The Boeing Company
Mr. Jonathan G. Katz
Dear Mr. Katz:
The undersigned wishes to comment on behalf of The Boeing Company (the "Company") on the proposed rule issued by the U.S. Securities and Exchange Commission (the "Commission") on November 4, 2002, entitled "Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments." We appreciate and applaud your efforts to ensure adequate disclosure is contained in financial reports filed with the Commission. However, we wish to convey the following concerns about the proposed rule:
Definition of Off-Balance Sheet Arrangements
We request clarification from the Commission of the elements of the proposed definition of off-balance sheet arrangements. The proposed definition of off-balance sheet arrangements encompasses four items: obligations under guarantees, retained or contingent interests in assets transferred to an unconsolidated entity, derivatives not fully reflected as an asset or liability, and other obligations or liabilities not fully reflected in the financial statements. Although these items are similar to items considered in various Financial Accounting Standards Board ("FASB") pronouncements, they have not been defined as such in this proposed rule. We request clarification from the Commission on the relationship between these items as defined by the FASB and as defined by the Commission.
Specifically, the FASB recently issued Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 provides a specific definition of guarantees, and omits certain types of guarantees, such as a lessee's residual value guarantee embedded in a capital lease, from its scope. We believe that the Commission should similarly define a guarantee, preferably by reference to FIN 45.
In addition, Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, omits certain types of derivatives from its scope, such as certain insurance contracts, and contracts that are indexed to the entity's own stock. Although the commentary to the proposed rule indicates that derivatives indexed to the entity's own stock, as defined by Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, would be considered a derivative included as an off-balance sheet arrangement, it does not specify whether other SFAS No. 133 scope exceptions would be included. In the broadest reading of the Commission's definition, employee stock options could be considered derivatives not fully reflected as an asset or liability in the financial statements. Because we disagree with including the proposed disclosures related to these types of arrangements, we believe that the Commission should further clarify the definition of a derivative as an off-balance sheet arrangement.
We believe that the Commission should adjust the disclosure threshold. In the proposed rules, the Commission requested comments on whether the "reasonably likely" disclosure threshold applicable to other sections of Management's Discussion and Analysis ("MD&A") should be applied to the disclosure requirements of this proposal. We believe that this threshold is more appropriate than a threshold of "more than remote," and should be applied to the proposed rule. We believe that application of a lower threshold to this information than is applicable to other sections of MD&A would provide unwarranted prominence.
In addition, we believe that the disclosure requirements contemplated in the proposed rule are overly broad. First, requiring disclosure of arrangements between the registrant and any entity through which off-balance sheet arrangements are conducted is overly burdensome. As written, this requirement would result in disclosures by investors in entities used by a third party as a financing vehicle if that investment is or could be material to the investor. This disclosure would require the investor to not only know that the entity is used to conduct off-balance sheet arrangements by the third party, but to also know and disclose information such as total assets and liabilities of the entity. We believe that the scope of the disclosure should be narrowed to include only those entities through which the registrant conducts its own off-balance sheet activities.
Second, the proposed rule requires disclosure of information about arrangements in which off-balance sheet activities are conducted between an unconsolidated entity and other persons. Again, this disclosure requirement is onerous, as it would require knowledge and disclosure of arrangements to which the registrant is not a party and may have no control over. Therefore, we believe that the scope of the disclosure should be narrowed to include only those arrangements conducted between the registrant and the unconsolidated entity.
Finally, we believe that the disclosure of the significant terms and conditions of such arrangements could be competitively harmful and therefore should not be required beyond general terms.
Presentation of the Disclosures
We believe that the presentation format provided in the proposed rule should be simplified to avoid undue repetition. As defined, there is a significant amount of overlap between off-balance sheet arrangements and contractual obligations or contingent liabilities and commitments. For example, credit guarantees are both off-balance sheet arrangements and contingent obligations, and forward purchase commitments are both off-balance sheet arrangements and contractual obligations. Because of this overlap, we believe that the two required disclosures should be merged to avoid duplication.
In addition, as recognized by the Commission, the disclosure requirements will duplicate information already present in other portions of MD&A, specifically the liquidity section, or the footnotes to the financial statements. As a result, we feel that the Commission should allow incorporation of that information by reference.
* * * * *
We appreciate the opportunity to comment on this important topic and your attention to our comments.