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Notes
to Consolidated Financial Statements (continued)
Years
ended December 31, 1998, 1997 and 1996
(Dollars in millions except per share data)
Note
14
Postretirement Plans
The following
table reconciles the funded status of both pensions and other postretirement
benefits (OPB), principally retiree health care, to the balance on
the Consolidated Statements of Financial Position. Plan assets consist
primarily of equities, fixed income obligations and cash equivalents.
Boeing stock represents less than 1% of the fair value of plan assets.
The pension benefit obligations and plan assets shown in the table
are valued as of September 30.
Components of
net periodic benefit costs and other supplemental information were
as follows:
The Company has
various noncontributory plans covering substantially all employees.
All major pension plans are funded and have plan assets that exceed
accumulated benefit obligations.
Certain of the
pension plans provide that, in the event there is a change in control
of the Company which is not approved by the Board of Directors and
the plans are terminated within five years thereafter, the assets
in the plans first will be used to provide the level of retirement
benefits required by the Employee Retirement Income Security Act,
and then any surplus will be used to fund a trust to continue present
and future payments under the postretirement medical and life insurance
benefits in the Company’s group insurance programs.
The Company has
an agreement with the Government with respect to certain of the Company
pension plans. Under the agreement, should the Company terminate any
of the plans under conditions in which the plan’s assets exceed that
plan’s obligations, the Government will be entitled to a fair allocation
of any of the plan’s assets based on plan contributions that were
reimbursed under Government contracts. Also, the Revenue Reconciliation
Act of 1990 imposes a 20% nondeductible excise tax on the gross assets
reverted if the Company establishes a qualified replacement plan or
amends the terminating plan to provide for benefit increases; otherwise,
a 50% tax is applied. Any net amount retained by the Company is treated
as taxable income.
Effective January
1, 1999, two new pension plans were created for the salaried, non-represented
employees of pre-merger Boeing and McDonnell Douglas. Assets and liabilities
associated with benefits earned through 1998 were transferred to the
new plans, which provide substantially the same benefit levels as
the prior plans. The change in projected benefit obligations as a
result of establishing the two plans is $420, which is reflected
in the “amendments” line in the table above that reconciles the benefit
obligation balance.
The Company has
certain unfunded and partially funded plans with a projected benefit
obligation of $688 and $387; plan assets of $243 and $56; and unrecognized
prior services costs and actuarial losses of $240 and $131 as of December
31, 1998 and 1997. The net provision for these plans was $52 and $49
for 1998 and 1997.
The principal
defined contribution plans are the Company-sponsored 401(k) plans
and a funded plan for unused sick leave. The provision for these defined
contribution plans in 1998, 1997 and 1996 was $417, $361 and $287,
respectively.
The Company’s
postretirement benefits other than pensions consist principally of
health care coverage for eligible retirees and qualifying dependents
and, to a lesser extent, life insurance for certain groups of retirees.
Retiree health
care is provided principally until age 65 for approximately half those
retirees who are eligible for health care coverage. Certain employee
groups, including employees covered by most United Auto Workers bargaining
agreements, are provided lifetime health care coverage.
Benefit costs
were calculated based on assumed cost growth for retiree health care
costs of a 6.9% annual rate for 1998, decreasing to a 4.5% annual
growth rate by 2010.
Note
15
Shareholders’ Equity
In August 1998,
the Board of Directors approved a resolution authorizing management
to repurchase up to 15% of the Company’s issued and outstanding stock
as of June 30, 1998 (excluding shares held by the ShareValue Trust),
which would amount to 145,899,000 shares. As of December 31, 1998,
35,195,000 shares had been repurchased pursuant to this resolution.
Twenty million
shares of authorized preferred stock remain unissued.
Note
16
Share-Based Plans
The Share-based
plans expense caption on the Consolidated Statements of Operations
represents the total expense recognized for all company plans that
are payable only in stock. These plans are described below.
In 1998 the
Company adopted the expense recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Had the Company not adopted SFAS No. 123, 1998 net
earnings would have been $1,229, and basic and diluted earnings per
share would have been $1.27 and $1.26. The following table compares
1997 and 1996 results as reported to the results had the Company adopted
the expense recognition provision of SFAS No. 123:
Performance
Shares
Performance Shares are stock units that are convertible to common
stock contingent upon stock price performance. If, at any time up
to five years after award, the stock price reaches and maintains a
price equal to 161.0% of the stock price at the date of the award
(representing a growth rate of 10% compounded annually for five years),
25% of the Performance Shares awarded are convertible to common stock.
Likewise, at stock prices equal to 168.5%, 176.2%, 182.4%, 192.5%
and 201.1% of the stock price at the date of award, the cumulative
portion of awarded Performance Shares convertible to common stock
are 40%, 55%, 75%, 100% and 125%, respectively. Performance Shares
awards not converted to common stock expire five years after the date
of the award; however, the Compensation Committee of the Board of
Directors may, in its discretion, allow vesting of up to 100% of the
target Performance Shares if the Company’s total shareholder return
(stock price appreciation plus dividends) during the five-year performance
period exceeds the average total shareholder return of the S&P 500
over the same period.
As of December
31, 1998, the following number of Performance Shares were outstanding:
3,586,268 at an issue price of $5011/16 and
an expiration date of February 23, 2003; and 45,771 at an issue price
of $339/16 and an expiration date of December
14, 2003. The Company recognized a share-based expense of $38 in 1998
attributable to Performance Shares.
Other
stock unit awards
The total number of stock unit awards that are convertible only to
common stock and not contingent upon stock price were 1,161,652, 301,631
and 376,628 as of December 31, 1998, 1997 and 1996, respectively.
ShareValue
Trust
The ShareValue Trust, established effective July 1, 1996, is a 14-year
irrevocable trust that holds Boeing common stock, receives dividends,
and distributes to employees appreciation in value above a 3% per
annum threshold rate of return. As of December 31, 1998, the Trust
had acquired 26,025,460 shares of the Company’s common stock, equivalent
to $1,150 of market value based upon the average price per share on
June 28, 1996, which was $443/16, plus 11,253,197
shares of stock, equivalent to $550 of market value based upon the
average price per share on January 1, 1998, which was $487/8.
The Trust has additionally acquired 887,944 shares representing reinvested
dividends, net of shares used to pay the nominal administrative costs
borne by the Trust.
Two investment
periods began on July 1, 1996. One period was established with a duration
of two years through June 30, 1998, and the other with a duration
of four years through June 30, 2000. Each period was allocated one-half
of the total shares. At the end of each initial investment period,
a new four-year investment period will begin, resulting in overlapping
periods with potential distributions every two years. The Trust fund
market value after distribution will be the base from which the distributable
market value appreciation over the threshold for the succeeding investment
period will be determined. On June 30, 1998, the first investment
period of the Trust ended with a fund appreciation insufficient to
generate a distribution to employees.
The ShareValue
Trust is accounted for as a contraequity account and stated at market
value. Market value adjustments are offset to additional paid-in capital.
The Company recognized a share-based expense of $72, $(99) and $133
for the years 1998, 1997 and 1996, respectively, attributable to the
ShareValue Program. The 1998 ShareValue Trust expense was calculated
under the provisions of SFAS No. 123.
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. Under the terms of the plan, 30,000,000 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, 1998, 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, 1998, a total of 594,000 shares had been granted,
and 454,285 remain restricted. Substantially all compensation relating
to these restricted shares is being amortized to expense over a period
of six years. 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.
As of December
31, 1998, 21,681,000 shares were available for grant under the 1997
Incentive Stock Plan, and 9,548,000 shares were available for grant
under the Incentive Compensation Plan.
The following
table summarizes information about stock options outstanding at December
31, 1998 (shares in thousands).
The Company has
determined the weighted average fair values of stock-based arrangements
granted, including the ShareValue Trust, during 1998, 1997 and 1996
to be $19.99, $20.67 and $8.39, respectively. The fair values of stock-based
compensation awards granted and of potential distributions under the
ShareValue Trust arrangement were estimated using a binomial option-pricing
model with the following assumptions.
The Company recognized
a share-based expense of $31 in 1998 attributable to stock options
with an offset to additional paid-in capital, and recognized no expense
in 1997 and 1996.
The Boeing
Company and Subsidiaries
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