and progress billings (1,564) (1,392) Accounts payable and other liabilities (492) 1,633 Advances in excess of related costs (91) 257 Income taxes payable and deferred 250 (153) Other assets (227) (345) Accrued retiree health care (7) 7 - ----------------------------------------------------------------------------- Net cash provided by operating activities 171 1,186 - ----------------------------------------------------------------------------- Cash flows - investing activities: Customer financing and properties on lease - additions (978) (928) Customer financing and properties on lease - reductions 983 751 Property, plant and equipment, net additions (1,213) (1,006) - ----------------------------------------------------------------------------- Net cash used by investing activities (1,208) (1,183) - ----------------------------------------------------------------------------- Cash flows - financing activities: New borrowings 548 66 Debt repayments (607) (594) Common shares purchased (479) (118) Common shares issued 268 Stock options exercised, other 15 143 Dividends paid (425) (417) - ----------------------------------------------------------------------------- Net cash used by financing activities (948) (652) - ----------------------------------------------------------------------------- Net decrease in cash and cash equivalents (1,985) (649) Cash and cash equivalents at beginning of year 4,420 5,469 - ----------------------------------------------------------------------------- Cash and cash equivalents at end of 3rd quarter $ 2,435 $ 4,820 ============================================================================= See notes to consolidated financial statements. 4 5 THE BOEING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) Note 1 - Condensed Consolidated Interim Financial Statements The condensed consolidated interim financial statements included in this report have been prepared by the Company without audit. In the opinion of management, all adjustments necessary for a fair presentation are reflected in the interim financial statements. Such adjustments are of a normal and recurring nature. The results of operations for the period ended September 30, 1998, are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1997 Annual Report. Certain reclassifications have been made to prior periods to conform with current reporting. Note 2 - Recognition of Forward Loss for the Next-Generation 737 Program During the first quarter of 1998, the Company recognized a forward loss pretax charge of $350 attributable to the Next-Generation 737 program. This charge represents an increase to the forward loss charge of $700 recognized by the Company in the third quarter of 1997. As of March 31, 1998, the cumulative forward loss of $1,050 represented the amount by which the estimated production costs exceeded the estimated revenue for the first 400 units of the program. The additional forward loss resulted principally from additional retrofit activity costs attributable to flight test and certification requirements, as well as the costs of increased resources to reduce out-of-sequence work and process flow risks. As of September 30, 1998, the Company had delivered 94 Next-Generation 737 airplanes. Note 3 - Earnings per Share The weighted average number of shares (in millions) used for computing earnings per share for the periods ended September 30, 1998 and 1997, are as follows: First Nine Months Third Quarter ----------------- ------------- 1998 1997 1998 1997 ---- ---- ---- ---- Basic shares 972.0 969.3 969.3 972.3 Diluted shares 982.4 984.5 977.3 972.3 Basic earnings per share are calculated based on the weighted average number of shares outstanding, excluding the outstanding shares held by the ShareValue Trust. Diluted earnings per share are calculated based on the same number of shares plus additional dilutive shares representing stock distributable under share-based plans computed using the treasury stock method. 5 6 Note 4 - Income Taxes The effective income tax provision rate of 22.3% for the first nine months of 1998 is lower than the statutory federal rate, principally due to a $57 reduction in the income tax provision recognized in the third quarter related to settlement of prior years' defense-related partnership research and development tax credits, and to Foreign Sales Corporation tax benefits and current-year research and development tax credits. Partially offsetting this reduction from the statutory federal rate are state income taxes and non-deductibility of goodwill. Net income tax payments were $3 and $250 for the nine months ended September 30, 1998 and 1997. Note 5 - Accounts Receivable Accounts receivable consisted of the following: September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- U.S. Government contracts $2,203 $2,053 Other 1,052 1,068 - ----------------------------------------------------------------------------- $3,255 $3,121 ============================================================================= Note 6 - Inventories Inventories consisted of the following: September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- Commercial aircraft programs and long-term contracts in progress $ 28,058 $ 26,566 Commercial spare parts, general stock materials and other 2,283 1,869 - ----------------------------------------------------------------------------- 30,341 28,435 Less advances and progress billings (19,810) (19,468) - ----------------------------------------------------------------------------- $ 10,531 $ 8,967 ============================================================================= As of September 30, 1998, there were 36 undelivered commercial aircraft in storage, representing $1,500 net of customer advances. 6 7 Note 7 - Customer and Commercial Financing Customer and commercial financing consisted of the following: September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- Aircraft financing Notes receivable $ 535 $ 651 Investment in sales-type/financing leases 1,241 1,646 Operating lease equipment, at cost, less accumulated depreciation of $219 and $254 1,817 1,289 Commercial equipment financing Notes receivable 373 313 Investment in sales-type/financing leases 386 407 Operating lease equipment, at cost, less accumulated depreciation of $108 and $96 366 502 - ----------------------------------------------------------------------------- Less valuation allowance (219) (208) - ----------------------------------------------------------------------------- $4,499 $4,600 ============================================================================= Financing for aircraft is collateralized by security in the related asset, and historically the Company has not experienced a problem in accessing such collateral when necessary. Note 8 - Accounts Payable and Other Liabilities Accounts payable and other liabilities consisted of the following: September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- Accounts payable $ 5,590 $ 5,609 Accrued compensation and employee benefit costs 2,460 2,154 Lease and other deposits 665 819 Other 2,194 2,966 - ----------------------------------------------------------------------------- $10,909 $11,548 ============================================================================= 7 8 Note 9 - Debt Short- and long-term debt consisted of the following: September 30 December 31 1998 1997 - ----------------------------------------------------------------------------- Unsecured debentures and notes: 7 5/8% due Feb. 17, 1998 $ - $ 301 8 7/8% due Sep. 15, 1999 306 311 8.25% due Jul. 1, 2000 200 200 8 3/8% due Feb. 15, 2001 180 182 9.25% due Apr. 1, 2002 120 120 6 3/4% due Sep. 15, 2002 298 297 6.35% due Jun. 15, 2003 300 299 7 7/8% due Feb. 15, 2005 208 209 6 5/8% due Jun. 1, 2005 292 291 6.875% due Nov. 1, 2006 248 248 8 1/10% due Nov. 15, 2006 175 175 9.75% due Apr. 1, 2012 348 348 8 3/4% due Aug. 15, 2021 398 398 7.95% due Aug. 15, 2024 300 300 7 1/4% due Jun. 15, 2025 247 247 8 3/4% due Sep. 15, 2031 248 248 8 5/8% due Nov. 15, 2031 173 173 6 5/8% due Feb. 15, 2038 300 7.50% due Aug. 15, 2042 100 100 7 7/8% due Apr. 15, 2043 173 173 6 7/8% due Oct. 15, 2043 125 125 Senior debt securities, 5.0% - 9.4%, due through 2011 58 148 Senior medium-term notes, 5.5% - 13.6%, due through 2017 1,228 1,129 Subordinated medium-term notes, 6.1% - 9.4%, due through 2004 70 70 Capital lease obligations due through 2008 412 500 Other notes 288 262 - ----------------------------------------------------------------------------- $6,795 $6,854 ============================================================================= The Company has $2,400 currently available under credit line agreements with a group of commercial banks. The Company has complied with the restrictive covenants contained in various debt agreements. In addition, Boeing Capital Corporation, a corporation wholly owned by the Company, has $240 available, but unused, under a credit line agreement with a group of commercial banks. Total debt interest, including amounts capitalized, was $390 and $413 for the nine- month periods ended September 30, 1998 and 1997, and interest payments were $367 and $442, respectively. 8 9 Note 10 - Shareholders' Equity Changes in shareholders' equity for the nine-month periods ended September 30, 1998 and 1997, consisted of the following: - ----------------------------------------------------------------------------- 1998 1997 (Shares in thousands) Shares Amount Shares Amount - ----------------------------------------------------------------------------- Common stock Beginning balance - January 1 1,000,030 $ 5,000 993,348 $ 4,967 Shares issued 4,550 23 Shares issued for the ShareValue Trust 11,253 56 Shares issued for incentive stock plans 587 3 2,125 10 - ----------------------------------------------------------------------------- Ending balance - September 30 1,011,870 $ 5,059 1,000,023 $ 5,000 ============================================================================= Additional paid-in capital Beginning balance - January 1 $ 1,090 $ 920 Share-based compensation, net of tax impact 69 Treasury shares issued for incentive stock plans, net (37) (5) Shares issued 245 Tax benefit related to incentive stock plans 13 31 Stock appreciation rights expired or surrendered 6 5 Shares issued for the ShareValue Trust 494 ShareValue Trust market value adjustment (464) 42 - ----------------------------------------------------------------------------- Ending balance - September 30 $ 1,171 $ 1,238 ============================================================================= Treasury stock Beginning balance - January 1 165 $ (9) 30 $ (1) Treasury shares issued for incentive stock plans, net (1,407) 71 (1,349) 106 Treasury shares acquired 12,911 (479) 1,564 (118) Shares transferred from ShareValue Trust 5 - ----------------------------------------------------------------------------- Ending balance - September 30 11,669 $ (417) 250 $ (13) ============================================================================= Retained earnings Beginning balance - January 1 $ 8,147 $ 8,896 Net earnings 655 320 Cash dividends declared (284) (291) - ----------------------------------------------------------------------------- Ending balance - September 30 $ 8,518 $ 8,925 ============================================================================= Unearned compensation Beginning balance - January 1 $ (20) $ (22) New issuances (29) Forfeitures 6 Amortization (4) 29 - ----------------------------------------------------------------------------- Ending balance - September 30 $ (18) $ (22) ============================================================================= 9 10 Note 10 - Shareholders' Equity (continued) Changes in shareholders' equity for the nine-month periods ended September 30, 1998 and 1997, consisted of the following: - ----------------------------------------------------------------------------- 1998 1997 (Shares in thousands) Shares Amount Shares Amount - ----------------------------------------------------------------------------- ShareValue Trust Beginning balance - January 1 26,385 $(1,255) 26,120 $(1,258) Shares transferred to treasury stock (5) Shares acquired from dividend reinvestment 368 200 Shares issued from common stock 11,253 (550) Market value adjustment 464 (42) Accrual of distributable appreciation 42 - ----------------------------------------------------------------------------- Ending balance - September 30 38,006 $(1,341) 26,315 $(1,258) ============================================================================= Comprehensive income and net earnings were the same for the periods presented. Note 11 - Share-Based Compensation Beginning in the first quarter of 1998, the Company adopted the expense recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which applies to Performance Share awards, the ShareValue Trust plan, and stock options. On February 23, 1998, the Company awarded approximately 3.9 million Performance Shares to executive management. Performance Shares are convertible to common stock at the time the stock price reaches and maintains certain threshold levels for 20 consecutive days. These threshold levels represent predetermined compound five-year growth rates relative to the stock price on the date of the award. In accordance with SFAS No. 123, the Company will recognize the associated expense over the five-year award period. The ShareValue Trust, currently in its third year, is a 14-year irrevocable trust that holds Boeing common stock, receives dividends, and distributes to employees appreciation in value above a 3% per annum threshold rate of return. The expense recognition method for the ShareValue Trust plan under SFAS No. 123 is based upon the fair value of the total expected distributions, determined by applying an option pricing model. The fair value of the expected distributions under the option pricing model is recognized over the life of the plan regardless of actual distributions. On June 30, 1998, the first investment period of the trust ended with a fund appreciation insufficient to generate a distribution to employees. The second investment period and the next potential distribution measurement date will be June 30, 2000. The Company granted stock options during the first nine months of 1998, and recognized $21 million of expense in accordance with the provisions of SFAS No. 123. 10 11 Note 12 - Contingencies Various legal proceedings, claims and investigations related to products, contracts and other matters are pending against the Company. Most significant legal proceedings are related to matters covered by insurance. On January 7, 1991, the U.S. Navy notified the Company and General Dynamics Corporation (the Team) that it was terminating for default the Team's contract for development and initial production of the A-12 aircraft. The Team filed a legal action to contest the Navy's default termination, to assert its rights to convert the termination to one for "the convenience of the Government," and to obtain payment for work done and costs incurred on the A-12 contract but not paid to date. At September 30, 1998, inventories included approximately $581 of recorded costs on the A-12 contract, against which the Company has established a loss provision of $350. The amount of the provision, which was established in 1990, was based on the Company's belief, supported by an opinion of outside counsel, that the termination for default would be converted to a termination for convenience, that the Team would establish a claim for contract adjustments for a minimum of $250, that there was a range of reasonably possible results on termination for convenience, and that it was prudent to provide for what the Company then believed was the upper range of possible loss on termination for convenience, which was $350. On December 19, 1995, the U.S. Court of Federal Claims ordered that the Government's termination of the A-12 contract for default be converted to a termination for convenience of the Government. On December 13, 1996, the Court issued an opinion confirming its prior no-loss adjustment and no-profit recovery order. On December 5, 1997, the Court issued an opinion confirming its preliminary holding that plaintiffs were entitled to certain adjustments to the contract funding, increasing the plaintiffs' possible recovery to $1,200. On March 31, 1998, the Court entered a judgment, pursuant to a March 30 opinion and order, determining that plaintiffs were entitled to be paid that amount, plus statutory interest from June 26, 1991, until paid. Although the Government has appealed the resulting judgment, the Company believes the judgment will be sustained. Final resolution of the A-12 litigation will depend on such appeals and possible further litigation, or negotiations, with the Government. If sustained, however, the expected damages judgment, including interest, could result in pretax income that would more than offset the loss provision established in 1990. On October 31, 1997, a federal securities lawsuit was filed against the Company in the U.S. District Court for the Western District of Washington, in Seattle. The lawsuit names as defendants the Company and three executive officers. Additional lawsuits of a similar nature have been filed in the same court. These lawsuits were consolidated on February 24, 1998. The plaintiffs seek to represent a class of purchasers of Boeing stock between July 21, 1997, and October 22, 1997, (the "Class Period"), including recipients of Boeing stock in the McDonnell Douglas merger. July 21, 1997, was the date on which the Company announced its second quarter results, and October 22, 1997, was the date on which the Company announced charges to earnings associated with production problems being experienced on commercial aircraft programs. The lawsuits generally allege that the defendants desired to keep the Company's share price as high as possible in order to ensure that the McDonnell Douglas shareholders would approve the merger and, in the case of two of the individual defendants, to benefit directly from the sale of Boeing stock during the Class Period. The plaintiffs seek compensatory damages and treble damages. The Company believes that the allegations are without merit and that the outcome of these lawsuits will not have a material adverse effect on its earnings, cash flow or financial position. 11 12 On March 26, 1997, Gerald Verdine sued McDonnell Douglas Corporation for age and race discrimination, retaliation and breach of contract. After a trial that concluded in July 1998, the jury returned a verdict in favor of Mr. Verdine on the retaliation count and a breach of contract count and were either deadlocked or ruled in favor of McDonnell Douglas Corporation on the remaining causes of action. The jury awarded damages to Mr. Verdine in the amount of $28. The trial court reduced the verdict to $10.4 in response to post-trial motions. Boeing has filed an appeal seeking to overturn the entire verdict. On June 6, 1998, sixteen (16) African American employees of The Boeing Company, previously employed at several distinct units of The Boeing Company, McDonnell Douglas Corporation and Rockwell International Corporation, filed a complaint in U.S. District Court for the Western District of Washington alleging, on the basis of race, discrimination in promotions and training. The plaintiffs also allege retaliation and harassment and seek, among other things, an order certifying a class of all African American employees who are currently working or have worked for the three companies during the past few years. Also, on July 31, 1998, seven African American employees of the helicopter division of the Military Aircraft & Missile Systems Group in Philadelphia filed an action in the U.S. District Court for the Eastern District of Pennsylvania alleging, on the basis of race, discrimination in compensation, promotions and terminations. The complaint also alleges retaliation at that division. Plaintiffs are seeking an order certifying a class of all African American employees of The Boeing Company. In September 1998, the Court conditionally denied plaintiffs' motion seeking class certification and allowed plaintiffs to renew their motion upon completion of class discovery. The Company believes that the outcome of the lawsuits will not have a material adverse effect on its earnings, cash flow or financial position. 12 13 Note 13 - Business Segment Data Segment information for revenues, earnings, and research and development consisted of the following: Nine months ended Three months ended September 30 September 30 - ----------------------------------------------------------------------------- 1998 1997 1998 1997 - ----------------------------------------------------------------------------- Revenues: Commercial Aircraft $24,151 $20,248 $ 7,719 $ 6,429 Information, Space and Defense Systems 14,318 13,293 4,835 4,765 Customer and Commercial Financing, Other 578 532 163 177 - ----------------------------------------------------------------------------- Operating revenues $39,047 $34,073 $12,717 $11,371 ============================================================================= Earnings (loss) from operations: Commercial Aircraft $ (184) $ (593) $ 77 $(1,370) Information, Space and Defense Systems 1,079 1,008 362 382 Customer and Commercial Financing, Other 340 305 97 73 Unallocated expense (186) (152) (67) (64) Share-based plans (106) (42) (43) (40) - ----------------------------------------------------------------------------- Operating earnings (loss) $ 943 $ 526 $ 426 $(1,019) - ----------------------------------------------------------------------------- Other income, principally interest 241 303 92 120 Interest and debt expense (341) (365) (114) (122) - ----------------------------------------------------------------------------- Earnings (loss) before income taxes $ 843 $ 464 $ 404 $(1,021) ============================================================================= Net earnings (loss) $ 655 $ 320 $ 347 $ (696) ============================================================================= Research and development: Commercial Aircraft $ 799 $ 942 $ 235 $ 248 Information, Space and Defense Systems 632 522 220 208 - ----------------------------------------------------------------------------- Total research and development expense $ 1,431 $ 1,464 $ 455 $ 456 ============================================================================= Unallocated expense includes goodwill amortization, capitalized interest amortization, certain unallocated actuarial costs, and corporate costs not allocated to other internal reporting entities. 13 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Revenue - ------- Sales of $39.0 billion for the first nine months of 1998 were 15% higher than sales for the comparable period of 1997. A total of 368 commercial jet aircraft were delivered, compared with 272 in the first nine months of 1997. Approximately 550 commercial aircraft deliveries, including 235 of the newer- model 737s and 777s, are currently projected for the full year 1998, compared with 374 in 1997. Total sales for 1998 are projected to be in the $56 billion range, compared with $45.8 billion in 1997. Commercial jet aircraft deliveries were as follows: Nine Months 3rd Quarter - ----------------------------------------------------------------------------- Model 1998 1997 1998 1997 - ----------------------------------------------------------------------------- 737 92 93 25 33 737 Next-Generation 91 - 41 - 747 32 30 11 8 757 35 34 12 10 767 35 34 11 11 777 52 49 15 18 MD-80 5 (2) 11 (4) 2 (2) 3 (3) MD-90 18 16 (3) 4 5 (1) MD-11 8 (2) 5 2 1 - ----------------------------------------------------------------------------- Total 368 272 123 89 ============================================================================= Commercial jet aircraft deliveries included deliveries under operating lease, which are identified by parentheses in the above table. Aircraft accounted for as operating leases have minimal revenue recorded at the time of delivery. =============================================================================== Forward-Looking Information Is Subject to Risk and Uncertainty Certain statements in this report contain "forward-looking" information that involves risk and uncertainty, including projections for production rates, deliveries, customer financing, sales, revenues, margins, earnings, cash, research and development expense, employment, asset utilization, year 2000 readiness, and other trend projections. This forward-looking information is based upon a number of assumptions, including assumptions regarding demand, internal performance, customer financing, customer, supplier and subcontractor performance, government policies and actions, and price-escalation. Actual future results and trends may differ materially depending on a variety of factors, including the Company's successful execution of internal performance plans including research and development, production recovery, production rate increases, production system initiatives and other cost-reduction efforts; year 2000 readiness; the cyclical nature of the Company's business; volatility of the 14 15 market for certain products; continued integration of McDonnell Douglas Corporation; product performance risks associated with regulatory certifications of the Company's commercial aircraft by the U.S. Government and foreign governments; other regulatory uncertainties; collective bargaining labor disputes; performance issues with key suppliers, subcontractors and customers; governmental export and import policies; factors that result in significant and prolonged disruption to air travel worldwide; global trade policies; worldwide political stability and economic conditions, particularly in Asia; price escalation trends; changing priorities or reductions in the U.S. Government defense and space budgets; termination of government contracts due to unilateral government action or failure to perform; and legal proceedings. Additional information regarding these factors is contained in the Company's Annual Report on Form 10-K for the year ended 1997 and Form 10-Q for the quarterly period ended June 30, 1998. ================================================================================ Information, Space and Defense Systems deliveries included the following: Nine Months 3rd Quarter - ---------------------------------------------------------------------------- Model 1998 1997 1998 1997 - ---------------------------------------------------------------------------- C-17 6 5 2 2 F-15 25 10 12 3 F/A-18 C/D 24 37 8 14 F/A-18 C/D Kits - 9 - 5 T-45TS 11 8 4 5 CH-47 14 - 8 - 767 AWACS 2 - - - 757/C-32A 2 - - - Delta II 8 9 1 5 Delta III 1 - 1 - Earnings - -------- Net earnings of $655 million for the first nine months of 1998 reflect lower commercial aircraft profit margins, including the $219 million after-tax loss on the Next-Generation 737 recorded in the first quarter and $78 million in after- tax charges relating to the planned termination of the MD-11 program and additional late delivery costs associated with Next-Generation 737 aircraft. Comparable net earnings for the same period of 1997 were $320 million, which included after-tax charges of approximately $1.0 billion reflecting the financial impact of unplanned and abnormal production inefficiencies and late- delivery costs associated with accelerated production increases on commercial aircraft programs. Based on current programs and plans, research and development expense for 1998 is expected to be in the $1.9 billion to $2.0 billion range, compared with $1.9 billion in 1997. The income tax provision of $188 million for the first nine months of 1998 includes a credit of $57 million relating to settlement of prior years' research and development tax credits associated with joint program partnerships; and credits relating to Foreign Sales Corporation tax benefits and current-year research and development tax credits. These benefits were partially offset by the non-deductibility of goodwill and other costs. 15 16 In October, Congress extended research and development tax credits for the twelve-month period from July 1, 1998, through June 30, 1999. This will result in additional tax credits that will be reflected in the full-year 1998 tax provision at year end. The Company has filed refund claims for additional research and development tax credits, primarily in relation to its fixed-price government development programs. These credits have not been recorded as the claims are under review by the IRS in the context of prior years' audits. Successful resolution would result in increased income to the Company. In December 1996, The Boeing Company filed suit in the U.S. District Court for the Western District of Washington for the refund of over $400 million in federal income taxes and related interest. The suit challenged the IRS method of allocating research and development costs for the purpose of determining tax incentive benefits on export sales through the Company's Domestic International Sales Corporation (DISC) and its Foreign Sales Corporation (FSC) for the years 1979 through 1987. In September, the District Court granted the Company's motion for summary judgment. It is not certain whether the U.S. Department of Justice will appeal this decision. If the Company were to prevail, the refund would include interest computed to the payment date. The issue could affect tax computations for subsequent years; however, the financial impact would depend on the final resolution of audits for these years. Federal income tax payments over the next several years are projected to substantially exceed income tax expense due to anticipated completion of contracts executed under prior tax regulations. Operating Profit - ---------------- Commercial Aircraft Programs The higher sales for the first nine months and third quarter of 1998 were principally due to the increased level of commercial aircraft deliveries. A total of 370 jet aircraft were delivered, including two 757/C-32A aircraft, compared with 272 in the first nine months of 1997. Although commercial aircraft deliveries and sales were higher, the overall profit margin for the commercial aircraft segment, excluding forward losses, valuation adjustments and research and development expense, was lower due to the model mix of aircraft deliveries, continued pricing pressures and lower price-escalation trends. With regard to model mix, most of the sales increase was attributable to the new 777 and Next- Generation 737 programs. New commercial aircraft programs have lower operating profit margins due to higher unit production costs in the early years of a program. Additionally, no gross profit has yet been recognized for the Next- Generation 737 program, for which losses had previously been recognized, including $350 million pretax in the first quarter of 1998. The Company previously announced its plans to phase out MD-11 production, with the final MD-11 deliveries now scheduled for 2001. Results for the first nine months of 1998 include a valuation adjustment associated with the MD-11 program that was recorded in the second quarter of 1998. 16 17 Operating profit margins on all commercial aircraft models have been and will continue to be affected by pricing pressures and lower price-escalation trends. The Company sells its products at base prices plus indexed changes for employment cost and producer price changes. Such changes have been significantly less than anticipated during the last two years. Research and development expense for the Commercial Aircraft segment totaled $799 million for the first nine months of 1998, compared with $942 million for the same period of 1997, principally due to reduced spending on the Next- Generation 737 models and the 777-300, an increased-capacity version of the 777. Development continues on the 757-300, a stretched derivative of the 757-200, which is scheduled to be delivered in early 1999; and the 767-400ER, a stretched version of the 767-300ER, which is scheduled to be delivered in the year 2000. The 717-200 program (formerly the MD-95) continues in development; flight test commenced during the third quarter of this year with first delivery planned for mid-1999. During the third quarter, the 747 production rate increased from four to five aircraft per month, and the 777 program production rate increased from five to seven aircraft per month. The Next-Generation 737 program production rate is currently increasing from 14 aircraft per month to 21 per month. Production schedule challenges and general production efficiencies will continue to be aggressively managed, but significant performance risks remain. Commercial aircraft deliveries for 1998 are currently expected to be about 550 aircraft, including approximately 235 of the newer-model 737s and 777s. The delivery quantity is dependent on performing to the production plan and delivering the majority of 36 aircraft in storage as of September 30, 1998, which are principally associated with Asian customers affected by adverse economic conditions and customers awaiting final financing arrangements. The Company continues to assess the economic situation in Asia, which presents a significant risk to deliveries over the next few years, particularly for twin- aisle models. The 747 production rate is currently scheduled to be reduced in the second quarter of 1999 from five aircraft per month to three and a half per month. The 777 production rate is currently scheduled to be reduced in the fourth quarter of 1999 from seven aircraft to five per month, with a previously announced plan to return to seven per month in 2000. Scheduled production rates are being reassessed, and downward revisions are expected to be made based on customer requirements. Information, Space and Defense Systems (ISDS) Programs Total ISDS sales in the first nine months of 1998 were approximately 8 percent higher than during the same period of 1997, principally due to increased military aircraft deliveries. Total ISDS sales for the year are expected to be in the $19 billion to $20 billion range. Operating margins for the first nine months decreased slightly from 7.6 percent in 1997 to 7.5 percent in 1998, principally due to increased research and development expense associated with commercial space and communication activities, and joint venture development costs for the Sea Launch program and the Bell Boeing 609 Civil Tiltrotor program. Research and development expense for the ISDS segment totaled $632 million for the first nine months of 1998, compared with $522 million for the same period in 1997, due to the development activity on the Delta family of launch vehicles and other business opportunities. 17 18 The Sea Launch assembly and command ship and the launch platform were completed in June. They have both arrived at the Home Port in Long Beach, California. Full-scale preparations for first launch are underway after reinstatement by the U.S. State Department of the Sea Launch license that was withdrawn on July 27, 1998, following disclosure by Boeing that technical information may have been transferred without proper approval. Boeing is a 40 percent partner in Sea Launch with RSC Energia (25 percent) from Russia, Kvaerner Maritime (20 percent) from Norway, and KB Yuzhnoye / PO Yuzhmash (15 percent) from Ukraine. Because of the risk associated with new launch activities, the first launch will be a demonstration payload. Hughes Space & Communications International, Inc., and Space Systems/Loral are the first Sea Launch customers, with announced orders for 18 launches plus options. Ongoing viability of the Sea Launch program will depend on meeting technical specifications and demonstrating that launches from a seagoing platform represent an economic alternative for customers looking for launch capability. Technical failure on the initial launch could substantially impair the prospect for additional customer acceptance and could consequently result in significant impairment to the value of the Sea Launch program assets. In August, a Delta III, the newest version of the Delta family of expendable launch vehicles, was lost during first launch approximately one minute and 20 seconds into flight. The failed launch was insured, and the impact to earnings is limited to the cost of accident investigation and corrective actions. The control system has been identified as the likely cause, and corrective actions are being taken to ensure that the Delta III is ready for the next scheduled launch in early 1999. In October, the U.S. Air Force announced the procurement of 19 Delta IV launches under the Evolved Expendable Launch Vehicle (EELV) program valued at $1.38 billion. The Air Force entered into a $500 million agreement with the Company to supplement development of the Delta IV family of launch vehicles to meet all Air Force EELV requirements. First launch of the Boeing Delta IV is scheduled for 2001 with a commercial payload. During the third quarter, the Company announced the formation of the Space and Communications Group, based in Seal Beach, California, and the Military Aircraft and Missile Systems Group, headquartered in St. Louis, Missouri. Year-end 1998 results for ISDS will be reported as two separate segments, consistent with this reorganization and the Company's internal performance reporting. OIS Optical Imaging Systems, Inc., a sole source supplier of active matrix liquid crystal displays for the AH-64D helicopter, and the F-15, F/A-18 E/F and V-22 aircraft programs, ceased manufacturing operations on September 18, 1998. Although the full impact of the loss of this supplier on the Company's ability to fulfill its delivery obligations is currently under review, there is a probability of some delivery delays and disruptions on the affected programs but is not anticipated to be of a material nature. The ISDS segment is highly sensitive to changes in national priorities, U.S. Government defense and space budgets, and success in pursuing commercial-type business opportunities. 18 19 Liquidity and Capital Resources - ------------------------------- The Company's financial liquidity position remains strong, with cash and short- term investments totaling $2.7 billion at September 30, 1998, and total long-term debt at 34% of total shareholders' equity plus debt. As part of a reassessment of the long-term financing and capital needs, the Company has decided to reduce its revolving credit line to $2.4 billion from its previous level of $3 billion. In the third quarter, the Company announced a share repurchase program with Board authorization to repurchase up to 15 percent of the Company's outstanding shares of common stock. During September, the Company repurchased 10.6 million shares of stock (approximately 1 percent of outstanding stock) for $364 million. Backlog - ------- Contractual backlog of unfilled orders (which excludes purchase options and announced orders for which definitive contracts have not been executed, and unobligated U.S. Government contract funding) was as follows (dollars in billions): Sep. 30 June 30 Dec. 31 - ---------------------------------------------------------------------------- 1998 1998 1997 - ---------------------------------------------------------------------------- Commercial Aircraft $ 92.9 $ 91.8 $ 93.8 Information, Space and Defense Systems 27.6 30.0 27.8 - ---------------------------------------------------------------------------- Total contractual backlog $120.5 $121.8 $121.6 ============================================================================ Unobligated U.S. Government contract funding not included in backlog totaled $24.9 billion at September 30, 1998, compared with $24.9 billion at June 30, 1998, and $26.1 billion at December 31, 1997. Year 2000 (Y2K) Date Conversion - ------------------------------- The Y2K issue exists because many computer systems, applications and assets use two-digit date fields to designate a year. As the century date change occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at all. This inability to recognize or properly treat the year 2000 may cause systems to process financial and operations information incorrectly. State of readiness: The Company recognized this challenge early, and major business units started work in 1993. The Company's Y2K strategy to make systems "Y2K-ready" includes a common companywide focus on policies, methods and correction tools, and coordination with customers and suppliers. This focus has been on all systems potentially impacted by the Y2K issue, including information technology ("IT") systems and non-IT systems, such as embedded systems, 19 20 facilities and factory floor systems. Each operating unit has responsibility for its own conversion, in line with overall guidance and oversight provided by a corporate-level steering committee. Approximately 14,000 IT and non-IT systems have been identified, and the Company continues to substantially meet its internal schedule for conversion and testing. This aggressive internal schedule calls for Y2K-readiness of the Company's critical systems, with a few exceptions, by the end of 1998; and full deployment of Y2K-ready assets and ongoing testing in 1999. A companywide-coordinated process to assess supplier readiness began in the second quarter of 1998. The Company is unable to definitively determine that all major suppliers will reach a Y2K-ready status that will ensure no disruption from suppliers. Costs to address Y2K issues: The Company's Y2K conversion efforts have not been budgeted and tracked as separate projects, but have been occurring in conjunction with normal sustaining activities. Total application sustaining IT costs have averaged approximately $350 million per year. Y2K conversion efforts have averaged approximately 10% of total sustaining IT costs for the years 1996 through 1998, and are expected to represent a lower percentage in 1999. Discretely identifiable costs associated with Y2K conversion activities are expected to total $16 million. The costs of non-IT conversion efforts have also been incurred in conjunction with normal sustaining activities. The Company does not expect a reduction in the costs of sustaining activities resulting from the completion of Y2K conversion activities because of ongoing sustaining activities. Reprioritizing sustaining activities to support Y2K conversion activities has not had, and is not expected to have, an adverse impact on operations. Risks associated with Y2K issues: The Company believes there is low risk of any internal critical system, embedded system, or other critical asset not being Y2K-ready by the end of 1999. The Company continues to assess its risk exposure attributable to external factors and suppliers. Although the Company has no reason to conclude that any specific supplier represents a risk, the most reasonably likely worst-case Y2K scenario would entail production disruption due to inability of suppliers, some of whom represent the sole source for certain items, to deliver critical parts. The Company is unable to quantify such a scenario, but it could potentially result in a material adverse impact on results of operations, liquidity or financial position of the Company. Contingency plans for suppliers and mission critical systems impacted by Y2K issues are currently under development. These plans will include leveraging the existing communications and transportation infrastructure created by the Company's Disaster Preparedness Program, which is designed to respond to disaster scenarios caused by natural, technological and man-made factors. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has financial instruments that are subject to interest rate risk, principally short-term investments, fixed-rate notes receivable attributable to customer financing, and debt obligations issued at a fixed rate. Historically, the Company has not experienced material gains or losses due to interest rate changes when selling short-term investments or fixed-rate notes receivable. Additionally, the Company uses interest rate swaps to manage exposure to interest rate changes. Based on the current holdings of short-term investments and fixed-rate notes, as well as underlying swaps, the exposure to interest rate risk is not material. Fixed-rate debt obligations issued by the Company are generally not callable until maturity. 20 21 The Company is subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. As a general policy, the Company substantially hedges foreign currency commitments of future payments and receipts by purchasing foreign currency-forward contracts. As of September 30, 1998, the notional value of such derivatives was $430 million, with a net unrealized gain of $8 million. Less than one percent of receipts and expenditures are contracted in foreign currencies, and the market risk exposure relating to currency exchange is not material. REVIEW BY INDEPENDENT ACCOUNTANTS The consolidated statement of financial position as of September 30, 1998, the consolidated statements of operations for the three- and nine-month periods ended September 30, 1998 and 1997, and the consolidated statements of cash flows for the nine- month periods ended September 30, 1998 and 1997, have been reviewed by the registrant's independent accountants, Deloitte & Touche LLP, whose report covering their review of the financial statements follows. 21 22 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Shareholders The Boeing Company Seattle, Washington We have reviewed the accompanying condensed consolidated statement of financial position of The Boeing Company and subsidiaries (the "Company") as of September 30, 1998, the related condensed consolidated statements of operations for the three- and nine-month periods ended September 30, 1998 and 1997, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review and the reports of other accountants, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of financial position of the Company as of December 31, 1997, and the related consolidated statements of operations and cash flows for the year then ended (not presented herein); and in our report dated January 27, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statements of financial position as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived. October 22, 1998 /s/ Deloitte & Touche LLP Deloitte & Touche LLP Seattle, Washington 22 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings See Note 12 to the Consolidated Financial Statements for a discussion of current legal proceedings involving the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) Material Contracts. The Boeing Company Bank Credit Agreements (i) U.S. $ One Billion Six Hundred Million Amended and Restated 364-Day Bank Credit Agreement among The Boeing Company, as Borrower, the Banks party thereto, Citibank, N.A., as Administrative Agent, and The Chase Manhattan Bank, as Syndication Agent, dated as of September 30, 1998. Filed herewith. Management Contracts and Compensatory Plans. (ii) Consultant Services Agreement between the Company and Boyd E. Givan, dated August 26, 1998, with an amendment in the form of a letter from the Company dated September 14, 1998. Filed herewith. (15) Letter from independent accountants regarding unaudited interim financial information. Page 24. (27) Financial Data Schedule for the nine-month period ending September 30, 1998. Filed herewith. (b) Reports on Form 8-K A report on Form 8-K was filed on August 22, 1998, to report, under Item 5, the adoption of Corporate Policy Pol-14, on June 29, 1998. - - - - - - - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE BOEING COMPANY ---------------------------------- (Registrant) November 5, 1998 /s/ Gary W. Beil ------------------- ---------------------------------- (Date) Gary W. Beil Vice President and Controller 23 24 EXHIBIT (15) Letter from Independent Accountants Regarding Unaudited Interim Financial Information The Boeing Company and Subsidiaries The consolidated statement of financial position as of September 30, 1998, the consolidated statements of operations for the three- and nine-month periods ended September 30, 1998 and 1997, and the statements of cash flows for the nine-month periods ended September 30, 1998 and 1997, have been reviewed by the registrant's independent accountants, Deloitte & Touche LLP, whose letter regarding such unaudited interim financial information follows. November 5, 1998 The Boeing Company Seattle, Washington We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of The Boeing Company and subsidiaries (the "Company") for the three- and nine-month periods ended September 30, 1998, and 1997 as indicated in our report dated October 22, 1998; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is incorporated by reference in Registration Statement Nos. 2-48576, 33-25332, 33- 31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867, 333-32461, 333- 32499, 333-32491, and 333-32567 of The Boeing Company on Form S-8. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of any registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Seattle, Washington 24 25 Exhibit (10)(i) AMENDED AND RESTATED 364-DAY BANK CREDIT AGREEMENT Dated as of September 30, 1998 THE BOEING COMPANY, a Delaware corporation ("TBC"), the banks, financial institutions and other institutional lenders (collectively, the "Banks") party hereto, CITIBANK, N.A., as administrative agent (together with any successor thereto appointed pursuant to Article VII of the Existing Credit Agreement referred to below, the "Administrative Agent") for the Banks (as defined in the Existing Credit Agreement referred to below) and THE CHASE MANHATTAN BANK, as syndication agent for the Banks, hereby agree as follows: PRELIMINARY STATEMENTS (1) TBC is party to a U.S. $One Billion Five Hundred Million 364- Day Bank Credit Agreement dated as of December 8, 1997 (as amended, supplemented or otherwise modified from time to time to (but not including) the date of this Amendment and Restatement, the "Existing Credit Agreement") with the banks, financial institutions and other institutional lenders party thereto and Citibank, N.A., as Administrative Agent for the Banks and such other lenders. Capitalized terms not otherwise defined in this Amendment and Restatement shall have the same meanings as specified in the Existing Credit Agreement. (2) The parties to this Amendment and Restatement desire to amend the Existing Credit Agreement as set forth herein and to restate the Existing Credit Agreement in its entirety to read as set forth in the Existing Credit Agreement with the following amendments. (3) The Borrower has requested that the Banks agree to extend credit to it from time to time in an aggregate principal amount of up to $1,600,000,000 for general corporate purposes of TBC and the Subsidiary Borrowers not otherwise prohibited under the terms of this Agreement. The Banks have indicated their willingness to agree to extend credit to the Borrowers from time to time in such amount on the terms and conditions of this Amendment and Restatement. SECTION 1. Amendments to the Existing Credit Agreement. (a) Section 1.01 of the Existing Credit Agreement is, effective as of the date of this Amendment and Restatement and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended by deleting the definitions of "Bank" and "Termination Date" set forth therein and replacing them, respectively, with the following new definitions thereof: "Bank"--Subject to the provisions of Section 2.18, any of the banking institutions that is a signatory hereto or that, pursuant to Section 2.13, 2.17, 2.18 or 2.19 shall become a "Bank" hereunder. "Termination Date"--The earlier to occur of (i) September 29, 1999, as such date may be extended from time to time pursuant to Section 2.19, and (ii) the date of termination in whole of the Commitments pursuant to Section 2.08 or 6.01. 25 26 (b) Section 2.17 is amended by deleting therefrom the figure "$1,500,000,000" and substituting therefor the figure "$1,600,000,000". (c) Schedule I to the Existing Credit Agreement is, effective as of the date of this Amendment and Restatement and subject to the satisfaction of the conditions precedent set forth in Section 2, deleted in its entirety and replaced with Schedule I to this Amendment and Restatement. SECTION 2. Conditions of Effectiveness of this Amendment and Restatement. This Amendment and Restatement shall become effective as of the date first above written (the "Restatement Effective Date") when and only if: (a) The Administrative Agent shall have received counterparts of this Amendment and Restatement executed by the Borrower and all of the Banks or, as to any of the Banks, advice satisfactory to the Administrative Agent that such Bank has executed this Amendment and Restatement. (b) The Administrative Agent shall have received on or before the Restatement Effective Date the following, each dated such date and (unless otherwise specified below) in form and substance satisfactory to the Administrative Agent and its counsel: (i) A Base Rate A Note, a Eurodollar A Note, a Fixed Rate B Note and a Eurodollar B Note drawn to the order of each Bank executed and delivered by TBC to the Administrative Agent for delivery to each Bank. (ii) Copies of all documents, certified by an officer of TBC, evidencing necessary corporate action by TBC and governmental approvals, if any, with respect to this Agreement and the Notes. (iii) A certificate of the Secretary or an Assistant Secretary of TBC which shall certify the names of the officers of TBC authorized to sign the Notes and the other documents to be delivered hereunder, together with true specimen signatures of such officers and facsimile signatures of officers authorized to sign by facsimile signature. Each Bank may conclusively rely on such certificate until it shall have received a further certificate of the Secretary or an Assistant Secretary of TBC canceling or amending the prior certificate and submitting signatures of the officers named in such further certificate. (iv) A favorable opinion of the chief legal officer of TBC substantially in the form of Exhibit G to the Existing Credit Agreement and as to such other matters as the Administrative Agent may reasonably request, which opinion TBC hereby expressly instructs such chief legal officer to prepare and deliver. (v) A favorable opinion of Shearman & Sterling, counsel for the Administrative Agent, substantially in the form of Exhibit H to the Existing Credit Agreement. 26 27 (c) The representations and warranties contained in Section 3.01 of the Existing credit Agreement are true and accurate on and as of each such date as though made on and as of each such date (except to the extent that such representations and warranties relate solely to an earlier date). (d) No event has occurred and is continuing, or would result from the occurrence of the Restatement Effective Date which constitutes an Event of Default or would constitute such an Event of Default but for the requirement that notice be given or time elapse or both. SECTION 3. Reference to and Effect on the Existing Credit Agreement and the Notes. (a) On and after the effectiveness of this Amendment and Restatement, each reference in the Existing Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Existing Credit Agreement, and each reference in the Notes to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Credit Agreement, shall mean and be a reference to the Existing Credit Agreement, as amended by this Amendment and Restatement. (b) The Existing Credit Agreement and the Notes, as specifically amended by this Amendment and Restatement, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) Without limiting any of the other provisions of the Existing Credit Agreement, as amended by this Amendment and Restatement, any references in the Existing Credit Agreement to the phrases "on the date hereof", "on the date of this Agreement" or words of similar import shall mean and be a reference to the date of the Existing Credit Agreement (which is December 8, 1997). SECTION 4. Costs and Expenses. The Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and Restatement, the Notes and the other documents to be delivered hereunder (including, without limitation, the reasonable and documented fees and expenses of counsel for the Administrative Agent with respect hereto and thereto) in accordance with the terms of Section 8.03 of the Existing Credit Agreement. SECTION 5. Execution in Counterparts. This Amendment and Restatement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment and Restatement by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment and Restatement. SECTION 6. Governing Law. This Amendment and Restatement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be executed by their respective officers thereunto duly authorized, as of the date first above written. 27 28 THE BORROWER THE BOEING COMPANY By ___________________________________ Name: Title: THE LENDERS CITIBANK, N.A., Individually and as Administrative Agent By ___________________________________ Name: Title: THE CHASE MANHATTAN BANK, Individually and as Syndication Agent By ___________________________________ Name: Title: ABN AMRO BANK N.V. By ___________________________________ Name: Title: THE BANK OF NEW YORK By ___________________________________ Name: Title: THE BANK OF TOKYO-MITSUBISHI, LTD. By ___________________________________ Name: Title: 28 29 BANKBOSTON, N.A. By ___________________________________ Name: Title: BANKERS TRUST COMPANY By ___________________________________ Name: Title: BANQUE NATIONALE DE PARIS By ___________________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By ___________________________________ Name: Title: CREDIT LYONNAIS By ___________________________________ Name: Title: By ___________________________________ Name: Title: DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By ___________________________________ Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY 29 30 By ___________________________________ Name: Title: By ___________________________________ Name: Title: THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By ___________________________________ Name: Title: THE MITSUBISHI TRUST AND BANKING CORPORATION By ___________________________________ Name: Title: NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH By ___________________________________ Name: Title: NATIONSBANK, N.A. By ___________________________________ Name: Title: PNC BANK, NATIONAL ASSOCIATION By ___________________________________ Name: Title: 30 31 THE SUMITOMO BANK, LIMITED By ___________________________________ Name: Title: WACHOVIA BANK, N.A. By ___________________________________ Name: Title: SCHEDULE I TO THE AMENDMENT AND RESTATEMENT COMMITMENTS AND APPLICABLE LENDING OFFICES Domestic Eurodollar Name of Bank Commitment Lending Office Lending Office ABN Amro $52,000,000 One Union Square 135 South LaSalle Street, Bank N.V. 500 University Street, Suite 625 Suite 2323 Chicago, IL 60603 Seattle, WA 98101 Attn: Loan Attn: James J. Rice Administration Tel: (206) 587-2360 Tel: (312) 904-8855 Fax: (206) 682-5641 Fax: (312) 904-6893 The Bank of $80,000,000 10990 Wilshire Blvd, One Wall Street, New York Suite 1125 22nd Floor Los Angeles, CA 90024 New York, NY 10286 Attn: Robert J. Louk Attn: Sandra Morgan Tel: (310) 996-8663 Tel: (212) 636-6743 Fax: (310) 996-8667 Fax: (212) 635-6877 The Bank of $120,000,000 1201 Third Avenue, 1201 Third Avenue, Tokyo- Suite 1100 Suite 1100 Mitsubishi, Seattle, WA 98101 Seattle, WA 98101 Ltd Attn: David M. Purcell Attn: Ken Johnson Tel: (206) 382-6049 Tel: (206) 382-6021 Fax: (206) 382-6067 Fax: (206) 382-6067 BankBoston, $66,000,000 100 Federal Street, 100 Federal Street, N.A. Large Corporate 01-09-05 Large Corporate01-09-05 Boston, MA 02110 Boston, MA 02110 Attn: Judith Kelly Attn: Denise M. Dowd Tel: (617) 434-5280 Tel: (617) 434-7462 Fax: (617) 434-6685 Fax: (617) 434-9933 31 32 Bankers $66,000,000 One Bankers Trust Plaza, One Bankers Trust Plaza, Trust 14th Floor 14th Floor Company New York, NY 10006 New York, NY 10006 Attn: Anthony LoGrippo Attn: Hsing Huang Tel: (212) 250-4886 Tel: (212) 250-2431 Fax: (212) 250-7218 Fax: (212) 250-7351 Banque $40,000,000 180 Montgomery Street, 180 Montgomery Street, Nationale 3rd Floor 3rd Floor de Paris San Francisco, CA 94194 San Francisco,CA 94194 Attn: D. Guy Gibb Attn: Don Hart Tel: (415) 956-0707 Tel: (415) 956-2511 Fax: (415) 296-8954 Fax: (415) 989-9041 Canadian $126,000,000 350 S. Grand Avenue, 2727 Paces Ferry Road, Imperial Suite 2600 Suite 1200, Bldg. 2 Bank of Los Angeles, CA 90071 Atlanta, GA 30339 Commerce Attn: Robert J. Wagner Attn: Clare Coyne Tel: (213) 617-6248 Tel: (770) 319-4836 Fax: (213) 346-0157 Fax: (770) 319-4950 The Chase $144,000,000 270 Park Avenue 270 Park Avenue Manhattan New York, NY 10019 New York, NY 10019 Bank Attn: Sherwood Exum Attn: Sherwood Exum Tel: (212) 270-6075 Tel: (212) 270-6075 Fax: (212) 270-1469 Fax: (212) 270-1469 Citibank, $144,000,000 399 Park Avenue, 399 Park Avenue, N.A. 12th Floor, Zone 2 12th Floor, Zone 2 New York, NY 10043 New York, NY 10043 Attn: Thomas B. Boyle Attn: Chris Young Tel: (212) 559-6149 Tel: (212) 559-1477 Fax: (212) 793-1246 Fax: (212) 583-7185 Credit $100,000,000 1301 Avenue of the 1301 Avenue of the Lyonnais Americas Americas New York, NY 10019 New York, NY 10019 Attn: Bertrand Cousin Attn: Kenia A. Perez Tel: (212) 261-7363 Tel: (212) 261-7313 Fax: (212) 261-7368 Fax: (212) 261-7368 Deutsche $40,000,000 31 West 52nd Street 31 West 52nd Street Bank AG New New York, NY 10019 New York, NY 10019 York and/or Attn: Joel D. Makowsky Attn: Noble Samuel Cayman Tel: (212) 469-7896 Tel: (212) 469-4091 Islands Fax: (212) 469-8212 Fax: (212) 469-4139 Branches The $100,000,000 350 South Grand Avenue 350 South Grand Avenue Industrial Suite 1500 Suite 1500 Bank of Los Angeles, CA 90071 Los Angeles, CA 90071 Japan Attn: Craig Papayanis Attn: Janice Luong Tel: (213) 893-6441 Tel: (212) 893-6387 Fax: (213) 488-9840 Fax: (212) 688-9840 32 33 The Long- $20,000,000 350 South Grand Avenue 350 South Grand Avenue Term Credit Suite 3000 Suite 3000 Bank of Los Angeles, CA 90071 Los Angeles, CA 90071 Japan, Attn: Tamotsu Ukai Attn: Mitchell Davis Ltd., Los Tel: (213) 689-6345 Tel: (213) 689-6238 Angeles Fax: (213) 626-1067 Fax: (213) 626-1067 Agency The $126,000,000 520 Madison Avenue 520 Madison Avenue Mitsubishi New York, NY 10022 New York, NY 10022 Trust and Attn: Joe Shammas Attn: Ming Hwa Chou Banking Tel: (212) 891-8451 Tel: (212) 891-8263 Corporation Fax: (212) 644-6825 Fax: (212) 755-2349 National $52,000,000 175 Water Street 175 Water Street Westminster New York, NY 10038 New York, NY 10038 Bank Plc Attn: Stephen Sayre Attn: Angela Bozorgmir Tel: (212) 602-5521 Tel: (212) 602-5491 Fax: (212) 602-4354 Fax: (212) 602-4500 NationsBank, $126,000,000 444 South Flower Street, 901 Main Street N.A. Suite 400 Dallas, TX 75202 Los Angeles, CA 90071 Attn: Karen Puente Attn: George V. Hausler Tel: (214) 508-3089 Tel: (213) 236-4925 Fax: (214) 508-0944 Fax: (213) 624-5815 PNC Bank, $66,000,000 One PNC Plaza, 2nd Fl. One PNC Plaza, 6th Fl. National 249 Fifth Avenue 249 Fifth Avenue Association Pittsburgh, PA 15222 Pittsburgh, PA 15222 Attn: Philip K. Liebshcer Attn: Sally Hunter Tel: (412) 762-3202 Tel: (412) 768-3807 Fax: (412) 762-6484 Fax: (412) 768-4586 The $52,000,000 777 South Figueroa, 777 South Figueroa, Sumitomo Suite 2600 Suite 2600 Bank, Los Angeles, CA 90017 Los Angeles, CA 90017 Limited Attn: Miriam Delgado Attn: Miriam Delgado Tel: (213) 955-0883 Tel: (213) 955-0883 Fax: (213) 623-6832 Fax: (213) 623-6832 Wachovia $80,000,000 191 Peachtree Street, NE 191 Peachtree Street, NE Bank, N.A. Atlanta, GA 30303 Atlanta, GA 30303 Attn: John Whitner Attn: Gloria Freeman Tel: (404) 332-6738 Tel: (404) 332-6485 Fax: (404) 332-6898 Fax: (404) 332-6898 ___________ TOTAL OF $1,600,000,000 COMMITMENTS 33 34 Exhibit (10) (ii) Consulting Services Agreement Between the Company and Boyd E. Givan, with an amendment in the Form of a letter from the Company dated September 14, 1998 CONSULTANT SERVICES AGREEMENT This agreement is entered between The Boeing Company (the Company) and Boyd E. Givan (Consultant). The parties hereby agree as follows: 1. Consultant will retire from the Company effective September 1, 1998. 2. As soon as practicable following Consultant's retirement, the Company will pay Consultant a lump sum (less applicable withholdings) in the amount of four months of Consultant's base salary at the time of retirement. 3. Consultant agrees to be available from time to time to provide consulting services to senior executives of the Company on various aspects of Company business, as requested or authorized by P. M. Condit, Chairman and CEO. 4. Consultant agrees to continue to provide advice and support on behalf of the Company, as appropriate, to the Private Sector Council, the Conference Board Council of Financial Executives, and the University of Washington School of Business Advisory Board. Consultant will resign from each organization no later than its next official meeting. Consultant will also continue to serve, until he has completed the second year of his term, on the Seattle Branch of the San Francisco Board of Directors of the Federal Reserve Bank. 5. The parties also agree as follows: A. Consultant will be eligible for a 1998 bonus payment if other current executives receive such a payment. B. The Company will seek approval of the Compensation Committee of the Board of Directors to allow Consultant to retain his 1998 Performance Share grant under the terms and conditions of the grant. C. Consultant's Career Shares will vest upon his retirement. D. The Company will provide Consultant with financial counseling through calendar year 1999 and tax preparation services for his 1998 tax return. 6. Consultant agrees to comply with the Boeing Ethical Business Conduct Policy and Guidelines and the procedures set forth therein. In particular, Consultant agrees that he shall forfeit all right to receive further payments of any kind under this agreement if at any time after retirement he engages in an 34 35 activity, whether individually or as an employee, consultant, or otherwise, (a) that is deemed under the Policy or Guidelines to be in violation thereof, (b) that is for or on behalf of any competitor of the Company, or (c) that is in competition with any significant aspect of the Company's business. Consultant also agrees that, for a period of one year from the date of his retirement, he shall not attempt to recruit, directly or indirectly, any Company employee to leave the Company to join Consultant or any firm with which Consultant is employed or otherwise associated. 7. Consultant agrees to fully cooperate with the Company in the defense of any litigation in which Consultant is named as a co- defendant or in which Consultant is called to serve as a witness or to provide information. 8. In addition to the requirements contained in paragraph 6, Consultant agrees to refrain from communicating to any other person or entity any proprietary, confidential, and/or trade secret information or data belonging to the Company or entrusted to it by others. Consultant also agrees to refrain from so communicating any statement or opinion about the Company or its employees that could reasonably be construed as disparaging or in any way negative. Any violation of this paragraph 8 will also result in the forfeiture of any and all further payments (or potential payments) set forth in this agreement, as described in paragraph 6. 9. In consideration of the foregoing, Consultant releases and waives any and all claims he may now or hereafter have against the Company which relate in any way to the terms, conditions, or compensation of his employment with, or termination or retirement from, the Company. This release and waiver covers any claims arising out of any federal, state, or local statute, regulation, or ordinance, including but not limited to any claims arising out of Title VII of the Civil Rights Act of 1964 or the Age Discrimination in Employment Act, and any claim arising out of tort, contract, or common law. 10. Consultant acknowledges and agrees that he has the opportunity to consider for twenty-one days whether to enter this agreement and that he has voluntarily chosen to enter this agreement on this date. Consultant may revoke this agreement for a period of seven days following execution of this agreement; this agreement shall become effective following expiration of this seven-day period. Consultant acknowledges that he is voluntarily executing this agreement, that he has carefully read and fully understands all aspects of this agreement, that he has not relied on any representations or statements not set forth herein or made by the Company's agents or representatives, that he has been advised to consult an attorney prior to executing this agreement, and that, in fact, he has consulted with an attorney of his choice as to the subject matter and effect of this agreement. 35 36 Dated: August 26, 1998. CONSULTANT THE BOEING COMPANY /S/ Boyd E. Givan /s/ James B. Dagnon _________________________ By_______________________ Boyd E. Givan James B. Dagnon Senior Vice President- People LETTER AMENDMENT September 14, 1998 Boyd E. Givan P.O. Box 1495 Mercer Island, WA 98040 Re: Amendment to Consultant Services Agreement Dear Boyd, This will serve to confirm our agreement to change paragraph 2 of your Consultant Services Agreement to read as follows: As soon as practicable following consultant's retirement, the company will pay consultant a lump sum (less applicable withholdings) in the amount of $250,000. In addition, the Company has agreed to pay you a lump sum in the amount of $35,000, for your company-provided automobile. This amount reflects the retail value established by the "blue book" reporting firm (grossed up for any applicable taxes). The additional sum was proposed by the Compensation Committee in appreciation for your many years of outstanding service to The Boeing Company. Sincerely, /s/ James B. Dagnon - ---------------------- James B. Dagnon 36 37 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 1998 FORM 10-Q
5 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 2,435 279 3,943 231 10,531 18,300 20,092 11,540 37,623 13,601 6,795 0 0 5,059 7,913 37,623 39,047 39,047 0 38,104 0 8 341 843 188 655 0 0 0 655 .67 .67
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