Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements

The ShareValue Trust is accounted for as a contra-equity account and stated at market value. Market value adjustments are offset to additional paid-in capital.

Stock Options The Company’s 1997 Incentive Stock Plan permits the grant of stock options, stock appreciation rights (SARs) and restricted stock awards (denominated in stock or stock units) to any employee of the Company or its subsidiaries and contract employees. Under the terms of the plan, 64,000,000 shares are authorized for issuance upon exercise of options, as payment of SARs and as restricted stock awards, of which no more than an aggregate of 6,000,000 shares are available for issuance as restricted stock awards and no more than an aggregate of 3,000,000 shares are available for issuance as restricted stock that is subject to restrictions based on continuous employment for less than three years. This authorization for issuance under the 1997 plan will terminate on April 30, 2007. As of December 31, 2001, no SARs have been granted under the 1997 Plan. The 1993 Incentive Stock Plan permitted the grant of options, SARs and stock to employees of the Company or its subsidiaries. The 1988 and 1984 stock option plans permitted the grant of options or SARs to officers or other key employees of the Company or its subsidiaries. No further grants may be awarded under these three plans.

Options and SARs have been granted with an exercise price equal to the fair market value of the Company’s stock on the date of grant and expire ten years after the grant date. Vesting is generally over a five-year period with portions of a grant becoming exercisable at one year, three years and five years after the grant date. SARs, which have been granted only under the 1988 and 1984 plans, were granted in tandem with stock options; therefore, exercise of the SAR cancels the related option and exercise of the option cancels the attached SAR.

In 1994, McDonnell Douglas shareholders approved the 1994 Performance Equity Incentive Plan. Restricted stock issued under this plan prior to 1997 vested upon the merger between McDonnell Douglas and The Boeing Company. As of December 31, 2001, a total of 594,000 shares had been granted and of those 67,938 remain restricted. Substantially all compensation relating to these restricted shares will be amortized by the end of 2002. Unearned compensation is reflected as a component of shareholders’ equity.

Information concerning stock options issued to directors, officers and other employees is presented in the following table:

2001

2000

1999

(Shares in thousands)

Number of shares under option:

Outstanding at beginning of year

Granted

Exercised

Canceled or expired

Exercised as SARs

27,904

2,812

(2,316)

(214)

$40.58

56.94

30.58

48.13

29,228

3,693

(4,673)

(328)

(16)

$38.02

45.63

28.30

46.20

21.56

28,653

3,462

(2,345)

(515)

(27)

$36.03

43.40

22.03

39.33

19.70

Outstanding at end of year

28,186

42.97

27,904

40.58

29,228

38.02

Exercisable at end of year

19,416

$39.45

18,710

$37.32

19,749

$34.58

As of December 31, 2001, 26,998,958 shares were available for grant under the 1997 Incentive Stock Plan, and 863,100 shares were available for grant under the Incentive Compensation Plan.

The following table summarizes information about stock options outstanding at December 31, 2001 (shares in thousands):

Options Outstanding

Options Exercisable

Range of Exercise Prices