June 29, 1998

Boeing stock price slump prevents stock distribution to employees

By TIM KLASS
Associated Press Writer

SEATTLE (AP) -- Boeing Co. employees probably won't receive any stock this year from a company trust that was established as a worker incentive program, Chairman Phil Condit said Friday.

In an article in Boeing News, the weekly company newspaper, Condit said Boeing's stock slump since July had made it practically impossible to trigger a distribution from ShareValue Trust.

Since it was established in July 1996, Boeing has put $1.7 billion worth of its own stock into the trust. Those shares are now worth about $1.56 billion.

Boeing stock prices must rise by more than 3 percent annually in the two years ending June 30 for about 200,000 employees to get a distribution of stock reflecting the difference between the actual increase and 3 percent.

Instead, Boeing stock has fallen from a 52-week high of $60.50 per share last July trust to $45.68 at Friday's close of the New York Stock Exchange.

The next opportunity for a stock distribution is in another two years.

"This is disappointing to me, given the tremendous effort being expended by so many of you," Condit wrote.

"However, the current value of Boeing stock can be related directly to our company's recent operating performance, as well as the uncertainty about the recovery timing from commercial airplane production difficulties, the longer-term impact of Asian economic problems and the clear indication of revenue and cost synergies from the (McDonnell Douglas) merger," he added.

The trust does not cover executives, who are subject to a separate incentive plan.

Peter Conte, a Boeing spokesman, said it was difficult to anticipate employee reaction because this was the first distribution opportunity under the trust.

"There ostensibly is no loss to a person's paycheck. There is only a loss of the opportunity for additional moneys," Conte said. "The nature of this is that the trust is still for the long term. ...

"It is our hope and belief that the value is going to rise ultimately."

The trust was established with $1 billion, half going into one fund for potential distribution in two years and the other half into a second fund for potential distribution in 2000.

Boeing contributed about 3.5 million shares and provided the trustee with funds to acquire another 7.8 million shares on the open market.

The company later provided $150 million in stock for workers added in the acquisition of the space and defense units of North American Rockwell in late 1996 and $550 million for those gained in the buyout of McDonnell Douglas in August. With reinvestment of dividends, the trust now holds more than 37.8 million shares.

Employees stand to receive Boeing shares equivalent to any increase in share value plus dividends exceeding 3 percent, compounded annually, over the duration of each fund period.

"The threshold here is designed to kind of preserve the fund so it can be an ongoing fund," company spokesman Peter Conte said.

Any distribution would be shared equally among employees. Job performance would not be a factor.

When there is no distribution, the affected stock is placed in a new four-year fund, so a distribution from proceeds of about half the trust holdings is possible every two years.

The trust does not cover about 38,000 of Boeing's 238,000 employees, principally executives and workers covered by old McDonnell Douglas union contracts which contain other stock incentive programs, Conte said. Some Boeing subsidiaries also do not participate in the trust, he added.

When ShareValue Trust was established, company officials said there was only one time in the past 12 years that the threshold had not been exceeded.

At that time, they added that if the plan had been in effect in 1984, each employee would have received 230 shares worth about $15,400 and that if they had held that stock and invested the dividends, they would then own 470 shares worth $41,000.

Instead, stock prices sagged as assembly line snarls and overtime from efforts to boost jetliner production rates resulted in writeoffs of more than $1.8 billion for 1997 and another $800 million projected for this year.

"Many of you have worked very hard to improve our performance," Condit wrote. "I'm confident that after we overcome our current problems, we will see the result of everyone's efforts in the long-term trend of our stock.

"If we improve the value we offer our customers and shareholders, we will have better opportunities for future distributions."