At the same time the stockholders were asked to approve the increase, above, in the number of authorized shares, they were also asked to approve an increase in the number of shares issuable to officers and employees without regard to pre-emptive rights, and eliminate fractional shares. At that time fractional shares outstanding totaled 178 full shares and were held by 207 stockholders. In its proxy statement the company said:

"The cost to the Company of mailint to each holder of a fraction of a share an Annual Report, a Proxy Statement, quarterly reports, quarterly dividend checks and other stockholder information reports is the same as for mailing such items to the holders of one or more whole shares. The Company has made repeated efforts to reduce its costs by providing facilities and arrangements whereby the holders of fractions of shares could, at no cost to them, buy or sell such fractions and consolidate fractions into whole shares. The Company has been quite successful in reducing the number of fractions outstanding and it is now believed that certificates for most of the fractions remaining outstanding have been lost or destroyed and that further efforts for consolidation would be futile. Accordingly, the Directors have proposed that such fractions of shares be eliminated effective as of 1 August 1966, by Amendment of the Certificate of Incorporation. However, the rights of the holders of such fractions are to be protected by providing the period from April 25, 1966 to August 1, 1966 to allow such holders to buy and consolidate fractions, through the Transfer Agent, prior to the latter date, and by paying to the holders of any fractions remaining outstanding after August 1, 1966, the market value of such fractions as of such date.

Item 8, above, is the fee paid to Boeing's general auditors for the preparation of "Form S-8 registration statement for stock option plan and related reviews and consultations" (Tab 1.9), actually Amendment 7 to that form (Tab 13.7), an annual updating required to be filed with the Securities and Exchange Commission by corporations with stock option plans for its employees. In 1966 there was still in effect a stock option plan for officers and key employees, first adopted in 1958 and certain options thereunder were still outstanding.

Discussion

In Appeal of General Analysis Corp., ASBCA No. 6920, 1962 BCA 3337, we allowed a certain administrative cost incident to the issuance of stock options to certain of the appellant's employees against the Government's claim that they were financing charges. We viewed the expenditure as essentially associated with employee compensation and said, "The circumstance that additional working capital was incidentally obtained by the contractor does not change the fact that the basic purpose was to obtain and hold high-level employees by giving them a personal stake in the company's future.

The expenditure at issue in that case was more closely related to financing than here where the fee had nothing to do with the issuance or exercise of options or the acquisition of stock but was related only to the filing, as required by law, of an amendment to the plan. It is a cost of preparation and submission of a required report and form to a regulatory body expressly made allowable by Section 15-205.24 or a cost of professional services covered in 15-205.31.

In the matter of the legal fee which is Item 7 above, the only opinion rendered concerned the elimination of fractional shares (Tab 13.1) and no claim is made here that that was a financing operation. Some portion of the fee, however, must be deemed to be for the examination of the proposed amendment to the Certificate of Incorporation which also increased the authorized shares (Tab 1.8) and it must be examined with, and will be subject to the same disposition as, the stock split and the costs related thereto, which are items 5.a., b., and c.

Boeing considered the authorized increase in capital stock and the elimination of fractional shares to be an administrative adjustment of capital structure, not a reorganization of the company, according to its Comptroller (Tr. 453, 457). "It was primarily to broaden the base of our stockholders, to increase the number of shares. The value had tended to increase and the market price had tended to increase and it was a general pattern of stockholder relationship that made it advisable to increase the number of shares the primary point of concern is that

it does not raise any capital, it does develop a relationship with the stockholding public that is beneficial to the company and it is a proper action on that basis.

"Q. Well, it results in a raising of more capital, doesn't it?"

"A. No, it does not." (Tr. 452, 453; also Tr. 375)

The identification of the stock-split with a financing activity was sought to be established by the Government through the testimony of its auditor, the author of Government Exhibit G-4, quoted above, and the man who had supervisory responsibility

for the reports which support the disallowances herein. This witness, a university accounting major with one year of public accounting and employment in private industry and business with gross annual volume up to three million dollars, had been with the Defense Contract Audit Agency and its predecessor since 1963 and was resident at Boeing (Tr. 560, 561). His qualifications to draw the conclusions in his memorandum which is Exhibit G-4 are seriously challenged. He supports these conclusions with his "experience of financing with banks as a part of my reponsibilities with prior employers, oh, in the hundreds of thousands of dollars, and what is required in the way of a financial statement to support borrowings and that kind of thing" (Tr. 553); and his "knowledge of the financial world, you might say, and what is required" (Tr. 554), but acknowledges they were not based on any statement made to him by an official of the Boeing Company (Tr. 554).

It is not clear from the record as a whole whether the Government relates the costs identified as A.1, 2, 3, 4, 5, 7 and 8 above to the financing activities of 1958 when the 4-1/2% and 5% debentures were issued (and whose administrative costs then incurred in raising that capital were not included in any overhead for which reimbursement was claimed from the Government), on the theory that but for their issuance those costs would never have been incurred (Tr. 442-449), or if it relates them to the financing of 1966, to wit, the sale of some two million of additional capital stock, the sale of some $130,000,000 of 5-1/2% debentures and the sale of 6-3/8% long-term notes, on the theory that the call, redemption, conversion and split created a climate more favorable to that operation (Tr. 452-461).

We think neither theory is tenable, for the following as well as the foregoing reasons.

The "but-for" theory is far too tenuous to support the disallowance of costs which are, strictly speaking, not financing in nature and which otherwise are made expressly allowable, as in ASPR 15-205.24 and 15-205.41.

We cannot find on this record the facts necessary to support the "favorable climate" theory even if we were to attribute to it some validity in principle, for which, we add, we are furnished no authority. The Government's auditor did not demonstrate to our satisfaction, or to the degree we think should be required, that planned plant expansion in 1966 and 1967 and the expected buildup of inventories were of such a magnitude as to require Boeing to marshall all financial techniques and capabilities at its disposal and that paramount to the financing plan was the increase in common stock equity and anticipated bank borrowing made this increase mandatory.

Thirdly, in its relation to financing costs we think there has been a practical interpretation of the parties that costs incident to the stock-split of 1966 do not fall within the prohibition of ASPR 15-205.17. Certainly the term itself is succiciently ambiguous to warrant the application of the principle and the record shows that in 1956 there was a twofor-one split, the administrative costs of which, of the nature of those here involved, as well as of a 50% stock dividend in 1952, a 100% stock dividend in 1954, and smaller stock dividends in 1956, 1957, 1958, and 1959 were included in overhead, claimed to the extent allocable and allowed without question under the Company's Government contracts (Ex. A-8; Tr. 385-386).

This claim is stated in the letter of the Company's Comptroller (Tab IVb) and verified in his testimony (Tr. 378, 415 et seq.) as follows:

"For a number of years the Company has maintained open
lines of credit with a group of banks pursuant to which
it has from time to time borrowed its requirements for
working capital not generated by its daily operations.
The Company has never sought reimbursement under its
Government contracts for any of the interest paid for
such borrowings but the Company's costs of administering
these borrowings, including attorneys' fees related
thereto, have always been charged to overhead and
allocated as part of our general and administrative
expenses to all work. As of July 1, 1966 the Company
entered into a Revolving Credit Agreement with this
group of banks, the purpose of which was to reduce
to writing the banks' commitments to extend to the
Company an open line of credit of $300,000,000 for an
agreed period to time. This agreement was amended in
October 1966 to add one bank.

clusively legal fees and related expenses incurred in
connection with the negotiation and execution of these
agreements.

The charges of the special counsel, above, for fee and disbursements, were paid on invoices (Tab 1.7a and b) for professional services rendered a number of stated banking institutions "in connection with the preparation, execution and delivery of a Revolving Credit Agreement dated as of July 1, 1966 among The Boeing Company, the above-named banking institutions and First National City Bank, as Agent, for said banking institutions and in connection with the initial advance in the aggregate principal amount of $36,000,000 made on August 6, 1966 by said Banking institutions to The Boeing Company" (Tab 1.7a) and ". . . in connection with the preparation, execution and delivery of a Supplemental Agreement dated as of October 1, 1966 among The Boeing Company, the Bank and the Agent." (Tab 1.7b)

In support of its claimed allowability of this expenditure the appellant draws a distinction between capital as net worth plus long-term liabilities, the cost of raising which is made unallowable by the regulation, and working capital which this was a distinction recognized by Kohler, above, the Government's own authority on ASPR terms. (Dictionary for Accountants, p. 72, Fourth Ed., 1970, Prentice-Hall, Inc.). We think the distinction justifies the treatment of these fees as other costs (Except interest) of short term borrowings allowable under ASPR 15-201.2, 15-201.3, 15-204 and 15-205.31.

9.

B. Public Relations Expense

Boeing's 50th Anniversary occasioned headquarters costs in the amount of $157,413.87, claimed under item 9 for invitations and place cards for a civic banquet ($1,963.87), airline charter therefore for certain guests ($48,883.47), an East Coast tour of that replica ($2,647.44), shipping costs of a traveling model display ($3,386.40), an historical poster ($3,980.02), an historical motion picture ($80,329.27), and its TV showing ($2,725.00).

The allocable portion of these costs, as others claimed under the Public Relations category, have been disallowed under ASPR 15-205.1, 15-205.11 and 15-205.8 as advertising, and entertainment costs, and donations, respectively.

The purposes of the observance of the anniversary were to enhance the corporate image with the public, the customer and the local communities in which it operated, and improve employee morale and the company's competitive and sales position (Tab 16.4; Tr. 39).