r CONTENTS - University of Washington Libraries Digital Collections

Transcription

r
CONTENTS
2
Message to Stockholders
4
Commercial Airplanes
12
Aerospace
16
18
20
22
Advanced Systems
Military Airplanes
Helicopters
Computing
24
26
Electronics
Financial Review
34
34
35
45
Report of Management
Independent Auditor's Report
Financial Statements
Quarterly Financial Data
46
47
48
Five \fear Summary
Market and Corporate Information
Organization and Management
^
II
566
"^B
480 ^
Highlights
16,4
.442^
Net Earnings
DoUaisuiMillioiis
Sales (including other operating revenues)
Dollars i)i MilLons
Restated to coiifonn t<> I98S presentation
Finn Backlog
Dollar in Millions
Earnings Per Sliare
Iteslated for ISS'i suwk sjilil
•Exclusive of $397 cumulative DISC a4justment to federal income tax provision
Founded in Seattle In 191B, Boeing Is
a diversified aerospace company with
seven operating divisions and two
major subsidiaries.
Operating divisions:
Boeing Commercial Airplanes
Boeing Aerospace
Boeing Advanced Systems
Boeing Military Airplanes
Boeing Helicopters
Boeing Computer Services
Boeing Electronics
Ma'ior Subsidiaries:
Boeing Canada - de Havilland Division
ARGOSystems
The Company headquarters and major
operations are in the Seattle area, with
other large facilities In Wichita,
Philadelphia, Huntsvilie, and Toronto.
Current employment is 153,000.
MESSAGE 10
STOCKHOLDERS
1988 was an outstanding new business year
for Boeing and we achieved a record )^30.1
billion in commercial airplane orders, exceeding our expectations. Earnings increased 28 percent. We also made major
progress on several key Government development programs and successfully competed for a number of new computer
services programs.
Further achievements included certification and first deliveries of the 737-400 and
an extended-range version of the 767-300;
selection of the Boeing and Hughes Aircraft
team to develop a new U.S. Army tactical
missile; success in obtaining a development
contract to compete for the U.S. Army's new
light attack helicopter (LHX) program; and
selection of Boeing as one of three contractors to proceed on a competitive basis
with advanced design of a new family of
rocket boosters.
These accomplishments were tempered
by significant performance problems on
several military aircraft programs that resulted in an operating loss for the military
transportation products segment, continued productivity problems and high costs
for research, development and productionrate buildup on our commuter aircraft operation, and delay in the certification and
deliveries of the 747-400.
Firm backlog rose from a record ^33.2
billion in December 1987 to )^53.6 billion at
the end of 1988. Boeing sales also increased
fi-om gl5.5 billion in 1987 to a record gl7.0
billion last year Net earnings of ^614 million compared with ^480 million in 1987
resulted in earnings per share of ^4.02 compared to ^3.10 in the prior year
During 1988, we also continued to
further improve productivity by investing
1^690 million in new equipment and
facilities and by emphasizing employee
training and process enhancement in our
operations.
Gompanywide employment grew by
nearly 10,000 employees during 1988 to a
year-end total of 153,000.
Our major focus in 1989 is to successfully execute our expanding business; to resolve cost and schedule problems on
several programs; to continue improving in
the areas of technical excellence and product quality; and to reach equitable agreements on union contracts when discussions
begin in the fall.
For the longer term, Boeing performance is tied to world economic conditions
and US. defense and space budgets. The
world economy is expected to grow modestly during the foreseeable future, but the
Department of Defense budget will
probably decline in the near term because
of the continuing effort to reduce the
federal deficit.
World airline traffic is projected to climb
from the one trillion revenue passenger
miles recorded in 1988 to more than 2.5
trillion annually by the year 2005. In view
of that increase, we have raised our forecast
of the value of the open market for commercial transport airplanes from 1989 through
2005 to approximately ^^450 billion (in
1989 dollars).
In the military sector, we have contracts
for several important development programs that could evolve into major production opportunities. In space, our
involvement in the space station program
and other related work holds promise for
substantial growth.
Boeing has a solid business base, a strong
financial position, substantially expanded
and modernized facilities and advancedtechnology capabilities. The Company also
has capable and focused management together with a highly motivated workforce.
The Board of Directors has recently been
strengthened by the addition of two outstanding new members, John Fery and
George Shultz. For all these reasons, I
believe Boeing is well positioned for
the futtire.
Zf
Frank Slirontz
Chairman and
Chief Executive Officer
Februar)' 27,1989
BOEING
COMMERCIAL
AIRPLANES
Left to right:
Dick Albrecht, executive
vice president
Dean Thornton, president
Phil Condit, executive vice
president
Boeing Commercial Airplanes rolled out,
tested, and delivered three new models —
the 737-400, the 757 Gombi and an
extended-range variant of the 767-300. Four
new 747-400s were extensively tested leading to certification and delivery of the first
747-400 in January 1989. With record orders and backlog having been attained during the year, the division announced plans
to increase production rates on all models.
In 1988, customers announced orders
for 636 jet transports worth $29.1 billion,
surpassing the 1978 record of 461 airplanes
ordered and the 1987 record for order value
of ;^19.9 billion. In addition, orders for 54
de Havilland turboprops valued at $2>50
million raised total commercial orders to
690 airplanes valued at ^30.1 billion.
Orders for the 737, 757 and 767 were at
record one-year levels.
During the year, 290 jetliners and 47
turboprops were delivered to customers around the world. By model, the jet
transport deliveries included 165 737s,
24 747s, 48 757s and 53 767s.
After extensive flight testing, the initial
747-400 received Federal Aviation Administration certification in January 1989, and
the first delivery was made to Northwest
Airlines. Both events were delayedfi"omthe
original schedule. Also, following an extensive review, the division announced 747-400
deliveries in 1989 will be concentrated during the latter part of the year In late January, 747-400 customers were notified of the
revised delivery schedule. The delays were
caused by the number of new customer
introductions early in the delivery schedule; initial certification with three different
engine types and a Gombi (passenger/
cargo) model; the magnitude of customerunique features; and a simultaneous
increase in the 747 production rate.
The 747-400 features digital electronics,
a two-crew flight deck, advanced materials,
an enhanced passenger cabin and increased
range. It will enable the airlines to carry full
passenger and cargo loads nonstop on long
routes, such as Singapore-London and New
York-lbkyo. The -400, distinguished from
<
Nose cones for 737
and 757 undergo wipedown before Installation
on airplanes
BOEING
COMMERCIAL
AIRPUNES
other 747 models by its winglets, entered
airline service during the 1989 first quarter
Because of the 747-400's improved economics and performance, further sales of
747-200 or -300 passenger-only aircraft will
be limited.
Orders to date for the 747-400 total 166
from 21 customers; 43 were placed in
1988.
The 737 was the world's best-selling jetliner, with 344 orders from 23 customers
last year It was the fifth consecutive year
that 737 orders have exceeded 100 airplanes.
The last 737-200, replaced by the newer
versions of the 737 family, was delivered in
August, bringing to 1,144 the total number
of 737-lOOs and -200s delivered since 1967.
In a significant development, airlines began recognizing the advantage of the Boeing
"737 family" concept by ordering the airplane with specific models to be identified
24 months before delivery. This allows customers to obtain delivery positions for 737s
when ordered, yet to specify the precise
model - 737-300S, -400s or -500s - later,
based on more timely assessments of passenger load factors and route structure. The
737 family offers similar operating and
maintenance characteristics. Seating capacity ranges from 100 to 170 passengers.
Fifteen customers have ordered 137 newgeneration 737-500 aircraft. This 108-seat
short-to-medium-range twinjet will be rolled
out in the 1989 second quartei; to be followed by certification and initial deliveries
in the 1990 first quarter The -500 offers
the same capacity as the out-of-production
737-200, but incorporates the technology
enhancements of the 737-300 and
-400 models.
There were orders for 161 757s in 1988,
nearly six times the yearly average since
the program began in the late 1970s. As
airport and airways congestion increases,
the 757's passenger capacity of 180 to 230
seats, low operating costs and low noise
characteristics will become increasingly
attractive to carriers seeking larger
mid-range jet transports.
In September, Boeing delivered the first
757 Gombi model to Royal Nepal Airlines.
n
sM
Head-on view of 747-400
BOEING
COMMERCIAL
AIRPLANES
This 757 can operate in an all-passenger
arrangement or with a combined passenger/cargo configuration on the main
deck. The Gombi features a side cargo door
that allows space for up to 750 cubic feet of
palletized cargo. In the Gombi arrangement, the 757 seats about 150 passengers in
a mixed-class configuration.
Five customers new to the 757, including
United Airlines and American Airlines,
ordered 90 airplanes during 1988,
and total program orders were at 409 by
year-end.
The 757 is paired with the 767 in a family
that offers the world's airlines increased capacity and efficiency compared with current three- and four-engine standard-body
jets. The 757 and 767 are quiet, fuel-efficient
twinjets that meet Federal Aviation Administration requirements for extended-range
operations, allowing the airlines to more
closely match airplane size to passenger
demand on intercontinental routes.
The twin-aisle 767 also enjoyed record
orders of 82 airplanes from 19 customers.
including carriers in Europe, the Middle
East, Africa and Australia At 1988's end,
total 767 orders had reached 349. LOT
Polish Airlines announced in October the
first 767 order from an Eastern European
country. The airline is purchasing three
extended-range 767 aircraft for international flights.
Boeing Canada's de Havilland Division
received an order for eight firm and eight
conditional Dash 8 Series 300 aircraft from
Presidential Airways of Washington, D.C.
This was the largest order to date for the
new 50-56 passenger turboprop, and the
first from a U.S. airline. By year-end, total
orders for Dash 8s had reached 222, including 191 for the 37-40 passenger Series 100
and 31 for the Series 300. 1988 orders included eight Dash 6 Twin Otters, 37 Dash 8
Series 100s, and nine Dash 8 series 300s.
During 1988, de Havilland delivered 47
commuter aircraft, including 33 Dash 8 Series 100s. Production ended on the
older, four-engine commuter Dash 7 and the
Twin Otter
^
Machined parts for the 757
landing gear assembly
BOEING
COMMERCIAL
AIRPLANES
Certification and first delivery of the Series 300 is scheduled for early 1989. While
de Havilland has been successful in marketing the Dash 8, continued productivity and
production-rate buildup costs remain.
Production rates for all Boeing models
are increasing to meet order demand.
• When the 737 reaches monthly production
of 17 in mid-1990, it will be the highest rate
for an aircraft type in commercial aviation
history. The 757 will move from four to five
airplanes a month in early 1989 and to
seven a month in 1990. The 747 rate is
scheduled to increase from four to five a
month in mid-1989. The 767 will increase
from three and one-half to four airplanes a
month in mid-1989 and to five in 1990. The
de Havilland Dash 8 production rose from
three tofivea month last year, and is scheduled to reach six per month in late 1989.
During 1989, plans call for the delivery of
401 aircraft, including 7 707 military
derivatives, 163 737s, 57 747s, 59 757s,
42 767s, and 73 de Havilland commuter
aircraft.
10
1988 order activity was driven by higherthan-expected airline traffic, which led to
strong financial results for most major
carriers; the need for larger planes to
alleviate airport congestion; and the airlines' desire for the quietest, most fuelefficient planes available.
Generally, airlines placed orders to handle passenger growth, rather than to replace
older equipment.
Air travel strength was clearly evident
last year World airline traffic grew 8 percent, bettering the 7.4 percent average of
the past six years. The trans-Pacific market
led in growth, but the North Atlantic and
European-Far East markets also showed
good gains. US. domestic traffic increased
only 1.3 percent, although a record 455
million people flew on US. civil transports
in 1988, the sixth year of increased traffic.
As the world becomes a global marketplace and as the 1992 European Common
Community draws near, the demand for
air travel and for Boeing aircraft should
remain strong. •
side and under-wing
view of 767
11
BOEING
AEROSPACE
Boeing Aerospace, which successfully competed for a number of major new military
programs the past two years, concentrated
its efforts during 1988 on meeting its development commitments.
Contract negotiations with the National
Aeronautics and Space Administration
(NASA) for the Company's part of the Space
Station Freedom program were completed
during the year The Company is designing
and building the station's living, laboratory
and support modules at its facility in
Huntsvilie, Ala
In another major space program, production and delivery of Inertial Upper Stage
(lUS) boosters continued for the US. Air
Force. The lUS is being used by NASA and
the Air Force to place payloads into geostationary Earth orbit and for unmanned planetary exploration missions.
When the Space Shuttle Discovery was
launched in September, the primary payload was a Tracking and Data Relay Satellite
(TDRS) mated to a Boeing-built lUS, which
boosted the TDRS into high-Earth orbit.
TDRS will monitor and relay communications between Earth and future shuttle missions, as well as other orbiting spacecraft.
The lUS is scheduled to boost additional
satellites into orbit and to send planetary
probes to Venus and Jupiter in 1989. All
astronaut equipment on the Discovery
flight was prepared by Boeing Aerospace
Operations under a NASA contract.
Mark Miller, president
The US. Air Force awarded Boeing Aerospace one of the three phase-two contracts
for design and testing of an Advanced
Launch System (ALS). The new system involves a future family of rockets for boosting
12
large military and civilian payloads into
space at greatly reduced costs.
Production of the United Kingdom and
French E>3 Airborne Warning and Control
System (AWACS) proceeded on schedule,
with rollout of the first UK. aircraft scheduled in mid-1989. Boeing continued to support the E)-3 AWACS fleet, now in service
with the United States, NATO and Saudi
Arabia With continued systems improvements and additional foreign sales, AW\GS
is expected to be a major program well into
the future.
Installation and checkout of the Peace
Shield ground-based command, control and
communication air defense network for
Saudi Arabia is to begin in 1989. Qualification testing of equipment and software continued, and initial production hardware was
completed.
Significant milestones were reached on
the US. Navy E>6 submarine communications aircraft. Two airplanes underwent successful testing at the Naval Air Tfest Center
at Patuxent River, Md. and a third 15-6 successfully completed reliability and maintainability demonstration test flights.
Following production acceptance testing,
delivery of the first E)-6 aircraft to the Navy
is scheduled in the spring of 1989.
In another key Navy contract, the Company is developing more capable mission
electronics for the Navy's active fleet of
P-3G anti-submarine warfare aircraft and
the proposed Long Range Air ASW Capability Aircraft (LRAAGA). Boeing will deliver
the prototype P-3C aircraft with updated
avionics in 1990.
Boeing-built Inertial Upper
Stage (bottom of photo)
aboard Space Shuttle
Discovery
BOEING
AEROSPACE
The Airborne Optical Adjunct (AOA)
project moved forward at mid-year when
Hughes Aircraft Company delivered its
long-wave infrared sensor to Boeing Aerospace. An experiment for the US. Army
Strategic Defense Command, the AOA will
test whether airborne long wavelength infrared sensors can detect and discriminate
real warheads from decoys, then transmit
the information to a ground-based radar
The AOA aircraft is a modified 767 with the
sensor in an 80-foot cupola atop the airplane's fuselage.
Other achievements included
• The Boeing Free-Electron Laser (EEL)
Laboratory produced the free world's
highest power free-electron laser beam.
Under US. Army Strategic Defense Command sponsorship, Boeing Aerospace is
leading an industry team competing for
the development of radio frequency FEL
technology for ballistic missile defense.
This type of laser also holds promise for
medical and other industrial uses.
• The division delivered the first two
Avenger fire units on schedule to the US.
Army Missile Command. The Avenger
system, the first element of the Army's
Forward Area Air Defense System to be
deployed, puts the high-accuracy Stinger
missile into a Boeing-designed, manned
turret mounted on the Army's high mobility multipurpose wheeled vehicle.
Boeing is under contract to deliver 273
Avenger systems in the next five years.
The Avenger system is believed to have
excellent sales potential in foreign countries that have Stinger air defense
weapon systems.
14
Full-scale engineering development continued on the submarine-laimched Sea
Lance system, the U.S. Navy antisubmarine warfare standoff weapon.
Also, the Navy designated Sea Lance as
the common anti-submarine weapon to
be carried by surface ships.
Another missile system in full-scale development, the new-generation Short
Range Attack Missile (SRAM II), is to
have a new mission. In addition to replacing SRAM-A, the Department of Defense
selected SRAM II as the Tactical Air-toSurface Missile, designated SRAM(T).
Boeing will begin that work in 1989.
A full-scale engineering prototype of the
Hard Mobile Launcher, the carrier and
launch platform for the proposed Small
IGBM, was delivered to the US. Air Force
for mobility testing in Arizona and
Montana
Peacekeeper Rail Garrison basing, test
and system support work continued with
the objective of developing a system to
base railroad cars equipped with Peacekeeper (MX) missiles at selected military
garrisons. Electromagnetic pulse tests on
potential train locomotives are underway
and a test rail line and garrison are being
designed and constructed at Vandenberg
Air Force Base, GaUf.
Modffication of former Minuteman silos
into Peacekeeper sites was completed
and the U.S. Air Force Strategic Air Command assumed full operational control of
the 50 sites near Warren Air Force Base
in Wyoming. •
The Boeing Infrared
sensor calibration facility
is used In advanced
development activity
15
BOEING
ADVANCED
SYSTEMS
Boeing Advanced Systems marked a
successful year of transition following its
formation in 1987 as a spinoff from
Boeing Military Airplanes for the purpose
of focusing on certain advanced aircraft
and systems.
Its major programs include the Advanced Tactical Fighter (ATE) and the recently unveiled B-2 advanced technology
bomber In addition, the division is conducting advanced technology research, which
can be applied to future military systems,
often developed under special security
requirements.
The US. Air Force identified the division
as a key member of the industry team led by
Northrop, which is producing the new B-2.
The airplane rolled out in Palmdale, Calif.,
in November Although specifics of the
Boeing contribution cannot be disclosed, it
is one of the Company's largest military
programs.
Winning a role in the full-scale development of the Air Force's new Advanced Tactical Fighter (ATE) is a high priority The
team, which is led by Lockheed, also includes General Dynamics. In the current
demonstration and validation phase, Boeing
is responsible for supplying the ATF's wings
and fuselage aft section, as well as development of avionics software. In 1988, the configuration was established for the first two
ATF prototypes, which are scheduled to
Abe Goo, president
Jerry King, executive vice
president
16
begin flight testing in 1990. A full-scale development contract is scheduled to be
awarded in 1991.
Successful first and second flights were
conducted of a revolutionary, high-altitude,
long-endurance unmanned aircraft (shown
in small photo on facing page). Nicknamed the Condor, the 200-foot wing span,
all-bonded composite aircraft advanced
technology in several areas. It operates autonomously fi"om takeoff through landing,
guided by on-board computers. There is no
pilot in the air or on the ground It has the
ability to fly at very high altitudes on missions measured in days rather than hours,
making it a candidate for a wide variety of
both civilian and military applications.
Boeing Advanced Systems also is developing several major military aircraft subsystems to enhance crew performance
and survival. Production was authorized
for equipment to protect aircrew members
in chemical or biological warfare. An
integrated tactical aircraft life support system, which will greatly improve crew comfort and performance in combat, is also
being developed
In its pursuit of advanced technology opportunities, the division completed a new
compact radar range to support efforts to
reduce the radar signatures of advanced
concept vehicles. •
.
i^ %% L L k. i. \ \ ^
« .{ 4 •>
- i i J
fe
*
& *. l e * k V X * 4 « ,
• .. ,',j I jJ IM. i|k.iu».Vvv\.« « • -
» * ,
,
* , * .
...
ill
•^^^•^^^^^^^^^^^^^^^^^^HB^
tl
A
i
A
I-
***** t i
4
4
4 * * * * 4
4 * * * 4
BOEING
MILITARY
AIRPLANES
Boeing Military Airplanes won entry into
the tactical missile field when it was
awarded a development contract for the
Fiber Optic Guided Missile (FOG-M).
The FOG-M contract was awarded by the
U. S. Army Missile Command in Alabama
The Company is teamed with Hughes Aircraft on the program, which calls for the
development and delivery of eight fire units
and 40 missiles. Deliveries are scheduled
beginning in 1991.
The missile is a small, accurate antihelicopter and anti-armor missile and guidance system that uses advanced fiber optic
technologies to view a battlefield and attack
targetsfi"oma distance of several miles. The
work wiU be done in Huntsvilie, Ala
The A-6 re-wing project continued to be a
major challenge. Military Airplanes won a
contract in 1985 to design and develop a
new composite wing to replace aging metal
wings on the US. Navy's A-6 attack fighters.
Major technical and schedule problems on
the program — which includes concurrent
development and production — have been
addressed, and a restructured delivery
schedule approved.
The completion of Air Force One, the
first of two 747s being modified for delivery to the US. Air Force for use by the
President and other high Government
officials was delayed Delivery of the first
presidential airplane has been rescheduled
for late 1989.
Boeing delivered the second aircraft for
the Joint Surveillance Target Attack Radar
System (Joint STMIS). The Company is imder contract to Grumman Corporation to
modify the 707 aircraft to accept surveillance radar and other avionics equipment.
Bob Dryden, president
Jack Potter, executive vice
president
18
Joint STARS is an airborne surveillance system that detects and locates ground targets
and guides aircraft and missiles against enemy armored and support forces.
The 746th and final KC-135 aerial tanker
airplane in a program to reskin lower wing
surfaces was delivered to the US. Air Force.
The 13-year program was the division's
longest-running.
Another KC-135 activity is the program
to re-engine them with new CFM-56 engines. The modification rate grew fi*om
three to four per month in January 1989.
The Boeing Lake Charles, La, facility received the 100th KG-135 under a five-year
maintenance contract awarded in 1986.
Seventy-five airplanes have completed the
overhaul and re-entered US. Air Force
service.
Because of a change in future business
prospects, it was announced that Boeing
Mississippi, Inc. would discontinue operation in mid-1989. Late in the year, the Company signed an agreement with Mississippi
officials which covered its obligation for cessation of operations.
Simulation and trainer activity included
delivering the first B-IB cockpit procedure
trainers to Dyess Air Force Base, Tfexas.
In the division's unmanned systems area,
the first successful free flight of the Air
Force Seek Spinner air vehicle was made.
The vehicle, based on the Boeing Robotic
Air Vehicle-200 (BRAVE-200) weapon system, has been in development since 1979.
The Wichita-based division continued its
support of all the Company's commercial
airplane programs. This activity makes up
approximately half of the division's work. •
Employee at Wichita worl(s
on new composite wing for
the U.S. Navy A-6 program
BOEING
HELICOPTERS
Boeing Helicopters principal efforts involved development of the new Bell Boeing
V-22 Osprey and continued work on modernizing early model Boeing-built Chinook
helicopters to the new CH-47D design.
Bell Boeing V-22 Osprey developments
were divided between prototype construction and systems integration, and flight test
preparation. At year's end, fuselage assembly of four of the six flight-test aircraft required for the full-scale-development
program was complete. Static, fatigue and
functional tests to support the first flight of
the V-22 were conducted. All six V-22 prototypes are scheduled to fly before the end
of 1989.
The V-22 is the first aircraft designed to
meet the vertical-lift needs of all four US.
armed services. It combines the operational
capabilities of a helicopter with those of a
fast turboprop airplane. Department of Defense planning supports a requirement for
657 Ospreys—552 for Marine Corps combat assault, 55 for Air Force special operations and 50 for Navy combat search and
rescue. Initial deliveries of production
Ospreys to the Marines are scheduled
for 1992.
A Boeingîkorsky Aircraft team, formed
in 1985 to develop the US. Army's Ught
attack/armed reconnaissance helicopter
(LHX), received a 23-month, )^158 million
demonstration/validation phase contract to
determine which of two competing industry teams will start full-scale development in
Don Chesnut, president
20
late 1990. The LHX, planned to be operational in 1996, will replace more than 4,000
obsolete light helicopters currently in
Army inventory.
The US. Army's first helicopter in-flight
refueling system was qualified using a
CH-47D. Initial deliveries of GH-47Ds
equipped with aerial-refueling systems were
completed in January 1989.
The Company is modernizing early
model US. Army Chinooks to the latest
CH-47D configuration. Forty-eight CH-47Ds
were delivered at the rate of four a month.
In January 1989, the US. Army awarded
Boeing a second Chinook multi-year procurement contract. This three-year, $713
million contract for 144 aircraft completes
the Army's requirement for modernizing
472 CH-47DS. The GH-47D program is
scheduled to continue until late 1993.
In other Chinook activities:
• The Company continued work with the
US. Army to develop and qualify a prototype MH-47E helicopter for specialoperations forces. First flight will occur in
1989. Contract plans call for an initial
procurement of 16 MH-47Es with an option for 34 more.
• Orders were received for 15 new international military Chinooks.
Production of components for Boeing
737, 747, 757 and 767 jet transports was
accelerated Commercial airplane support
is a major element of the production base at
Boeing Helicopters. •
"
Close-up view of one
of two rotors on V-22
tiltrotor aircraft
BOEING
COMPUTER
SERVICES
Boeing Computer Services solidified its position as an integrator of large-scale, complex information and telecommunications
systems with several key new contracts.
The division's other major role is to provide Boeing operating divisions with highquality, cost-effective computing and
telecommunications support The division
also supports engineering and operations
management in developing the Company's
long-term computing strategy to improve
product quality and increase the efficiency
of Company operations.
Along with prime contractor AT&T,
Boeing was awarded a major share of a 10year Federal Tblecommunications System
(FTS2000) contract to upgrade the federal
government telephone system to a digital
voice, data and video communication network. FTS2000, the largest procurement in
telecommunications history, will serve
about 1.3 million Government employees
in the United States, Puerto Rico and the
US. Virgin Islands.
Computer Services received a contract
for a data communications network for New
York City that will streamline and reduce
the city's costs for information services.
Boeing is designing, installing and testing
the network, and will be responsible for
maintaining it and providing management
training to users.
Other Government awards include:
• A five-year contract from the Department of Labor's Bureau of Labor Statistics to provide networking, remote
computing services, technical support
and training.
Mike Hallman, president
22
• A contract to operate the Department of
Education's central information technology services facility, which provides data
processing services to the department's
11 operating organizations.
• An Internal Revenue Service contract to
provide remote computing and technical
support for several systems, including the
Budget Preparation System and the Inventory Control and Distribution System
used to design, print, distribute and stock
all federal income tax forms.
• A contract to design and install an automated management information system
for the US. Army Forces Command
headquarters near Atlanta, Ga
In other activity, the Alabama Supercomputer Network, the first in the United States
to be totally state-funded for business and
academic use, became fully operational.
The network passed the state's acceptance
test — and exceeded the state's requirements — by demonstrating a system availability of 99.9 percent.
At Boeing, the division installed — and
now operates and maintains — a companywide state-of-the-art telecommunications
network, which serves all Boeing-owned telephone sets, and routes more than one million calls a day. It is one of the world's largest
privately owned and operated networks.
In addition, a new telecommunications
monitoring center consolidates the operations of four company data and voicemonitoring systems and is the nationwide
hub for most Boeing voice, data, message
and video communications. •
Computational fluid
dynamics Is used to
study airflow Inside
an aircraft cabin
BOEING
ELECTRONICS
Boeing Electronics continues as a key supplier of advanced electronics for the Company's commercial and military products.
In the aerospace area, the division is developing power supplies for the Advanced
Tactical Fighter, processors for the Bell
Boeing V-22 tiltrotor aircraft and a fly-bylight flight controls computer for the US.
Army's proposed light attack helicopter
(LHX). Key electronic elements are also being developed for the Short Range Attack
Missile II, Sea Lance and P3 Update IV
The division's ability to support the Company's defense programs was enhanced
with the start of production at a new defense
manufacturing facility in Corinth, Ifexas.
Initial products support the Minuteman,
AWACS and 15-6 programs.
The Corinth plant complements the
Irving, Texas plant, which produces
avionics and electronics subsystems for the
Company's commercial transports. The
increasing production rates of those aircraft and the significant improvements in
747-400 avionics have increased the
Irving plant's activities.
Boeing Electronics High Technology
Center is involved in longer-range applied
research activities focused on key technologies to support future commercial and military programs.
Record-setting high performance solar
cells developed by the Center present the
opportunity for significant future business
in spacecraft power systems. Work in fiber
optics technologies to supportffightcontrol,
communication and sensor applications
continued. This research could lead to future applications on both the Company's
Art Hitsman, president
Boeing Electronics
Dr Bill May, chairman and
chief executive officer
ARGOSystems
24
military and commercial products.
Capabilities of the Center are being expanded with the addition of a new materials
and devices laboratory. The laboratory will
provide facilities and equipment for developing interconnect technology, improved
photovoltaic power sources and fabrication
of very-high-speed electronics. •
ARGOSystems
ARGOSystems completed its first full year
as a wholly-owned Boeing subsidiary. The
company, located in Sunnyvale, Calif., has
been a major supplier of electronic warfare
subsystems, serving the U S. military services and foreign government markets.
ARGOSystems' special electronics warfare strengths are also being utilized in
Boeing military business segments, especially in the product areas of military
aircraft, and command, control and
communications.
For the U S. Army and Air Force, ARGrOSystems is in the final stages of developing
several advanced systems which collect and
analyze new, complex types of communication signals.
Internationally, ARGOSystems delivered
advanced integrated electronic warfare systems. This modem shipboard system, with
active jamming and passive signal collection, has been well received by customers,
resulting in a strong system backlog.
In 1989 the first fully integrated airborne
surveillance system will be delivered. This
system collects and analyzes modem radar
and communication signals for maritime
patrol uses. •
I..«t.«;
Advanced technology
printed wiring board (lower
/e/r; for V-22 tiltrotor
lighting control system
25
FINANCIAL REVIEW
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market
Environment
World airline traffic grew by nearly 8% in 1988, continuing the industry's strong performance over the past six
years during which annual traffic growth has averaged
7.4%. Growth was paced by long haul international traffic
in 1988, with the trans-Pacific market, in particular, being
very strong. The North Atlantic and Europe to Far East
markets also experienced substantial traffic growth.
Traffic growth for U.S. carriers was 4.4% in 1988, however,
growth in their U.S. domestic market segment grew by
only 1.3%, the slowest since 1981, as airlines raised fares.
However, other regional markets enjoyed a year of solid
growth, with the European market being especially noteworthy as the Association of European Airlines carriers
reported traffic growth of 8% within the continent.
In spite of the slowdown in traffic growth, U.S. airlines'
revenues continued to grow strongly as yields increased
by 7%, reflecting several rises in air fares introduced by
airlines during the year With operating costs rising less
than yields, U.S. airlines should report a second successive
year of record operating profits which are estimated to
exceed ^3 billion. Non-U.S. carriers also should report a
very profitable year, with operating profits on international scheduled services of about $4 billion.
The U.S. experience during the ten years of airline deregulation is being closely scrutinized for clues to the
future of the airline industry in Europe as the European
Economic Community (EEC) pushed forward with its
plan to create a "single market" after 1992. Measures
ratified by the EEC Transport Ministers in December 1987
have begun the process of removing regulations that restrict competition in fares, frequency and routing. Further
measures are scheduled to be introduced in October 1989
in order to complete the transition to a single, competitive
European market by January 1993. In the longer term,
market forces are likely to lead to some consolidations of
the industry, with fewer airlines offering intercontinental
service, while others operate regional networks or control
market niches. The effects of the European liberalization
on aircraft manufacturers are difficult to predict. At this
time, it seems unlikely that liberalization of air transport
in the EEC will stimulate strong traffic growth and greater
demand for airplanes over the long term. There are doubts
that pent-up demand exists for air travel such as existed in
the U.S. since an extensive, low price charter airline
system serves the leisure travel market. Also, there is
strong competition from surface modes, especially high
speed rail.
Congestion is a problem in the U.S. and Europe where
many airports are operating at, or close to, capacity.
Recent Federal Aviation Administration initiatives have
demonstrated that a small increment of capacity can be
extracted from the existing infrastructure, but it is clear
that, in the U.S. and Europe, new airport construction
26
TAe Boeing Company and Subsidiaries
and/or traffic control system developments will be required. Significant political opposition must be overcome
before this new airport construction can take place.
Awareness of the problem continues to grow and a consensus has emerged within the aviation community that
expanding infrastructure capacity is one of the industry's
highest priorities.
The world market for commuter aircraft in the 30-50
seat range remains strong. The regional commuter market
continued to develop worldwide as major carriers became increasingly more involved in the selection and
purchase of commuter turboprop airplanes. Consequently, more sophisticated features are being demanded
and increasing competitive forces are necessitating more
innovative strategies for sales and requirements for financing. This results in continued price and sales financing
pressures on the five major competing manufacturers.
The Company received record announced orders for
636 jet transports and orders for 54 commuter aircraft in
1988. The 737 program continued to record the highest
number of orders, 344 units to 23 customers, with 40% of
the units going to operators in Europe as these airlines
position themselves to take advantage of liberalization.
1988 saw a surge in orders for the 757, 161 units to 14
customers, including important orders from American
Airlines, United Airlines and Air Europe for 50,30 and 22
units, respectively. The cumulative orders for 409 757s
support the contention that the Company's customers
have recognized that, given the uncertainties associated
with infrastructure capacity, a significant proportion of
projected industry growth will have to be accommodated
by employing larger airplanes. The 767 program also saw
improved orders, with 82 units to 19 customers, which
bring total orders to 349. The 747 continued to draw
customers with 49 units to 12 owners; orders for the 747400 continue to exceed expectations and now total 166
units to 21 customers. Orders for 46 Dash 8 commuter
aircraft were received from 13 purchasers, which bring
total orders to 222. To accommodate this surge in orders,
production rate increases are scheduled for all models
during the next two years.
Companies specializing in providing airplanes to carriers on operating leases have emerged as significant purchasers of short- and medium-range commercial jet
transports in recent years. These companies are providing
a substantial portion of the capital to finance some scheduled carriers' and a significant number of charter airlines'
fleet requirements; this capital would not likely be available from traditional financing sources. Aircraft purchases
by these companies introduces an element of risk to aircraft manufacturers because, in many cases, the leasing
companies order aircraft for delivery far in the future, with
standard small initial deposits, and far in advance of
The Boeing Company and Subsidiaries
FINANCIAL REVIEW
Net Earnings and Cash Dividends
Dollars in Millions
* Exclusive of $397 cumulative DISC ac^jiistment
to federal income tax provision
Property, Plant and Equipment;
Net Additions*
Dollars in Milliom
* Exclusive of aaiuisitions — ARGOSystems in 1987,
(te Havilland in 1986
28
receiving airline commitments to place the equipment.
During 1988 and January 1989, four new Boeing commercial jet transport models were delivered: in February,
American Airlines took delivery of the first 767-300 ER; in
September, Piedmont Aviation took delivery of the first
737-400 and Royal Nepal Airlines received the first 757
Gombi; and in January 1989, Northwest Airlines became
the first operator to take delivery of the 747-400.
Our commercial product development strategy has
been to stress technically improved models which maintain family commonality while providing increased efficiency. Orders for 757s to American Airlines and United
Airlines, which already operate 767s, and orders for 767s
from British Airways, which operates 757s, supports the
effectiveness of this product strategy. Product development activities are currently focused on expanding the
767 family by providing models offering both increased
payload and range. These efforts are in response to the
growing awareness of the ways in which the airport and
airspace system will shape the requirements for mediumsized airplanes, and in response to the changing market
structure of some intercontinental markets.
The total commercial transport airplane open market
for 1989-2005 is estimated to be over ^450 billion in 1989
dollars. The Company believes that its current family of
commercial jet transports and commuter aircraft, coupled
with potential derivatives and/or new models, is well positioned to satisfy a substantial portion of worldwide airline
requirements. Over the last few years, trends in the airline industry, such as alliances and mergers, privatization
of government-owned airlines, and the emergence of operating lease companies with significant airplane inventories, have changed the composition of the market. These
trends, as well as intense competition between manufacturers, will continue to result in extreme pricing pressures, increased financing requirements and participation
in the disposition of older aircraft.
For the next several years, the research and development and the procurement budgets for the Department of
Defense (DoD) and the National Aeronautics and Space
Administration (NASA) will be dictated largely by continuing efforts to reduce the federal budget deficit. DoD budgets for these programs are expected to decline in real
terms and NASA program budgets may show little or
no growth. Beyond the deficit factor, the DoD budget will
probably decrease as a result of any treaty to reduce
conventional military forces. In this environment there
will be few new program starts, production schedules will
be stretched, and some current development programs
will not enter the production phase. Increased emphasis will be placed on upgrading existing systems to provide
some of the capabilities intended to be provided by cancelled programs. Because of budget pressures, DoD and
NASA will continue to stress competition and seek to
transfer risk to the contractors through cost-sharing and
through stringent contract terms and conditions. Additionally, contractors are being required to invest in tooling
and special test equipment.
Boeing has been focusing its efforts on winning development and .production contracts in programs of very high
national priority to minimize the impact of federal budget
constraints. Because of the range of product lines, the
Company should be less affected by shifts in priorities
within the defense budget. For instance, if the strategic
arms reduction negotiations lead to a treaty significantly
reducing strategic military systems, Boeing programs in
tactical systems may then receive more funding. Boeing
investments in the Electronics and ARGOSystems divisions have been predicated on the fact that the electronics
portion of the total defense market is expected to continue
to outperform the rest of that market.
Sales of U.S. military hardware in the international market have become more difficult in recent years, primarily
because of reductions in foreign military assistance funding, restrictions on transferring sensitive technology
abroad, and Congressional opposition to sales to certain
countries in the Middle East. Joint programs among European countries, if successful, will increase the difficulty of
direct sales of U.S. military systems to Europe. Nevertheless, the Company has continued prospects for the international sales of important systems, such as CH-47D
helicopters. Airborne Warning and Control Systems
(AWACS), and ground command, control and communication (G3) systems.
The computer services market is expected to continue
to grow, driven by continuing pressures to significantly
improve productivity. The Company's primary focus will
be on systems integration for the government and telecommunications markets. Federal budget constraints and
the complexity of the procurement process are expected
to cause some delays in government awards for computer
services. However, growing recognition that more cost
effective, integrated systems are mandatory is resulting in
an increased market for automated management and
technical information systems.
Significant new awards for defense and space programs
and computer services were received in 1988. The
Boeing/Hughes team won a contract for the full-scale development of the Fiber Optic Guided Missile, the Boeing/
Sikorsky team was one of two competing teams to be
awarded a demonstrationA'alidation contract to develop a
light attack/armed reconnaissance helicopter (LHX), and
the Company was one of three firms awarded contracts for
Phase 2 of the Advanced Launch System. Major orders
for computer services included Boeing being named as
a major subcontractor to AT&T on the larger portion
of the FTS2000 program, which is a project to upgrade
the Federal Government telephone system, and a contract
from the City of New York to implement a data communications network.
Liquidity and Capital Resources
At the end of 1988, the Company had cash and shortterm investments of ^3,963 million, stockholders' equity
of 1^5,404 million and total borrowings of ^258 million.
Internally generated funds were more than adequate to
meet the Company's 1988 requirements for research and
development, plant and equipment and significant payments of federal income taxes. The 1988 ^528 million
increase in cash and short-term investments was primarily due to earnings from operations, working capital reductions and a decrease in customer financing requirements;
this increase was partially offset by significant federal
income tax payments and additions to plant and equipment. The decrease in customer financing requirements
was principally due to the repayment of the Company's
investment in ^700 million of Allegis convertible notes
that was made in connection with United Airlines' order
for 737-300s and 747-400s; this decrease was largely
offset by an increase in investments in airline operating leases.
The 1988 increase in cash and short-term investments
followed a decrease of ^^737 million and an increase of
^963 million in 1987 and 1986, respectively The 1987
decrease was primarily due to the Company's i^700 million investment in Allegis convertible notes, the ,^265
million ARGOSystems acquisition and the Company's
repurchase of |^107 million of common stock. The 1986
increase was due principally to earnings from operations,
working capital reductions, customer financing reductions and increased debt.
During 1988, stockholders' equity increased ^417 million, from ^4,987 million at the end of 1987 to a total of
^5,404 million at the end of 1988. Total borrowings decreased ^12 million to a balance of ^258 million, or 5% of
stockholders' equity.
Primary factors affecting the Company's liquidity position, from an investment requirement standpoint, are the
timing of new and derivative commercial transport programs (resulting in both high development expenditures
and inventory buildup) and the airline industry's cyclical
equipment requirements (resulting in varying inventory
investment levels). Other principal factors include the
level of plant and equipment investment, timing of previously deferred federal income tax payments, the level of
customer financing, and investments to support current
and prospective defense, space, computing and electronics programs.
Total research and development expenditures incurred
and charged directly to earnings in 1988 decreased
^73 million to a total of )^751 million. This followed increases of ,^67 million and ^348 million in 1987 and 1986,
29
FINANCIAL REVIEW
I U.S. Govemmeiit
Sales by T^pe of Customer*
Dollars in Billions
Q^
a H M ^ Other
mmmmmm MiSNtlesand Space
Comim^nial 'IVatisponation
Sales by Class of Product*
Dollar* in Billions
mmmmm
Military Syi^leias
respectively. In 1988, research and development expenditures decreased for jet transport programs and computing
and electronics technology, but increased in support of
defense programs and the commuter aircraft business.
The 1987 increase in research and development expenditures was primarily in support of the 737 and 747 derivative programs, new technology to be utilized in
commercial transport programs and in support of computing and electronics technology. The 1986 research and
development expenditure increase was due to the items
listed for 1987 and in support of defense and space programs. Research and development expenditures for 1989
are expected to approximate those of 1988.
Total net investment in inventories decreased by ^.6
billion during 1988, following increases of $.6 billion and
$.4 billion in 1987 and 1986, respectively During 1988,
net inventories decreased on commercial programs due
primarily to net inventory reductions on the 737, 757 and
767 programs partially offset by net inventory increases
on the 747 program and commercial spare parts. Net
inventories on defense and space programs increased
slightly in 1988, primarily in the A-6 re-wing and V-22
Osprey programs. During 1987, net inventories increased
on commercial programs due to inventory buildup on the
737-400, 747-400, 767-300 and the Dash 8 commuter
aircraft programs. Also, commercial spare parts inventories were increased to further expand customer airline
spares support. Additionally, inventory increases occurred
on defense programs and due to the ARGOSystems acquisition. During 1986, net inventories on Government programs increased, and commercial net inventories
increased because of the de Havilland commuter business
acquisition and increased production rates on the 737-300
program. In 1989 net inventories are expected to increase
due to production buildup on all jet transport, defense and
space programs.
The competitive commercial transport market continued to result in significant customer financing requirements. The Company has commitments to customers
to arrange or provide financing for orders included in yearend firm backlog totaling i^ 1,120 million. 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.
Investment in plant and equipment of ,^690 million in
1988 compares to ^738 million in 1987 and ^795 million
in 1986. Facilities expenditures for 1989 for existing and
new program requirements, productivity improvement
programs and research and development activities are
currently estimated to be in the ^1,100 million range.
• Restated to conform to 1988 p r e s e n t a t i o n
30
The Company is involved in various stages of investigation and cleanup relative to environmental protection
matters, some of which relate to waste disposal sites. All
costs to date have been expensed, even though the Company is filing claims under existing insurance policies. It is
not possible to determine the impact of environmental
issues on future operations because the Company cannot
reasonably estimate the full extent of such potential costs.
This is due in part to the uncertainty as to the extent of
pollution; the complexity of Government laws and regulations and their interpretations; the varying costs and effectiveness of alternate cleanup technologies and methods;
the uncertain level of insurance or other types of recovery; and the questionable level of the Company's involvement. The Company does not believe, based upon the
information available at this time, that the outcome of
these matters will have a material adverse effect on its
financial position.
The Company is subject to several U.S. Government
investigations of business practices and cost classification
from which legal or administrative proceedings could
result. Based upon Government procurement regulations,
under certain circumstances, a contractor can be fined, as
well as be suspended or debarred from Government contracts. The Company believes, based upon current information, that the resolution of these matters will not
materially affect its financial position.
The Financial Accounting Standards Board has deferred
the required adoption of the new accounting Standard for
income taxes until 1990. The Company is still reviewing
the appropriate method and timing for implementation
of the Standard. Based on 1986 Tax Reform Act statutory
rates and the Standard's current provisions, the adjustment to the deferred tax liabilities will have an estimated
1^300 million favorable impact on the Company's financial
position when implemented.
The Company's effective tax rates for 1988 and
subsequent years are expected to be lower than those
in the recent past due to statutory rate reductions. Other
factors influencing the effective tax rates are the levels of
research and development credits and benefits applicable
to foreign tax-exempt income.
The Technical and Miscellaneous Revenue Act of 1988
will result in further acceleration in the payment of taxes
due to changes related to the completed contract method
of accounting for long-term contracts. Federal income tax
payments in 1989 are anticipated to be substantial, however, considerably less than the ^1.3 billion paid in 1988.
The Company has a ^1.46 billion revolving credit line
agreement with a group of major banks. The agreement
provides for scheduled availability of 25% of the credit line
'beginning January 1,1990, increasing in 25% increments
every six months until July 1, 1991. The credit remains
fully available until December 31,1993, and then declines
starting on January 1, 1994 in 10% increments every six
months. During the first quarter of 1986, the Company
filed with the Securities and Exchange Commission a
shelf registration statement covering the offering of up to
,^500 million in debt securities. The ^250 million of 834%
notes due in 1996 was issued under this filing.
The Company continues to be in very sound financial
condition with a strong overall business posture. However,
substantial requirements for capital resources are anticipated to support derivative and new commercial aircraft
programs; Company-funded research and development;
working capital investments for defense, space, electronics and computing businesses; facilities investments; customer financing commitments; federal income tax
payments; and possible future business acquisitions.
Results of Operations
Sales, including other operating revenues, for 1988 were
1^17 billion, compared to ^15.5 billion and ,^16.4 billion for
1987 and 1986, respectively. This represents an increase
of 9% for 1988, following a 6% decrease in 1987 and a 20%
increase in 1986. Revenues from commercial transportation products and services were 67%, 63% and 60% of
total operating revenues for the years 1988, 1987 and
1986, respectively. The number of commercial jet transports delivered in 1988 Increased 7% relative to 1987,
reflecting the increase in deliveries of all commercial
models.
Airplane Deliveries by Model
Jet Transports:
707*
737
747
757
767
Commuter:
Dash 8
Other
Tbtal
* Military
1988
1987
1986
165
24
48
53
9
161
23
40
37
4
141
35
35
27
290
270
242
33
14
26
3
40
9
47
29
49
337
299
291
derivatives
31
FINANCIAL REVIEW
Current schedules provide for the 1989 delivery of 7
707s, 163 737s, 57 747s, 59 757s, 42 767s and 73 commuter aircraft for a total of 401 airplanes.
Our customers have been notified that, in the near
future, the Company will not meet initial contractual delivery schedules on the 747-400 program. The delays are
primarily due to difficulties in accommodating the many
different configurations ordered. Because of the delays,
1989 deliveries on the 747 program will be concentrated
in the latter half of the year
In 1988 domestic commercial sales approximated the
1987 level, foreign sales increased 25% and U.S. Government sales decreased 2%. The Increase in foreign sales
was primarily due to an increase in 747, 757 and 767 jet
transport deliveries. The decrease in U.S. Government
sales is primarily in the military transportation products
business segment.
Revenues from military transportation products and related systems decreased 8% in 1988, following a decrease
of 18% in 1987 and an Increase of 23% in 1986. The major
contributors to the 1988 revenue decline were the BIB
bomber avionics, Saudi Arabia Peace Shield ground-based
electronic air defense system, V-22 Osprey, B-52 modification and KC-135 re-engine programs. The major program
contributors to the 1987 revenue decline were the BIB
bomber avionics, E-3 AWACS, KC-135 re-engine program,
B-52 modification program and CH-47 helicopter modernization work. The major program contributors to the
growth in 1986 were the BIB bomber avionics, CH-47
helicopter modernization work, E-6A submarine communications aircraft, the Saudi Arabia Peace Shield
ground-based electronic air defense system, CH-46 hellcopter kits and A-6 re-wing.
Missiles and space revenues increased 37% in 1988,
following declines of 6% and 8% for 1987 and 1986, respectively. The major program contributors to the 1988
revenue increase were the Inertial Upper Stage rocket
booster. Small Intercontinental Ballistic Missile, Minuteman and Space Station programs. The 1987 and 1986
decreases were primarily due to the completion of the Air
Launched Cruise Missile program and deferred Inertial
Upper Stage rocket booster program deliveries due to the
Space Shuttle accident.
Additionally, U.S. Government classified projects continue to contribute to total Company revenues.
Net earnings for 1988 of ^614 million compares to 1987
net earnings of j^480 million and 1986 net earnings of
^665 million. These earnings represented a 28% Increase
in 1988, following a decrease of 28% in 1987 and a 17%
increase in 1986.
The 1^134 million Increase in net earnings for 1988
compared to 1987 is primarily due to increased sales
32
volume; lower levels of research, development and other
new business expenses relating to jet transports, computing, electronics, and defense and space programs; the
lower statutory federal Income tax rate; and increased
other income. The above items were partially offset by
significant performance problems on several military aircraft programs; Increased research, development and production rate buildup costs related to the commuter
aircraft business; and Increased cost share expenditures
on Government contracts.
The 1^370 million decrease in earnings before federal
income taxes in 1987 relative to 1986 was attributable to
higher levels of research, development, product improvement and other new business expenses relating to commercial transport aircraft and computing and electronics;
to a continued high level of production costs. Including
the impact of the 1987 strike, related to the commuter
aircraft business; to increased cost share expenditures on
Government contracts; to performance problems on several military aircraft programs; and to continued pressure
on both commercial and Government program profit margins. Partially offsetting the Impact of these factors was the
effect of pension accounting changes and an Increase in
other Income, including the Allegis ^50 million prepayment premium.
Net earnings for 1987 were increased by ^39 million
as a result of the Company's change in its method of
accounting for pension costs to conform to the new pension accounting standard, a change in actuarial assumptions to recognize revised mortality tables and other plan
changes.
The effective federal Income tax rates were 25%, 27%
and 35% for 1988,1987 and 1986, respectively Relative to
the statutory rates, the lower effective tax rates for the
three years were due primarily to foreign tax-exempt
income benefits, Investment credit amortization, and
research and development credits.
Additional information relating to sales and earnings
contributions by business segment can be found on pages
43 and 44.
Significant milestones were achieved in 1988 and early
1989 with the certification and delivery of the 737-400,
747-400, 757 Gombi and 767-300 ER. The certification
and delivery of Dash 8 Series 300 commuter airplane and
the 737-500 are scheduled for first quarter of 1989
and 1990, respectively. Key challenges in 1989 Include
meeting revised delivery commitments on the 747-400
program and achieving higher production rates on all jet
transport programs, de Havilland must also achieve a production rate increase on the Dash 8, Improve productivity
and lower procurement costs.
The performance problems on several military airplane
programs which developed in 1987 continued in 1988,
resulting in the Military Transportation Products and Related Systems Industry segment being in an operating loss
position for the year The Company has applied significant
resources to solve the technical, cost and schedule problems on these programs and is closely monitoring the
Impact of these actions. The near term profitability of this
segment will depend on the success of these actions and
the satisfactory resolution of contract claims on several
programs. Development will continue in 1989 on defense
and space programs, such as SRAM II, V-22 Osprey, P-3
Avionics Update, Rail Garrison and Space Station, and
such programs must be successfully transitioned into production to maintain a strong government operating revenue base for the future.
Based on current programs and schedules, the
Company's 1989 sales are projected to be in the i^22
billion range. This Increase in projected sales is due primarily to higher jet transport deliveries and to some increases in major defense and space programs, such as the
E-6A submarine communications aircraft, V-22 Osprey,
Space Station and Inertial Upper Stage rocket booster
Essentially all of the Company's business is performed
under binding long-term contracts for products built to
customer specifications. Thus, the effects of changing
prices on the results of operations are minimal.
Backlog
Total firm backlog of unfilled orders at December 31,
1988 was ^53.6 billion, compared with ^33.2 billion at the
end of 1987. Of the total December 31 backlog, ,^46.7
billion or 87% was for commercial customers (including
foreign governments) and gl6.9 billion or 13% was for the
U.S. Government. Comparable figures at the end of 1987
were )^27.0 billion or 81% commercial, and i^6.2 billion or
19% US. Government.
Not Included in firm backlog are purchase options and
announced orders for which definitive contracts have not
been executed. Additionally, U.S. Government and foreign
military firm backlog is limited to amounts obligated to
contracts. If recognition were given to unobligated
amounts under government contracts at December 31,
1988, unfilled orders would be increased by i^5.2 billion.
REPORT OF MANAGEMENT
INDEPENDENT AUDITOR'S REPORT
7b the Stockholders of
The Boeing Company
Board of Directors and Stockholders
The Boeing Company
The accompanying consolidated financial statements of
The Boeing Company have been prepared by management which is responsible for their Integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles and
Include amounts based on management's best estimates and judgments. Financial information elsewhere
in this Annual Report is consistent with that in the
financial statements.
Management has established and maintains a system of
internal control designed to provide reasonable assurance
that errors or irregularities that could be material to the
financial statements are prevented or would be detected
within a timely period. The system of internal control
includes widely communicated statements of policies
and business practices which are designed to require
all employees to maintain high ethical standards in the
conduct of Company affairs. The Internal controls are
augmented by organizational arrangements that provide
for appropriate delegation of authority and division of
responsibility and by a program of internal audit with
management follow-up.
The financial statements have been audited by Touche
Ross & Co., Independent certified public accountants,
whose appointment was ratified by stockholder vote at the
annual stockholders' meeting. Their audit was conducted
in accordance with generally accepted auditing standards
and Included a review of internal controls and selective
tests of transactions. The Independent Auditor's Report
appears to the right.
The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically
with the independent public accountants, management
and Internal auditors to review accounting, auditing, internal accounting controls and financial reporting matters.
The Independent public accountants and the Internal auditors have free access to this committee without management present.
We have audited the accompanying consolidated statement of financial position of The Boeing Company and
subsidiaries as of December 31, 1988 and 1987, and the
related statements of net earnings and cash flows for each
of the three years in the period ended December 31,1988.
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, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of The Boeing Company and subsidiaries as of December 31,1988 and 1987, and the results of
their operations and their cash flows for each of the three
years in the period ended December 31,1988 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the
Company changed its method of accounting for pension
costs in 1987.
Also, in our opinion, the action of the Board of Directors
on January 30, 1989 in setting aside the sum of
^12,500,000 for the year 1988 under the Incentive Compensation Plan for Officers and Employees (as amended
February 23, 1987) is in conformity with the provisions
contained in the first paragraph of Section 2 of such plan.
Frank Shrontz
Chairman of the Board &
Chief Executive Officer
/
O-e^C^-^y
y'''^tP->t.~<^
0(
of
(^
Touche Ross & Co.
Certified Public Accountants
Seattle, Washington
January 31,1989
H. W. Haynes ^f
Executive Vice President
Chief Financial Officer
A. H. Lowell
Vice President
Controller
34
CONSOLIDATED S1ATEMENT OF NET EARNINGS
(Dollars in millions except per stiare data)
Year ended December 31,
Sales (including other operating revenues)
Costs and expenses
1988
1987
1986
|il6,962
16,514
^15,505
15,146
^16,444
15,711
Earnings from operations
Other income, principally Interest
Interest and debt expense
448
378
(6)
820
206
Earnings before federal taxes on income
Federal taxes on Income
$
Net earnings
|i4.02
|il.55
Net earnings per share
Cash dividends per share
See notes to consolidated financial
614
statements.
359
308
(9)
658
178
^
480
AlO
^1.40
733
304
(9)
1,028
363
$
665
M.28
^1.20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions)
December 31,
1988
Assets
Cash and certificates of deposit
Short-term Investments, at cost, which approximates market
Accounts receivable
Current portion of customer financing
Inventories
Less advances and progress billings
Total current assets
Customer financing
Property, plant and equipment, at cost
Less accumulated depreciation
Investments and other assets
Liabilities and Stockholders' Equity
Accounts payable and other liabilities
Advances and progress billings in excess of related costs
Federal taxes on income (^553 and ^1,255 deferted)
Curtcnt portion of long-term debt
Tbtal current liabilities
Long-term debt
Deferred taxes on income
Deferred investment credit
Stockholders' equity:
Common stock, issued at stated value —
155,245,863 shares
Retained earnings
Less treasury shares, at cost —
1988-2,013,344; 1987-2,972,892
Total stockholders' equity
^ 3,544
419
1,559
92
11,484
(8,537)
$ 2,197
1,238
1,546
823
8,802
(5,293)
8,561
1,039
6,385
(3,682)
305
9,313
392
5,813
(3,259)
307
|il2,608
^12,566
$ 4,697
1,304
697
7
$ 4,434
846
1,773
14
6,705
251
205
43
7,067
256
189
67
1,341
4,137
1,335
3,760
(74)
5,404
(108)
4,987
|il2,608
36
1987
^12,566
statements.
Tî/^ Boeing Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Cashflows— operating activities:
Net earnings
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization —
Plant and equipment
Leased aircraft, other
Deferred federal taxes on Income
Deferred investment credit
Undistributed earnings of affiliates
Accounts receivable
Inventories
Customer financing
Accounts payable and other liabilities
Advances and progress billings in excess
of related costs
Net cash provided by operating activities
Cashflows— investing activities:
Acquisitions:
ARGOSystems, Inc.
de Havilland Aircraft of Canada
Net additions to plant and equipment
Other
Net cash required by investing activities
Cashflows— financing activities:
Debt financing activities:
Issuance of 8%% notes
Other long-term debt
Stockholders' equity:
Cash dividends
Acquisition of treasury stock
Exercise of stock options
Shares issued to Employee Stock
Ownership Plan Trust
Net cash provided (required) by
financing activities
Increase (decrease) in cash and
short-term investments
statements.
1988
1987
1986
$ 614
480
665
486
18
(331)
(34)
541
26
(686)
(24)
(15)
(13)
562
63
(111)
(11)
(390)
(535)
(949)
1,449
433
30
319
(22)
(17)
(278)
(226)
265
566
458
395
45
1,415
578
1,780
(265)
(690)
12
(738)
14
(57)
(795)
3
(678)
(989)
(849)
(12)
(7)
247
(12)
(237)
(2)
21
(217)
(107)
5
(186)
(30)
13
(209)
(326)
32
$ 528
$ (737)
$ 963
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rears Ended December 31,1988,1987
and 1986
(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.
Inventories. Inventoried costs on long-term commercial 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-lncentlve contracts. Inventoried
costs Include research and development and general and
administrative expenses estimated to be recoverable. Inventoried costs are generally reduced by the estimated
average cost of deliveries.
For mature commercial programs, average cost of deliveries is based on the estimated total cost of units committed to production. For commercial programs in the early
production stages, average cost of deliveries is based on
the estimated total cost of units representing what is believed to be a conservative market projection. For U S.
Government and foreign military contracts, average cost
of deliveries is based on the estimated total cost of contractual units.
To the extent total costs as determined above are expected to exceed the total estimated sales price, charges
are made to current earnings to reduce inventoried costs
to 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.
Revenue recognition. Sales under commercial programs and U. S. Government and foreign military fixedprice type contracts are generally recorded as deliveries
are made. For certain fixed-price type contracts that require substantial performance over a long time 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 and fees are earned. Certain U S. Government contracts contain profit incentives based upon performance as compared to predetermined targets.
Incentives based on cost are recorded currently. Other
incentives are included in revenues when awards or penalties are established, or when amounts can reasonably
be determined.
Cash and short-term investments. In 1988, the Company adopted Statement of Financial Accounting Stand-
38
ards No. 95 and has Included a Consolidated Statement of
Cash Flows for each year presented. Cash and cash equivalents consist of cash and short-term Investments in
highly liquid instruments such as certificates of deposit,
time deposits, treasury notes and bonds, and fixed repurchase agreements, which generally have maturities of less
than three months.
Capital assets. Property, plant and equipment and aircraft on operating leases are recorded at cost and depreciated over useful lives, principally by accelerated methods.
Interest cost is capitalized with respect to plant and equipment additions.
Goodwill. Goodwill, representing the excess of acquisition costs over the fair value of net assets of businesses
purchased, is included in other assets and is being amortized by the straight-line method over 40 years.
Research and development, general and administrative expenses. Research and development (Including basic engineering and planning costs on commercial
programs and the Company-sponsored share of research
and development activity conducted in connection with
cost-share contracts) 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.
Retirement benefits. Effective January 1, 1987, the
costs as required by Statement of Financial Accounting
Standards No. 87. The actuarial cost method used in determining the net periodic pension cost was changed to the
projected unit credit method.
The Company's funding policy is to contribute, at a
minimum, the statutory 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.
Postemployment health care benefits are accrued (but
not funded) for eligible retirees.
Taxes on incomie. The provisions for federal and state
taxes on Income are based on all elements of income and
expense included in the statement of net earnings, regardless of the period when such items are reported for tax
purposes. The effects of timing differences between the
reporting of revenues and expenses for financial statements and federal Income tax purposes are reflected
as changes in deferred taxes on income. Investment
tax credits are deferred and recorded as reductions in
the provision for Income taxes over the lives of the
applicable assets. State taxes on Income, which are relatively minor in amount, are Included in general and administrative expenses.
Earnings per share. Net earnings per share are computed on the basis of the weighted average number of
shares outstanding during the period. The weighted average shares were 152,788,634, 154,799,000 and
155,153,635 for the years ended December 31, 1988,
1987 and 1986, respectively. There was no material dilutive effect on net earnings per share due to common stock
equivalents.
Reclassifications. Certain reclassifications have been
made to 1987 and 1986 financial statements to conform
with the presentation used in 1988.
Note 2 — Accounts Receivable
Accounts receivable at December 31 consisted of:
1988
Amounts receivable under
U. S. Government contracts
Accounts receivable from commercial
and foreign military customers
1987
^1,199 ^1,109
360
437
^1.559 ^1,546
Accounts receivable at December 31, 1988 Included
unbillable amounts of ^395, principally relating to sales
values recorded upon attainment of scheduled performance milestones, which differ from contractual billing
milestones. Portions of claims and other amounts subject
to future negotiations of ,^156 have been billed, or are
unbillable receivables; these amounts are in addition to
related amounts Included in Inventories. No significant
amounts in accounts receivable represent retalnages
under contracts.
An estimated 16% of the total accounts receivable at
December 31,1988 is not expected to be collected within
one year This estimate includes 43% of the unbillable
amounts, 30% of the amounts subject to future negotiations and other deferred items.
Note 3 — Inventories
Inventories at December 31, 1988 consisted of inventoried costs relating to long-term commercial programs and
U S. Government and foreign military contracts, less estimated average cost of deliveries, of ^10,760 (^8,139 at
December 31,1987) and commercial spare parts, general
stock materials and other inventories of )^724 (i^663 at
December 31, 1987). General and administrative expenses included in Inventories represented approximately 2% of total inventories.
Inventoried costs relating to long-term commercial programs, principally the 757 and 767 programs, included
1^814 in 1988 and gl961 in 1987 of unamortized tooling
costs and ,^211 in 1988 and ^281 in 1987 representing the
excess of aggregate production costs incurred on in-
NOTES
process and delivered units over the aggregate estimated
average costs of such units (determined as described in
Note 1). Substantially all of such amounts at December 31,
1988 will be recovered from existing firm orders.
Note 4 — Customer Financing
Long-term customer financing, less current portion, at
December 31 consisted of:
Notes receivable, less allowances of gl60
Investment in operating lease aircraft and
sales-type leases
1988
1987
$ 262
^110
777
282
gil.039 $ 392
Operating lease aircraft, at cost, less iS33 of accumulated
depreciation, was )^709 in 1988. This category includes
new jet and used commuter aircraft, used helicopters,
spare engines and spare parts.
Principal payments under notes receivable and salestype leases for the next five years are as follows:
1989
1990
1991
1992
^92
1993
^37
Certain notes currently bear Interest at fixed rates of
7.7% to 12.0% while the remainder are at Interest rates
which vary with commercial bank prime rates, up to
2.25% above the prime rate.
Note 5 — Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of:
1988
Land
Buildings
Machinery and equipment
Construction in progress
1987
$ 129 $ 119
2,121
1,942
3,866 3,390
269
362
116,385 ^5,813
Interest capitalized amounted to ^20, ^18 and i^l8 in
1988,1987 and 1986, respectively
Note 6 — Federal Taxes on Income
The provision for federal taxes on income consisted of:
Taxes paid or currendy payable
Change in deferred taxes
Amortization of Investment credit
1988
1987
1986
$ 921 $ 550
(686)
(331)
(29)
(41)
99
319
_(55)
$ 206
40
$ 178
The provisions for federal taxes on Income are less than
those which result from application of the statutory corporate tax rates of 34% in 1988, 40% in 1987 and 46% in
1986. The provisions have been reduced by Investment
credit amortization, by research credits of i^9, ^^25 and ^19
in 1988, 1987 and 1986, respectively, and by benefits of
^35, ^22 and ^49 in 1988, 1987 and 1986, respectively
applicable to foreign tax-exempt income.
The change in deferred taxes principally resulted from:
Completed contract method and
related inventory costs
Aircraft financing
Domestic International Sales
Corporation
Other
1988
1987
1986
^(677) ^(316) ^354
1
(7)
(17)
(11)
1
(13)
5
^(686)
^(331)
(15)
(3)
^319
Income taxes have been settled with the Internal Revenue Service for all years through 1978. It is the Company's
position that adequate provision has been made for all
amounts due for the years 1979 through 1988, based on
the tax rates in effect during those years. The Tax Reform
Act of 1986 will result in payments of previously deferred
federal income taxes based on the lower tax rates of the
Act. Federal Income tax payments were ^1,292, ,^38 and
^66 in 1988,1987 and 1986, respectively
In 1987, the Financial Accounting Standards Board
adopted SFAS No. 96, which is to be effective no later than
1990. The Company is still reviewing the appropriate
method and timing for implementation of the Standard.
Based on 1986 Tax Reform Act statutory rates and the
Standard's current provisions, the adjustment to the deferred tax liabilities will have an estimated ,^300 favorable
Impact on the Company's financial position when
implemented.
Note 7 — Accounts Payable and
Other Liabilities
Accounts payable and other liabilities at December 31
consisted of:
Accounts payable
Employee compensation and benefits
Lease and other deposits on commercial
and foreign military programs
Other
1988
1987
^1,964
1,046
^1,844
948
740
947
778
864
^4,697
^4,434
$ 363
Note 8 — Notes Payable and Long-term Debt
The Company has established a 8^1,460 credit agreement with a group of commercial banks. Under this agreement, there are informal compensating balance
arrangements, and retained earnings totaling ^131 are
free from dividend restrictions. The current scheduled
availability of the credit line, which can be accelerated
at the Company's option, provides for a 25% availability
beginning on January 1, 1990 increasing to 100% by
July 1,1991.
Long-term debt at December 31 consisted of:
SWo Notes due March 1,1996
Other notes
Less curtcnt portion
1988
1987
^248
10
(7)
^251
^248
22
(14)
^256
The unsecured 8-y8% Notes due March 1,1996, having a
face value of ^250, were issued in March 1986 under
a ^500 shelf registration statement. The notes are not
redeemable prior to maturity. Interest payments, net
of amounts capitalized, were ^5, K8 and ^12 in 1988,
1987 and 1986, respectively.
The Company has complied with restrictive covenants
contained in debt agreements.
Note 9 — Retirement Benefits
The Company has various noncontributory plans covering substantially all employees. As discussed in Note 1, the
costs as required by Statement of Financial Accounting
Standards No. 87 (SFAS No. 87) in 1987, and revised its
actuarial assumptions involving mortality forecasts. After
considering the effects on Inventory carrying values
of these and other plan changes, the effect on net
earnings after taxes for 1987 was an Increase of ^39 or
^.25 per share.
The majority of the pension plans have plan assets that
exceed accumulated benefit obligations. The following
table summarizes the funded status of these plans and the
amounts recognized in the Consolidated Statement of Financial Position at December 31.
'The Boeing Company and Subsidiaries
1988
1987
Actuarial present value of benefit obligations:
Vested
^(3,942) ^(3,458)
Nonvested
(368)
(291)
Accumulated benefit obligation
Effect of projected future salary increases
Projected benefit obligation for service
rendered to date
Plan assets at fair value, primarily bonds,
other fixed income obligations, stocks
and insurance contracts
Plan assets in excess of projected
benefit obligation
Unrecognized net loss (gain)
Unrecognized prior service cost
Unrecognized net asset at January 1,1987
being recognized over the plans' average
remaining service lives
Prepaid pension cost recognized in the
Consolidated Statement of Financial Position
(4,310) (3,749)
(936) (1,017)
(5,246) (4,766)
5,638
392
53
43
408
(5)
45
(139)
(153)
349 $
The pension provision Included the
components:
Service cost (benefits earned during
the period)
Interest cost on projected benefit obligation
Actual return on plan assets
Net amortization and defcrtal
Net periodic pension provision
5,174
295
following
1988
1987
$ 210 $ 191
408
349
(454)
(353)
9
(55)
173
$ 132
In 1988 and 1987, the weighted average discount rate
and rate of Increase in future compensation levels used in
determining the actuarial present value of the projected
benefit obligation were 8.5% and 6.0%, respectively. The
expected long-term rate of return on plan assets was 8.5%.
In accordance with SFAS No. 87, prior year financial
statements were not restated. The provision for pension
costs was ^215 for 1986.
The retirement plans have been amended to 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 postemployment medical and life insurance benefits in the Company's group Insurance
programs.
41
NOTES
Although the Company has no Intention of doing so,
should it terminate certain of its retirement plans under
conditions where the plan's assets exceed the plan's obligations, the Company has an agreement with the Government whereby the Government is entitled to a fair
allocation of any of the plan's reverted assets based on
plan contributions that were reimbursed under Government contracts. Also, the Technical and Miscellaneous
Revenue Act of 1988 imposes a 15% nondeductible excise
tax on the gross assets reverted and any net amount retained by the Company Is treated as taxable income.
Substantially all employees continue to be eligible, principally until age 65, for certain health care benefits upon
retirement from the Company. The provisions for postemployment health care costs were i^56, ^59 and ^40 for
1988,1987 and 1986, respectively
Note 10 — Research and Development,
General and Administrative Expenses
Expenses charged directly to earnings as Incurred
included:
Research and development
General and administrative
•
1988
1987
1986
^751
880
^824
793
^757
606
Note 11 — Stockholders' Equity
The Company has 300,000,000 shares of common
stock authorized; par value is ,^5 per share. On October
26, 1987, the Board of Directors authorized the repurchase of up to 15,000,000 shares of the Company's issued
and outstanding common stock. During 1987, 2,959,000
shares were repurchased, of which 2,550,000 were repurchased subsequent to October 26, 1987. Additional
repurchases may be made from time to time depending
on stock market conditions.
42
Changes in common stock Issued and treasury stock for
the three years ended December 31,1988 consisted of:
Treasury
stock
Common stock
issued
Shares Amount Shares Amount
(000)
57
532
i 1
(438)
(22)
Balance, December 31,1986
Treasury shares issued for
exercise of stock options
151
2,959
9
107
Shares issued to Employee
Stock Ownership Plan Trust
2,973
36
2,013 $ 74 155,246 ^1,341
Balance, January 1,1986
(137)
(000)
155,246 ^1,347
30
155,246
(8)
108 155,246
2
(9:
1,338
(3;
1,335
(547)
(20)
1
(449)
(16)
5
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
1^150.00, 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 that a person is
an Adverse Person or a person 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 stockholders), 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 ^.05 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.
At December 31, 1988, options for 3,383,710 shares of
the Company's stock at prices ranging from ^12.50 to
^64.13 per share were outstanding, of which options for
2,093,541 shares were exercisable. Stock appreciation
rights appHed to outstanding options for 1,747,918 shares
as of December 31, 1988, of which options for 772,046
shares were exercisable. During 1988, options for 822,200
shares were granted; options for 37,184 shares were canceled or expired; and options for 216,950 shares were
surrendered for cash on exercise of stock appreciation
rights. An additional 5,622,738 shares are available for
stock option grants under the present stock option and
incentive compensation plans.
Changes in retained earnings consisted of:
1988
Note 13 — Industry Segment Information
The Company operates primarily in three industries: (1)
Commercial Transportation Products and Services, (2)
Military Transportation Products and Related Systems
and (3) Missiles and Space. Operations in the commercial
transportation segment principally Involve development,
production and marketing of commercial aircraft and providing related support services mainly to commercial customers. Operations in Military Transportation Products
and Related Systems involve research, development, production and modification of such products primarily for
the U. S. Government and also for foreign governments.
Missiles and Space operations primarily involve research,
development and production of various strategic and tactical missiles and space exploration products, principally
for the U S. Government.
Foreign sales by geographic area, consisting principally
of export sales consisted of:
1987
1986
Retained earnings, January 1
Net earnings
Cash dividends
113,760 ^3,497 03,018
614
480
665
(237)
(217)
(186)
Retained earnings, December 31
i^4,137 03,760 ,g3,497
Europe
Asia
Western Hemisphere
Oceania
Africa
1988
Various legal proceedings, claims and investigations are
pending against the Company related to products, contracts and other matters. Most of these legal proceedings
are related to matters covered by insurance.
The Company is also involved in various stages of investigation and cleanup relative to environmental protection
matters, some of which relate to waste disposal sites. The
potential costs related to such matters and the possible
impact thereof on future operations are uncertain due in
part to: the uncertainty as to the extent of pollution; the
complexity of Government laws and regulations and their
interpretations; the varying costs and effectiveness of alternative cleanup technologies and methods; the uncertain level of Insurance or other types of recovery; and the
questionable level of the Company's Involvement.
In addition, the Company is subject to several U.S. Government investigations of business practices and cost classification from which legal or administrative proceedings
could result. Based upon Government procurement regulations, under certain circumstances, a contractor can be
fined, as well as be suspended or debarred from Government contracts.
The Company does not believe, based upon the information available at this time, that the outcome of the
matters discussed above will have a material adverse effect on its financial position.
1986
03,187 02,337 02,263
2,470
2,877 3,575
1,140
649
431
651
280
871
401
143
190
07,849
Note 12 — Contingencies
1987
06,286 07,330
Military sales were approximately 15%, 8% and 6% of
total sales in Europe for 1988, 1987 and 1986, respectively. Military sales were approximately 9%, 22% and 29%
of total sales in Asia for 1988,1987 and 1986, respectively.
Exclusive of these amounts, sales of Military Transportation Products and Missiles and Space were principally to
the U. S. Government.
Financial information by segment for the three years
ended December 31, 1988 Is summarized below. Revenues consist of sales plus other Income applicable to the
respective segments. Corporate Income consists principally of interest Income from corporate investments. Corporate expense consists of Interest on debt and other
general corporate expenses. Corporate assets consist principally of cash and short-term Investments.
43
NOTES
Note 13 continued
1988
1987
1986
011,369
3,668
1,457
468
0 9,827
3,979
1,063
636
0 9,820
4,882
1,126
616
Operating revenues
Corporate income
16,962
378
15,505
308
16,444
304
Total revenues
017,340
015,813
016,748
$
0
0
Revenues
Commercial transportation products and services
Military transportation products and related systems
Missiles and space
Other industries
Operating profit*
Missiles and space
Other industries
Operating profit
Corporate income
Corporate expense
Earnings before taxes
Identifiable assets at December 31
Missiles and space
Other industries
Corporate
Consolidated assets
585
(95)
124
(28)
586
378
(144)
0
820
352
60
119
(34)
497
308
(147)
0
411
367
55
(9)
824
304
(100)
658
1,028
0 4,558
2,923
684
319
0 5,170
2,846
548
362
0 3,533
2,285
434
364
8,484
4,124
8,926
3,640
6,616
4,294
012,608
012,566
010,910
Depreciation
Missiles and space
243
188
52
0
218
170
42
0
200
136
34
Capital expenditures, net
Missiles and space
326
241
62
0
286
316
72
0
332
356
82
*The implementation of SFAS No. 87 (see Notes 1 and 9) Increased 1987 operating profit by 033
for commercial transportation products and services, 024 for military transportation products
and related systems, 04 for missiles and space and 04 for other industries.
44
QUARTERLY FINANCIAL DATA
1988
(Quarter
4th
3rd
1987
2nd
1st
4th
3rd
2nd
1st
Sales (including other
operating revenues) *
04,872 03,722 04,726 03,642 04,639 03,564 03,515 03,787
Earnings from
operations*
134
101
131
82
92
82
96
89
Net earnings
174
144
160
136
141
104
117
118
Net earnings per share
1.14
.94
1.05
.89
.92
.67
.75
,76
Cash dividends per share
.40
.40
.40
.35
.35
.35
.35
.35
Market price:
High
67.63 64.50 58.75 49.50 51.38 54.00 52.50 54.75
Low
58.25 55.88 44.50 37.75 33.63 46.13 42.75 4913
'Restated to conform to 1988 presentation.
FIVE YEAR SUMMARY
(Per siiare data restated for 1985 threefor-two stock split)
Operations
Sales (including other
operating revenues) *
Commercial
U.S. Government
1988
1987
1986
1985
1984
012,170
4,792
010,623
4,882
011,060
5,384
9,002
4,743
6,114
4,328
16,962
15,505
16,444
13,745
10,442
614
4.02
3.6%
480
3.10
3.1%
665
4.28
4.0%
566
3.75
4.1%
390
2.67
3.7%
Total
Net earnings
Per primary share
Percent of sales*
Cash dividends paid
Per share
0
237
1.55
0
217
1.40
0
186
1.20
0
157
1.04
0
136
.93
Other income, principally interest*
378
308
304
184
153
Research and development expensed
General and administrative expensed
751
880
824
793
757
606
409
477
506
420
Additions to plant and equipment
Depreciation of plant and equipment
690
541
738
486
795
433
551
356
337
337
Salaries and wages
Average employment
5,404
147,300
5,028
136,100
4,374
118,500
3,442
98,700
3,011
86,600
Financial position at December 31
Tbtal assets
Working capital
Long-term customer financing
012,608
1,856
1,039
012,566 010,910
2,246*
2,819
392
195
0 9,153
2,349
514
0 8,423
2,130
541
4,172
277
3,209
34
1,595
299
263
219
16
326
284
322
Cash and short-term investments
Tbtal borrowings
Long-term debt
Long-term deferred taxes
3,963
258
251
205
3,435
270
256
189*
Stockholders' equity
Per share
Common shares outstanding (OOO's)
5,404
35.27
153,233
4,987
32.75
152,273
4,826
31.12
155,095
4,364
28.12
155,189
3,695
25.34
145,837
Firm backlog
Commercial
U.S. Government
046,676
6,925
026,963
6,241
020,084
6,304
018,637
6,087
015,949
5,562
Total
053,601
033,204
026,388
024,724
021,511
'Restated to conform to 1988 presentation.
' 'Exclusive of cumulative DISC adjustment tofederal income tax provision. Net earnings after
cumulative DISC adjustment were g787 or 05.39 per share.
Cash dividends have been paid on common stock every year since 1942.
46
MARKET
INFORMATION
CORPORATE
INFORMATION
The Company's common stock Is
traded principally on the New York
Stock Exchange. Boeing common
stock is also listed on the Amsterdam,
London and Swiss stock exchanges.
Additionally, the stock is traded on
the Boston, Cincinnati, Midwest,
Philadelphia and Brussels exchanges.
The number of holders of record as of
January 31,1989 was 69,304.
General Auditors
Touche Ross & Co.
Annual Meeting
The annual meeting of Boeing stockholders will be held at the offices of
the Company, Seattle, Washington, on
April 24, 1989. Formal notice of the
meeting, proxy statement and form of
proxy will be sent to stockholders
about March 22,1989.
Notice to Holders as of March 29,
1966, of Unregistered 41/2% Convertible Subordinated Debentures
of The Boeing Company Due July 1,
1980.
Boeing has made an undertaking in
a proceeding entitled, Van Gemert,
et al, V. The Boeing Company, et al.,
66 Civ 1820, filed in the United States
District Court for the Southern District of New York, to pay certain
sums to any person who provides evidence that he or she was a holder on
March 29, 1966, of the debentures
described above and did not convert
the debentures on that date or that he
or she is an assignee or transferee of
such holder by purchase or operation
of law.
If you believe you may be entitled to
receive such payment or desire further information, contact:
The Boeing Company
RO. Box 3707, Mail Stop 10-13
Seatde, Washington 98124
Tel. 206-655-1976
Transfer Agent and Registrar
The First National Bank of Boston
Our transfer agent is responsible for
our shareholder records, issuance of
stock certificates, and distribution
of our dividends and the IRS Form
1099. Requests concerning these
matters are most efficiently answered
by corresponding directly with The
First National Bank of Boston at the
following address:
The Boeing Company
c/o The First National Bank of Boston
Shareholder Services Division
RO. Box 644
Boston, Massachusetts 02102
Telephone 617-929-5445
The offices where certificates may be
hand-delivered for transfer are as
follows:
100 Federal Street, Floor I B
Boston, Massachusetts
BancBoston Financial Company
California Plaza
300 South Grand Avenue, Suite 3700
Los Angeles, California
BancBoston Clearance Inc.
55 Broadway, 3rd Floor
New York, New York
Telephone 212422-1350
BancBoston Financial Company
33 West Monroe Street, Suite 2600
Chicago, Illinois
ORGANIZATION AND MANAGEMENT
OperaflogD/Ws/oos
Conwrate Officers
Board of BlKCtors
Boeing Commercial Airplanes
W. H. Albrecht
Staff Vice President • Government Contracts
L. D. Alford
Senior Vice President
D. P. Beighle
Senior Vice President & Secretary
G. B. Bland
Staff Vice President - Trust Investments & Investor Relations
R. B. Brown
Vice President • Product Evaluation
H. E. CanStaff Vice President - Public Relations & Mvertising
Robert A. Beck
Chairman Emeritus
The Prudential Insurance Company of America
(insurance)
Audit' and Finance Committees
J o h n B. Fery* *
Chairman of the Board and Chief Executive Officer
Boise Cascade Corporation (forest products)
Audit and Finance Committees
Harold J. Haynes
Retired Chairman
Chevron Corporation (petroleum products)
Compensation and Organization & Nominating
Committees
E G. Coffey
Staff Vice President - Governmental Affairs
T. J. Collins
Vice President & General Counsel
Harold W. Haynes
Executive Vice President & Chief Financial Officer
The Boeing Company
Renton, Washington
D. D. Thornton
President
R. R. Albrecht
P. M. Condit
Boeing Aerospace
Kent, Washington
M. K. Miller
President
Boeing Advanced Systems
Seattle, wshington
A.M.S. G o o
President
C. G. King
D. J. Crispin
Boeing Military Airplanes
Wichita, Kansas
R. L. Dryden
President
J. R. Potter
Executive Vice President • Operations &
Subsidiaries
Boeing Helicopters
Vice President - Employee Benefits, Insurance & Taxes
D. D. Cruze
Vice President - Operations
B. E. Givan
Vice President • Finance
H. W. Haynes
Executive Vice President & Chief Financial Officer
H. K. Hebeler
Vice President • Corporate Planning
D. A. Jaeger
Staff Vice President & Treasurer
J. G. Lang
Philadelphia, Pennsylvania
D. R. Chesnut
President
Boeing Computer Services
Bellevue/Washington
Staff Vice President - Tfechnioal Computing Systems
A. H. Lowell
Vice President & Controller
Dr. Bill B. May
Vice President
L. G. McKean
M. R. Hallman
President
Boeing Electronics
Seattle, TOshington
A. E. Hitsman
President
ARGOSystems, Inc.
Sunnyvale, California
Dr. Bill B. Mav
Chairman & Chief Executive Officer
Kenneth P. Miles
President
Boeing Canada - de Havilland
Division
Tbronto, Ontario
Staff Vice President - Labor Relations
B. Mishel
Vice President • Washington, D.C. Office
H. C. Munson
Vice President - Strategic Planning
J. F. Peritore
Staff Vice President • Human Resources
J.B.L. Pierce
Vice President
B. D. Pinick
Senior Vice President
O. M. Roetman
Vice President • Government & International Affairs
J. E. Schmick
Staff Vice President & Deputy Director - Washington, D.C. Office
Frank Shrontz
Chairman of the Board & Chief Executive Officer
M. T. Stamper
R. B. Woodard
President
The Boeing Company
General Offices
7755 East Marginal Way South
Seattle, Washington 98108
Tfelephone 206-655-2121
48
Vice Chairman of the Board
J. M. Swihart
Vice President - International Affairs
D. D. Thornton
Senior Vice President & President of Boeing Commercial Airplanes
A. D. Welliver
Vice President - Engineering & Tfechnology
Stanley Hiller, Jr.
Senior Partner
Hiller Investment Go. (private investments)
Audit and Finance' Committees
George M. Keller
Retired Chairman
Chevron Corporation (petroleum products)
Compensation Committee'
Lee L. Morgan
Director and Retired Chairman
Caterpillar Inc (heavy equipment manufacturer)
Compensation Committee
Charles M. Pigott
PACCAR Inc (transportation equipment)
Organization & Nominating Committee*
Frank Shrontz
The Boeing Company
George P. Shultz* * *
Professor of International Economics,
Graduate School of Business, Stanford University;
Honorary Fellow, Hoover Institution
Malcolm T. Stamper
Vice Chairman of the Board
The Boeing Company
George H. Weyerhaeuser
Chairman of the Board & Chief Executive Oflicer
Weyerhaeuser Company (forest products)
Organization & Nominating Committee
T. A. Wilson
Chairman Emeritus
The Boeing Company
Audit and Finance Committees
'Committee Chairman
' 'Elected to Board effective Fkbruary 1,1989
'' 'Elected to Board effective February 27,1989
^£FÎAf£^
'
*» - r
"^^
JUL 1.6 19 w
Ret'd Busl!\«ss
1
The Boeing Company
Transfer Agent
PO. Box 644
Boston, Massachusetts 02102

r CONTENTS - University of Washington Libraries Digital Collections

Transcription

Similar documents

Loftleidir-Icelandic

BLOOD IN THE WATER: A History of IAMAW District Lodge 751

Major programs supported include:

CityFLO F-101 Voodoo Figter Jet

Investor Presentation

Wherever you are. Whenever you need it.

Twin-Engine Propeller-Driven Aircraft Configurations

Development of the A500 Adam Aircraft - AIAA Info

Rotorcraft Design

Honeywell APU Data Sheet - Investor Relations