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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 1999
Commission file number 1-442
THE BOEING COMPANY
7755 East Marginal Way South
Seattle, Washington 98108
Telephone: (206) 655-2121
State of incorporation: Delaware
IRS identification number: 91-0425694
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and has been subject to such filing requirements for the past 90
days.
As of April 30, 1999, there were 974,071,189 shares of common stock, $5.00
par value, issued and outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions except per share data)
(Unaudited)
Three months ended
March 31
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Sales and other operating revenues $14,392 $12,945
Cost of products and services 12,763 11,777
- ------------------------------------------------------------------------------
Gross profit 1,629 1,168
Equity in income (loss) from joint ventures 8 (47)
General and administrative expense 491 493
Research and development expense 361 487
Share-based plans expense 46 22
- ------------------------------------------------------------------------------
Operating earnings 739 119
Other income, principally interest 40 67
Interest and debt expense 109 113
- ------------------------------------------------------------------------------
Earnings before income taxes 670 73
Income taxes 201 23
- ------------------------------------------------------------------------------
Net earnings $ 469 $ 50
==============================================================================
Basic earnings per share $.50 $.05
==============================================================================
Diluted earnings per share $.50 $.05
==============================================================================
Cash dividends per share $.14 $.14
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions except per share data)
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
(Unaudited)
Assets
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 2,398 $ 2,183
Short-term investments 276 279
Accounts receivable 3,491 3,288
Current portion of customer and commercial financing 630 781
Deferred income taxes 1,488 1,495
Inventories, net of advances and progress billings 8,997 8,349
- ------------------------------------------------------------------------------
Total current assets 17,280 16,375
Customer and commercial financing 5,067 4,930
Property, plant and equipment, net 8,584 8,589
Deferred income taxes 405 411
Goodwill 2,291 2,312
Prepaid pension expense 3,530 3,513
Other assets 539 542
- ------------------------------------------------------------------------------
$37,696 $36,672
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Accounts payable and other liabilities $11,147 $10,733
Advances in excess of related costs 1,358 1,251
Income taxes payable 609 569
Short-term debt and current portion of long-term debt 821 869
- ------------------------------------------------------------------------------
Total current liabilities 13,935 13,422
Accrued retiree health care 4,852 4,831
Long-term debt 6,162 6,103
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
1,011,870,159 shares issued 5,059 5,059
Additional paid-in capital 1,263 1,147
Treasury shares, at cost - 38,101,416 and 35,845,731 (1,397) (1,321)
Retained earnings 9,175 8,706
Accumulated other comprehensive income (23) (23)
Unearned compensation (15) (17)
ShareValue Trust shares - 38,322,210 and 38,166,601 (1,315) (1,235)
- ------------------------------------------------------------------------------
Total shareholders' equity 12,747 12,316
- ------------------------------------------------------------------------------
$37,696 $36,672
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three months ended
March 31
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 469 $ 50
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Share-based plans 46 22
Depreciation and amortization 402 408
Changes in assets and liabilities -
Short-term investments 3 275
Accounts receivable (203) (178)
Inventories, net of advances and progress billings (648) (188)
Accounts payable and other liabilities 551 40
Advances in excess of related costs 107 (21)
Income taxes payable and deferred 53 23
Other (20) (42)
Accrued retiree health care 21 (1)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 781 388
- ------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and properties on lease - additions (472) (349)
Customer financing and properties on lease - reductions 436 273
Property, plant and equipment, net additions (320) (490)
- ------------------------------------------------------------------------------
Net cash used by investing activities (356) (566)
- ------------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 79 384
Debt repayments (68) (389)
Common shares purchased (103) (33)
Stock options exercised, other 19 30
Dividends paid (137) (142)
- ------------------------------------------------------------------------------
Net cash used by financing activities (210) (150)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 215 (328)
Cash and cash equivalents at beginning of year 2,183 4,420
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of first quarter $2,398 $4,092
==============================================================================
See notes to consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Consolidated Interim Financial Statements
The consolidated interim financial statements included in this report have been
prepared by the Company without audit. In the opinion of management, all
adjustments necessary for a fair presentation are reflected in the interim
financial statements. Such adjustments are of a normal and recurring nature.
The results of operations for the period ended March 31, 1999, are not
necessarily indicative of the operating results for the full year. The interim
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1998 Annual Report. Certain reclassifications have been made to prior periods
to conform with current reporting.
Note 2 - Subsequent Events
On April 30, 1999, the government of Greece announced its intention to purchase
more than 50 Lockheed Martin F-16 aircraft and 15 Dassault Mirage 2000-5
aircraft. As a result of this announcement, the Company has determined that
there is an impairment of certain F-15 program inventory costs incurred in
support of a potential sale to the government of Greece. A pretax charge of
approximately $45 is expected to be recorded in the second quarter of 1999
relating to this impairment.
Note 3 - Recognition of First Quarter 1998 Forward Loss for the Next-Generation
737 Program
During the first quarter of 1998, the Company recognized a forward loss pretax
charge of $350 attributable to the Next-Generation 737 program. This charge
represented an increase to the forward loss charge of $700 recognized by the
Company in the third quarter of 1997. The cumulative forward loss of $1,050 at
the end of the first quarter of 1998 represented the amount by which the
estimated production costs exceed the estimated revenue for the first 400 units
of the program. The current accounting quantity for the Next-Generation 737
program is 1,200 units. As of March 31, 1999, cumulative Next-Generation 737
airplane deliveries totaled 229.
Note 4 - Earnings per Share
The weighted average number of shares outstanding (in millions) used to
compute earnings per share for the periods ended March 31, 1999 and 1998,
are as follows:
First Quarter
-------------
1999 1998
---- ----
Basic shares 937.4 973.6
Diluted shares 945.2 985.1
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Note 4 - Earnings per Share (continued)
Basic earnings per share are calculated based on the weighted average
number of shares outstanding, excluding treasury shares and the
outstanding shares held by the ShareValue Trust. Diluted earnings per
share are calculated based on that same number of shares plus additional
dilutive shares representing stock distributable under stock option plans
computed using the treasury stock method plus contingently issuable shares
from other share-based plans.
Note 5 - Income Taxes
The effective income tax provision rate of 30.0% for the first three
months of 1999 is lower than the statutory federal rate principally due to
Foreign Sales Corporation tax benefits and current-year research and
development tax credits. Partially offsetting this reduction from the
statutory federal rate are state income taxes and non-deductibility of
goodwill. Net income tax payments (refunds) were $168 and $(2) for the
three months ended March 31, 1999 and 1998.
Note 6 - Accounts Receivable
Accounts receivable consisted of the following:
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
U.S. Government contracts $2,154 $2,058
Other 1,337 1,230
- ------------------------------------------------------------------------------
$3,491 $3,288
==============================================================================
Note 7 - Inventories
Inventories consisted of the following:
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
Commercial aircraft programs
and long-term contracts in progress $ 23,981 $ 24,812
Commercial spare parts, general stock
materials and other 2,204 2,162
- ------------------------------------------------------------------------------
26,185 26,974
Less advances and progress billings (17,188) (18,625)
- ------------------------------------------------------------------------------
$ 8,997 $ 8,349
==============================================================================
Inventory costs at March 31, 1999, included unamortized tooling of $1,841
and $761 relating to the 777 and Next-Generation 737 programs, and excess
deferred production costs of $1,755 and $541 relating to the 777 and
Next-Generation 737 programs.
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Note 8 - Customer and Commercial Financing
Customer and commercial financing consisted of the following:
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 809 $ 859
Investment in sales-type/financing leases 1,279 1,325
Operating lease equipment, at cost,
less accumulated depreciation
of $218 and $195 2,213 2,201
Commercial equipment financing
Notes receivable 553 534
Investment in sales-type/financing leases 608 548
Operating lease equipment, at cost,
less accumulated depreciation
of $127 and $129 498 510
- ------------------------------------------------------------------------------
Less valuation allowance (263) (266)
- ------------------------------------------------------------------------------
$5,697 $5,711
==============================================================================
Financing for aircraft is collateralized by security in the related asset, and
historically the Company has not experienced a problem in accessing such
collateral when necessary. Commercial equipment financing also includes
amounts attributable to regional aircraft, principally with fewer than 80 seats.
Note 9 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
Accounts payable $ 5,588 $ 5,263
Accrued compensation and employee benefit costs 2,604 2,326
Lease and other deposits 473 539
Other 2,482 2,605
- ------------------------------------------------------------------------------
$11,147 $10,733
==============================================================================
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Note 10 - Debt
Short- and long-term debt consisted of the following:
March 31 December 31
1999 1998
- ------------------------------------------------------------------------------
Unsecured debentures and notes:
8 7/8% due Sep. 15, 1999 $ 302 $ 304
8.25% due Jul. 1, 2000 200 200
8 3/8% due Feb. 15, 2001 179 180
7.565% due Mar. 30, 2002 53 54
9.25% due Apr. 1, 2002 120 120
6 3/4% due Sep. 15, 2002 298 298
6.35% due Jun. 15, 2003 300 299
7 7/8% due Feb. 15, 2005 208 208
6 5/8% due Jun. 1, 2005 292 292
6.875% due Nov. 1, 2006 248 248
8 1/10% due Nov. 15, 2006 175 175
9.75% due Apr. 1, 2012 348 348
8 3/4% due Aug. 15, 2021 398 398
7.95% due Aug. 15, 2024 300 300
7 1/4% due Jun. 15, 2025 247 247
8 3/4% due Sep. 15, 2031 248 248
8 5/8% due Nov. 15, 2031 173 173
6 5/8% due Feb. 15, 2038 300 300
7.50% due Aug. 15, 2042 100 100
7 7/8% due Apr. 15, 2043 173 173
6 7/8% due Oct. 15, 2043 125 125
Senior debt securities,
6.0% - 9.4%, due through 2011 51 55
Senior medium-term notes,
5.5% - 13.6%, due through 2017 1,375 1,320
Subordinated medium-term notes,
5.5% - 8.3%, due through 2004 45 55
Capital lease obligations due through 2008 420 433
Other notes 305 319
- ------------------------------------------------------------------------------
$6,983 $6,972
==============================================================================
The Company has $2,400 currently available under credit line agreements
with a group of commercial banks. The Company has complied with the
restrictive covenants contained in various debt agreements. In addition,
Boeing Capital Corporation, a corporation wholly owned by the Company, has
$240 available, but unused, under a credit line agreement with a group of
commercial banks. Total debt interest, including amounts capitalized, was
$131 and $130 for the three-month periods ended March 31, 1999 and 1998,
and interest payments were $156 and $149, respectively.
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Note 11 - Shareholders' Equity
Changes in shareholders' equity for the three-month periods ended March
31, 1999 and 1998, consisted of the following:
- ------------------------------------------------------------------------------
1999 1998
(Shares in thousands) Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Common stock
Beginning balance - January 1 1,011,870 $ 5,059 1,000,030 $ 5,000
Shares issued for the ShareValue Trust 11,253 56
Shares issued for incentive stock plans 510 3
- ------------------------------------------------------------------------------
Ending balance - March 31 1,011,870 $ 5,059 1,011,793 $ 5,059
==============================================================================
Additional paid-in capital
Beginning balance - January 1 $ 1,147 $ 1,090
Share-based compensation 46 22
Treasury shares issued for incentive
stock plans, net (12) (9)
Tax benefit related to incentive stock plans 2 7
Stock appreciation rights expired
or surrendered 5
Shares issued for the ShareValue Trust 494
ShareValue Trust market value adjustment 80 135
- ------------------------------------------------------------------------------
Ending balance - March 31 $ 1,263 $ 1,744
==============================================================================
Treasury stock
Beginning balance - January 1 35,846 $(1,321) 165 $ (9)
Treasury shares issued for incentive
stock plans, net (714) 27 (497) 25
Treasury shares acquired 2,969 (103) 656 (33)
- ------------------------------------------------------------------------------
Ending balance - March 31 38,101 $(1,397) 324 $ (17)
==============================================================================
Retained earnings
Beginning balance - January 1 $ 8,706 $ 8,147
Net earnings 469 50
- ------------------------------------------------------------------------------
Ending balance - March 31 $ 9,175 $ 8,197
==============================================================================
Accumulated other comprehensive income
Beginning balance - January 1 $ (23)
- ------------------------------------------------------------------------------
Ending balance - March 31 $ (23)
==============================================================================
Unearned compensation
Beginning balance - January 1 $ (17) $ (20)
Forfeitures 1 3
Amortization 1 1
- ------------------------------------------------------------------------------
Ending balance - March 31 $ (15) $ (16)
==============================================================================
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Note 11 - Shareholders' Equity (continued)
Changes in shareholders' equity for the three-month periods ended March
31, 1999 and 1998, consisted of the following:
- ------------------------------------------------------------------------------
1999 1998
(Shares in thousands) Shares Amount Shares Amount
- ------------------------------------------------------------------------------
ShareValue Trust
Beginning balance - January 1 38,167 $(1,235) 26,385 $(1,255)
Shares acquired from dividend reinvestment 155 100
Shares issued from common stock 11,253 (550)
Market value adjustment (80) (135)
- ------------------------------------------------------------------------------
Ending balance - March 31 38,322 $(1,315) 37,738 $(1,940)
==============================================================================
For the quarters ended March 31, 1999 and 1998, the Company did not incur
items to be reported in comprehensive income that were not already
included in the reported net earnings. As a result, comprehensive income
and net earnings were the same for these periods.
Note 12 - Share-Based Compensation
Beginning in the first quarter of 1998, the Company adopted the expense
recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which principally
applies to Performance Share awards, the ShareValue Trust plan, and stock
options.
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 Share 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.
In the first quarter of 1999, the Company awarded to executive management
5.2 million Performance Shares at an issue price of $36.25. The total
number of Performance Shares outstanding as of March 31, 1999, was 9.1
million.
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Note 13 - Contingencies
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most
significant legal proceedings are related to matters covered by insurance.
The Company is subject to U.S. Government investigations of its practices
from which civil, criminal or administrative proceedings could result.
Such proceedings could involve claims by the Government for fines,
penalties, compensatory and treble damages, restitution and/or
forfeitures. Under government regulations, a company, or one or more of
its operating divisions or subdivisions, can also be suspended or debarred
from government contracts, or lose its export privileges, based on the
results of investigations. The Company believes, based upon all available
information, that the outcome of any such government disputes and
investigations will not have a material adverse effect on its financial
position or continuing operations.
In 1991 the U.S. Navy notified the Company and General Dynamics
Corporation (the Team) that it was terminating for default the Team's
contract for development and initial production of the A-12 aircraft. The
Team filed a legal action to contest the Navy's default termination, to
assert its rights to convert the termination to one for "the convenience
of the Government," and to obtain payment for work done and costs incurred
on the A-12 contract but not paid to date. At December 31, 1998,
inventories included approximately $581 of recorded costs on the A-12
contract, against which the Company has established a loss provision of
$350. The amount of the provision, which was established in 1990, was
based on the Company's belief, supported by an opinion of outside counsel,
that the termination for default would be converted to a termination for
convenience, that the Team would establish a claim for contract
adjustments for a minimum of $250, that there was a range of reasonably
possible results on termination for convenience, and that it was prudent
to provide for what the Company then believed was the upper range of
possible loss on termination for convenience, which was $350. On December
19, 1995, the U.S. Court of Federal Claims ordered that the Government's
termination of the A-12 contract for default be converted to a termination
for convenience of the Government. On December 13, 1996, the Court issued
an opinion confirming its prior no-loss adjustment and no-profit recovery
order. On December 5, 1997, the Court issued an opinion confirming its
preliminary holding that plaintiffs were entitled to certain adjustments
to the contract funding, increasing the plaintiffs' possible recovery to
$1,200. On March 31, 1998, the Court entered a judgment, pursuant to a
March 30, 1998, opinion and order, determining that plaintiffs were
entitled to be paid that amount, plus statutory interest from June 26,
1991, until paid. Although the Government has appealed the resulting
judgment, the Company believes the judgment will be sustained. Final
resolution of the A-12 litigation will depend on such appeals and possible
further litigation, or negotiations, with the Government. If sustained,
however, the expected damages judgment, including interest, could result
in pretax income that would more than offset the $350 loss provision
established in 1990.
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On October 31, 1997, a federal securities lawsuit was filed against the Company
in the U.S. District Court for the Western District of Washington in Seattle.
The lawsuit named as defendants the Company and three of its executive officers.
Additional lawsuits of a similar nature have been filed. The plaintiffs in each
lawsuit seek to represent a class of purchasers of Boeing stock between July 21,
1997, and October 22, 1997, (the Class Period), including recipients of Boeing
stock in the McDonnell Douglas merger. July 21, 1997, was the date on which the
Company announced its second quarter results, and October 22, 1997, was the date
on which the Company announced charges to earnings associated with production
problems being experienced on commercial aircraft programs. The lawsuits
generally allege that the defendants desired to keep the Company's share price
as high as possible in order to ensure that the McDonnell Douglas shareholders
would approve the merger and, in the case of two of the individual defendants,
to benefit directly from the sale of Boeing stock during the Class Period.
The plaintiffs seek compensatory damages and treble damages. The Company
believes that the allegations are without merit and that the outcome of these
lawsuits will not have a material adverse effect on its earnings, cash flow or
financial position.
On June 6, 1998, sixteen African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint in
the U.S. District Court for the Western District of Washington (Washington
Class Action) alleging, on the basis of race, discrimination in promotions and
training. The plaintiffs also allege retaliation and harassment and seek, among
other things, an order certifying a class of all African American employees who
are currently working or have worked for the three companies during the past few
years. Also, on July 31, 1998, seven African American employees of the
helicopter division of the Military Aircraft and Missile Systems Group in
Philadelphia filed an action in the U.S. District Court for the Eastern
District of Pennsylvania (Philadelphia Class Action) alleging, on the basis of
race, discrimination in compensation, promotions and terminations. The
complaint also alleges retaliation at that division. Plaintiffs are seeking an
order certifying a class of all African American employees of The Boeing
Company. In September 1998, the Court denied plaintiffs' motion seeking class
certification, but allowed plaintiffs to renew their motion upon completion of
class discovery. On January 25, 1999, the U.S. District Court in the Western
District of Washington entered an order preliminarily approving a proposed
Consent Decree, which settles both the Washington Class Action and the
Philadelphia Class Action, along with a multi-plaintiff racial discrimination
lawsuit. The order, inter alia, conditionally certified a nationwide class of
20,000 current and former African American Boeing (including all U.S.
subsidiaries and former McDonnell Douglas Corporation and Rockwell
International Corporation) employees. If approved by the Court, the Company
will pay $15 allocated in a manner described in the proposed Consent Decree.
The Company will devise systems changes that will inform hourly employee class
members about the promotion selection process, and which employee was awarded
a certain promotion; provide training and other programs to assist employees
with career development; employ a consultant to assess these system changes;
implement across the system a revised first-level management selection process
and revised internal complaint process; and implement enforcement procedures
to maintain a harassment-free workplace. Objections to the proposed
settlement have been filed. A hearing is set for May 26, 1999, to determine
the fairness of the proposed Consent Decree, and if so determined, for the
Court to approve the Consent Decree. The Company believes that the proposed
Consent Decree, if approved, will not have a material adverse effect on its
earnings, cash flow or financial position.
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On June 21, 1994, a lawsuit was filed against McDonnell Douglas
Corporation ("MDC") in the U.S. District Court for the Northern District
of Oklahoma alleging a violation of the Employee Retirement Income
Security Act ("ERISA"). The lawsuit was certified as a class action
consisting of all employees of MDC at its Tulsa location as of December 3,
1993, and who were vested in one of two retirement plans offered at that
location. It alleges that a significant factor in the closing of the
Tulsa facility in 1994 was savings in pension and health care costs that
could be achieved through closing the plant. The plaintiffs seek
unspecified damages to compensate class members for the alleged loss of
benefits. MDC's motion for summary judgment was denied in late 1998.
Trial was conducted on the liability issues in April 1999. The Company
believes that the allegations are without merit and that the outcome of
this lawsuit will not have a material adverse effect on its earnings, cash
flow or financial position.
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Note 14 - Business Segment Data
Segment information for revenues, earnings, and research and development
consisted of the following:
- ------------------------------------------------------------------------------
Three months ended 1999 1998
- ------------------------------------------------------------------------------
Revenues:
Commercial Airplanes $ 9,781 $ 8,087
Military Aircraft and Missiles 2,967 2,949
Space and Communications 1,543 1,823
Customer and Commercial Financing / Other 187 199
Accounting differences / eliminations (86) (113)
- ------------------------------------------------------------------------------
Operating revenues $14,392 $12,945
==============================================================================
Net earnings:
Commercial Airplanes $ 382 $ 23
Military Aircraft and Missiles 322 252
Space and Communications 61 44
Customer and Commercial Financing / Other 102 124
Accounting differences / eliminations (29) (251)
Share-based plans expense (46) (22)
Other unallocated expense (53) (51)
- ------------------------------------------------------------------------------
Operating earnings $ 739 $ 119
==============================================================================
Other income, principally interest 40 67
Interest and debt expense (109) (113)
- ------------------------------------------------------------------------------
Earnings before income taxes 670 73
Income taxes (201) (23)
- ------------------------------------------------------------------------------
Net earnings $ 469 $ 50
==============================================================================
Research and development:
Commercial Airplanes $ 182 $ 283
Military Aircraft and Missiles 62 71
Space and Communications 117 133
- ------------------------------------------------------------------------------
Total research and development expense $ 361 $ 487
==============================================================================
For internal reporting purposes, the Company records Commercial Airplanes
revenue for airplanes transferred to other segments, and such transfers
may include airplanes accounted for as operating leases that are
considered transferred to the Customer and Commercial Financing / Other
segment. The revenue for these transfers is eliminated in the 'Accounting
differences / eliminations' caption.
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Note 14 - Business Segment Data (continued)
The Company records cost of sales for 7-series commercial airplane
programs under the program method of accounting described in Note 1 to the
audited consolidated financial statements included in the Company's 1998
Annual Report. For internal measurement purposes, the Commercial
Airplanes segment records cost of sales based on the cost of specific
units delivered, and to the extent that inventoriable costs exceed
estimated revenue, a loss is not recognized until delivery is made, which
is not in accordance with generally accepted accounting principles. The
adjustment between the internal measurement method and the program
accounting method of recording cost of sales is included in the
'Accounting differences / eliminations' caption of net earnings. This
adjustment totaled $28 and $(254) for the three months ended March 31,
1999 and 1998.
The 'Accounting differences / eliminations' caption of net earnings also
includes the impact of cost measurement differences between generally
accepted accounting principles and federal cost accounting standards.
This includes the following: the difference between pension costs
recognized under SFAS No. 87, Employers' Accounting for Pensions, and
under federal cost accounting standards, principally on a funding basis;
the differences between retiree health care costs recognized under SFAS
No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, and under federal cost accounting standards, principally on a
cash basis; and the differences in timing of cost recognition related to
certain activities, such as facilities consolidation, undertaken as a
result of mergers and acquisitions whereby such costs are expensed under
generally accepted accounting principles and deferred under federal cost
accounting standards. Additionally, the amortization of costs capitalized
in accordance with SFAS No. 34, Capitalization of Interest Cost, is
included in the 'Accounting differences / eliminations' caption.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenue
- -------
Sales of $14.4 billion for the first three months of 1999 were 11 percent
higher than sales for the comparable period of 1998. A total of 148
commercial jet aircraft were delivered, compared with 108 in the first
three months of 1998. Approximately 620 commercial aircraft deliveries
are currently projected for the full year 1999, compared with a total of
559 in 1998. Total sales for 1999 are projected to be in the $58 billion
range, compared with $56 billion in 1998.
Commercial jet aircraft deliveries were as follows:
First Three Months
---------------------------------------------------------
Model 1999 1998
---------------------------------------------------------
737 14 34
737 Next-Generation 61 12
747 14 12
757 17 11
767 11 10
777 23 20
MD-80 2 (2) 2
MD-90 5 4
MD-11 1 3 (1)
---------------------------------------------------------
Total 148 108
=========================================================
Commercial jet aircraft deliveries included deliveries under operating
lease, which are identified by parentheses in the above table. No revenue
is recorded at time of delivery for aircraft accounted for as operating
leases.
==============================================================================
| Forward-Looking Information Is Subject to Risk and Uncertainty |
| Certain statements in this report (including the projections that follow) |
| contain "forward-looking" information that involves risk and uncertainty, |
| including projections for production rates, deliveries, customer |
| financing, sales, revenues, operating margins, earnings, cash, scheduled |
| launches of products, research and development expense, inventory turn |
| rates, tax rates, employment, asset utilization, other trend projections, |
| and Y2K readiness. This forward-looking information is based upon a number |
| of assumptions, including assumptions regarding demand; internal |
| performance; customer financing; customer, supplier and subcontractor |
| performance; customer model selections; government policies and actions; |
| price-escalation; successful negotiation of contracts with the Company's |
| labor unions and favorable outcomes of certain pending sales campaigns. |
| Actual future results and trends may differ materially depending on a |
| variety of factors, including the Company's successful execution of |
| internal performance plans, including research and development, production |
16
<PAGE> 17
| recovery, production rate increases and decreases, production system |
| initiatives, other cost-reduction efforts, and Y2K readiness plans; the |
| cyclical nature of the Company's business; volatility of the market for |
| certain products; continued integration of McDonnell Douglas Corporation; |
| product performance risks associated with regulatory certifications of the |
| Company's commercial aircraft by the U.S. Government and foreign |
| governments; other regulatory uncertainties; collective bargaining labor |
| disputes; performance issues with key suppliers, subcontractors and |
| customers; customer model selections; governmental export and import |
| policies; factors that result in significant and prolonged disruption to |
| air travel worldwide; global trade policies; worldwide political stability |
| and economic conditions, particularly in Asia; price escalation trends; |
| changing priorities or reductions in the U.S. Government or foreign |
| government defense and space budgets; termination of government contracts |
| due to unilateral government action or failure to perform; and legal |
| proceedings. Additional information regarding these factors is contained |
| in the Company's Annual Report on Form 10-K for the year ended 1998. |
==============================================================================
Military Aircraft and Missiles and Space and Communications deliveries included
the following:
First Three Months
---------------------------------------------------------
1999 1998
---------------------------------------------------------
Military Aircraft and Missiles
C-17 2 2
F-15 9 7
F/A-18 C/D 6 10
F/A-18 E/F 2 -
T-45TS 3 4
CH-47 3 3
Space and Communications
767 AWACS 2 2
Delta II 2 4
The F/A-18 E/F aircraft are under a cost-type contract; sales are
recognized as work progresses rather than upon delivery.
Earnings
- --------
Net earnings of $469 million for the first quarter of 1999 reflect
increased operating margins in each of the three operating units.
Comparable net earnings for the same period of 1998 were $50 million,
which included after-tax charges of approximately $219 million forward
loss on the Next-Generation 737 program.
17
<PAGE> 18
Research and development expense totaled $361 million for the quarter,
compared with $487 million for the same period of 1998. Commercial
Airplanes segment research and development expense for first quarter 1999 was
$182 million, compared to $283 million for first quarter 1998. The reduced
expenditures were primarily due to reduced spending on the Next-Generation
737 models; the increased-capacity version 777-300, which first delivered
in second quarter 1998; and the 757-300, a stretched derivative of the
757-200, which will begin deliveries in second quarter 1999. Expenditures
continue for the 767-400ER, a stretched version of the 767-300ER, with
deliveries scheduled to begin in the year 2000. The 717-200 continues in
development, with flight test scheduled to begin later this year and first
delivery planned for third quarter 1999. Military Aircraft and Missiles
segment and Space and Communications segment had lower levels of
development expense, compared with the first quarter of 1998.
Based on current programs and schedules, research and development expense
for the full year 1999 is projected to be in the $1.5 billion to $1.7
billion range, compared with $1.9 billion in 1998.
The income tax provision for first quarter 1999 of 30.0% is lower than the
31.5% for the same period in 1998 due principally to an increase in
Foreign Sales Corporation tax benefits in 1999.
Income taxes have been settled with the Internal Revenue Service (IRS) for
all years through 1978, and IRS examinations have been completed through
1987. In connection with these examinations, the Company disagrees with
IRS proposed adjustments, and the years 1979 through 1987 are in
litigation. The Company has also filed refund claims for additional
research and development tax credits, primarily in relation to its fixed-
price government development programs. Successful resolutions will result
in increased income to the Company.
In December 1996, The Boeing Company filed suit in the U.S. District Court
for the Western District of Washington for the refund of over $400 in
federal income taxes and related interest. The suit challenged the IRS
method of allocating research and development costs for the purpose of
determining tax incentive benefits on export sales through the Company's
Domestic International Sales Corporation (DISC) and its Foreign Sales
Corporation (FSC) for the years 1979 through 1987. In September 1998, the
District Court granted the Company's motion for summary judgment. The
U.S. Department of Justice has appealed this decision. If the Company
were to prevail, the refund would additionally include interest computed
to the payment date. The issue could affect tax computations for
subsequent years; however, the financial impact would depend on the final
resolution of audits for these years.
The Company has significant financing assets and off-balance-sheet
commitments that are impacted by the market value of various jet aircraft,
including the MD-11 trijet model. The Company believes that it has
appropriately assessed the impact of aircraft market values on accounting
for such commitments and financing assets. A significant deterioration in
the MD-11 market value, however, could result in the requirement to adjust
related reserves. The Company will continue to monitor this market.
18
<PAGE> 19
Operating Profit
- ----------------
Commercial Airplanes Segment
A total of 148 commercial jet aircraft were delivered, compared with 108
in the first quarter of 1998. The overall Commercial Airplanes segment
operating profit margin, based on the unit cost of airplanes delivered,
was approximately 3.9 percent for the first three months of 1999, compared
with approximately 0.3 percent for the same period in 1998. This improved
margin was principally attributable to a greater number of deliveries,
further improvement in the learning curve for Next-Generation 737s and
777s and reduced research and development spending in the first quarter of
1999, compared with the same period in 1998. The projected segment
operating margin range for 1999 is in the range of 2 percent to 3 percent,
reflecting the impact of an increasingly higher percentage of new commercial
airplane program deliveries, continued pricing pressures and lower price-
escalation trends.
In the first quarter, the 757-300 received certification from both the
U.S. and European aviation authorities. Launch customer Condor-Flugdienst
of Germany took first delivery of the 757-300 in March. The 717-200
continues in flight test, with certification and the first delivery
expected in the third quarter. Fuel consumption data from the 717-200
flight test certification program show fuel burn improvements of as much
as 5 percent.
The Company continues to closely monitor the economic situation in Asia,
which has the potential to impact future deliveries, particularly widebody
models. Production will continue to be adjusted to reflect customer
requirements and the Company's capabilities.
Military Aircraft and Missiles Segment
Operating revenues of $3.0 billion for the first quarter 1999 were about
the same as first quarter 1998. The segment operating margin was 10.9
percent in the quarter of 1999, compared with 8.5 percent for the same
period in 1998. The 1999 first quarter results included a favorable
contract settlement related to prior years amounting to approximately $31
million after tax. The 1998 first quarter results included joint venture
development costs associated with the Bell Boeing 609 Civil Tiltrotor
program, which the Company transferred to Bell Helicopter Textron on March
1, 1998.
Firm orders on F-15s will continue production through early 2000. The
Company currently has significant exposure related to long-lead
requirements for the F-15 program for deliveries in 2000 and beyond. A
potential customer is evaluating the F-15 to meet its requirements for
this time period. Such a commitment will be required to mitigate an
earnings impact due to this exposure. A recent decision by the government
of Greece to procure aircraft other than F-15s is expected to result in a
pretax charge of approximately $45 million in the second quarter of 1999,
and has reduced the anticipated base of customers likely to order aircraft
beyond the current production.
19
<PAGE> 20
Space and Communications Segment
Operating revenues for the first quarter of 1999 were $1.5 billion, $0.3 billion
lower than the same period in 1998. The revenue decrease was primarily due to
fewer Delta II deliveries and a reduced level of activity on several cost-
reimbursement-type contracts. The segment operating margin was 4.0 percent,
which is higher when compared with 2.4 percent for the first quarter of 1998,
due to a reduced level of research and development spending and joint venture
development costs.
During the first quarter, Space and Communications delivered the final two of
four 767 Airborne Warning and Control System (AWACS) aircraft to the government
of Japan.
In March the world's first commercial rocket launch from a floating platform at
sea was successfully completed by Sea Launch. Boeing is a 40 percent partner in
Sea Launch with RSC Energia (25 percent) from Russia, Kvaerner Maritime (20
percent) from Norway, and KB Yuzhnoye / PO Yuzhmash (15 percent) from Ukraine.
Currently, Sea Launch has firm contracts for 16 launches and will begin
commercial operations later this year.
Customer and Commercial Financing / Other Segment
Revenues consist principally of interest from financing receivables and
lease income from operating lease equipment. Segment earnings additionally
reflect depreciation on leased equipment and expenses recorded against the
valuation allowance. No interest expense on debt is included in Customer
and Commercial Financing / Other segment earnings.
Liquidity and Capital Resources
- -------------------------------
The Company's financial liquidity position remains strong, with cash and
short-term investments totaling $2.7 billion at March 31, 1999, after
repurchasing 3.0 million shares for $103 million during the first quarter. To
date the Company has repurchased 38.2 million shares for $1.4 billion. Total
long-term debt is at 35% of total shareholders' equity plus debt. Revolving
credit line agreements with a group of major banks, totaling $2.64 billion,
remain available but unused.
Backlog
- -------
Contractual backlog of unfilled orders (which excludes purchase options and
announced orders for which definitive contracts have not been executed, and
unobligated Government contract funding) was as follows (dollars in billions):
March 31 Dec. 31
1999 1998
-------------------------------------------------------------
Commercial Airplanes $ 84.1 $ 86.1
Military Aircraft and Missiles 20.1 17.0
Space and Communications 9.6 9.8
-------------------------------------------------------------
Total $113.8 $112.9
=============================================================
Unobligated U.S. Government contract funding not included in backlog totaled
$20.7 billion at March 31, 1999, and $23.5 billion at December 31, 1998.
20
<PAGE> 21
Year 2000 (Y2K) Date Conversion
- -------------------------------
The Y2K issue exists because many systems, including computer, embedded,
facilities, and factory floor production equipment utilize a two-digit
date field to designate a year. As the century date change occurs, date-
sensitive systems may recognize the year 2000 as the year 1900, or not at
all. This inability to recognize or properly treat the year 2000 may
cause systems to process financial or operations information incorrectly.
State of readiness: The Company recognized this challenge early, and each
operating group started working on the problem in 1993. The Company's Y2K
strategy, to make systems "Y2K-ready," includes a common companywide focus
on policies, methods and correction tools, and coordination with customers
and suppliers. This focus has been on all systems potentially impacted by
the Y2K issue, including information technology (IT) systems and non-IT
systems, such as embedded, facilities and factory floor systems. Each
operating group has responsibility for its own conversion, in line with overall
guidance and oversight provided by a corporate-level steering committee.
The Company is capitalizing on its history of integrating large complex
systems, and has an experienced Y2K team and Program Management Office in
place headed by the Company's chief information officer. Since 1993 the
Company has identified approximately 14,000 systems and assessed each for
Y2K readiness. More than 90% of the systems were made Y2K-ready by
December 31, 1998. The majority of the remaining systems will be
completed by July 31, 1999.
A companywide, coordinated process to assess supplier readiness began in the
second quarter of 1998. The Company is unable to definitively determine that
all major suppliers will be Y2K-ready, but is preparing contingency plans to
mitigate the impact of performance failures by major suppliers.
Costs to address Y2K issues: The Company's Y2K conversion efforts have not
been budgeted and tracked as independent projects, but have occurred in
conjunction with normal sustaining activities. The Company estimates that Y2K
conversion efforts have averaged annually approximately $35 million over
the last three years, representing on average approximately 10% of the
total application-sustaining IT costs during that period. Y2K conversion
costs are expected to represent a lower percentage of total application-
sustaining IT costs in 1999. In addition to these sustaining costs, the
discretely identifiable costs associated with Y2K conversion activities are
expected to total $16 million. The Company does not expect a reduction in
sustaining costs when Y2K conversion activities are completed because normal
sustaining activities will be ongoing. Reprioritizing sustaining activities
to support Y2K has not had, and is not expected to have, an adverse impact on
operations.
Risks associated with Y2K issues: Due to the Company's early recognition and
start on resolving the Y2K issue, the Company believes there is low risk of any
internal critical system, embedded system, or other critical asset not being
Y2K-ready by the end of 1999. The Company continues to assess its risk exposure
attributable to external factors and suppliers, including suppliers outside the
United States. Additionally, the Company is working with its customers and
suppliers, conducting test scenarios to ensure Y2K readiness. Although the
Company has no reason to conclude that any specific supplier represents a risk,
the most reasonably likely worst-case Y2K scenario would entail production
disruption due to inability of suppliers to deliver critical parts.
21
<PAGE> 22
The Company's contingency planning has been divided into two phases:
Phase I - Develop a Corporate Business Continuity and Contingency Plan; and
Phase II - Implement Business Continuity and Contingency Plan through the Site
Transition Plan. Phase I is complete. The Company has developed a risk
assessment-based Year 2000 Business Continuity and Contingency Plan consistent
with the Company's computing disaster preparedness goal, which is to "reduce
vulnerability and enhance risk management." Where appropriate, this plan
leverages existing Company system and supplier contingency and disaster
recovery planning. This contingency planning incorporates information from
leading information technology organizations in the industry and government,
including the U.S. General Accounting Office (GAO) guideline, "Year 2000
Computing Crisis: Business Continuity and Contingency Planning," dated August
1998. The plan provides a structured approach to assist operating groups with
business continuity and contingency planning. Phase II - Implement
Business Continuity and Contingency Plan through the Site Transition Plan
- - is ongoing. A Site Year 2000 Transition Plan template has been developed
which encompasses the specific staffing and contingency plans for before, during
and after the Year 2000 rollover, as well as depicting the major elements
required to complete the plan. Each operating group is responsible for
developing and implementing a Site Year 2000 Transition Plan, and report monthly
status to executive management. Where applicable, the contingency operations
will employ the Company Disaster Preparedness Methodology. The Company
continues to work closely with local, state, and federal emergency management
organizations to ensure that coordinated plans are in place should
infrastructure problems occur in the year 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has financial instruments that are subject to interest rate
risk, principally short-term investments, fixed-rate notes receivable
attributable to customer financing, and debt obligations issued at a fixed
rate. Historically, the Company has not experienced material gains or
losses due to interest rate changes when selling short-term investments or
fixed-rate notes receivable. Additionally, the Company uses interest rate
swaps to manage exposure to interest rate changes. Based on the current
holdings of short-term investments and fixed-rate notes, as well as
underlying swaps, the exposure to interest rate risk is not material.
Fixed-rate debt obligations issued by the Company are generally not
callable until maturity.
The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies.
As a general policy, the Company substantially hedges foreign currency
commitments of future payments and receipts by purchasing foreign
currency-forward contracts. As of March 31, 1999, the notional value of
such derivatives was $586 million, with a net unrealized loss of $7
million. Less than two percent of receipts and expenditures are
contracted in foreign currencies, and the market risk exposure relating to
currency exchange is not material.
22
<PAGE> 23
REVIEW BY INDEPENDENT ACCOUNTANTS
The consolidated statement of financial position as of March 31, 1999, the
consolidated statements of operations for the three-month periods ended
March 31, 1999 and 1998, and the consolidated statements of cash flows for
the three-month periods ended March 31, 1999 and 1998, have been reviewed
by the registrant's independent accountants, Deloitte & Touche LLP, whose
report covering their review of the financial statements follows.
23
<PAGE> 24
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
The Boeing Company
Seattle, Washington
We have reviewed the accompanying condensed consolidated statement of
financial position of The Boeing Company and subsidiaries (the "Company")
as of March 31, 1999, and the related condensed consolidated statements of
operations and cash flows for the three-month periods ended March 31,
1999 and 1998. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of the Company
as of December 31, 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended
(not presented herein); and in our report dated January 26, 1999, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated statement of financial position as of December 31,
1998, is fairly stated, in all material respects, in relation to the
consolidated statement of financial position from which it has been
derived.
/s/ Deloitte & Touche LLP
Seattle, Washington
April 15, 1999
24
<PAGE> 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Various legal proceedings, claims and investigations related to products,
contracts and other matters are pending against the Company. Most
significant legal proceedings are related to matters covered by insurance.
The Company is subject to U.S. Government investigations of its practices
from which civil, criminal or administrative proceedings could result.
Such proceedings could involve claims by the Government for fines,
penalties, compensatory and treble damages, restitution and/or
forfeitures. Under government regulations, a company, or one or more of
its operating divisions or subdivisions, can also be suspended or debarred
from government contracts, or lose its export privileges, based on the
results of investigations. The Company believes, based upon all available
information, that the outcome of any such government disputes and
investigations will not have a material adverse effect on its financial
position or continuing operations.
In 1991 the U.S. Navy notified the Company and General Dynamics
Corporation (the Team) that it was terminating for default the Team's
contract for development and initial production of the A-12 aircraft. The
Team filed a legal action to contest the Navy's default termination, to
assert its rights to convert the termination to one for "the convenience
of the Government," and to obtain payment for work done and costs incurred
on the A-12 contract but not paid to date. At December 31, 1998,
inventories included approximately $581 of recorded costs on the A-12
contract, against which the Company has established a loss provision of
$350. The amount of the provision, which was established in 1990, was
based on the Company's belief, supported by an opinion of outside counsel,
that the termination for default would be converted to a termination for
convenience, that the Team would establish a claim for contract
adjustments for a minimum of $250, that there was a range of reasonably
possible results on termination for convenience, and that it was prudent
to provide for what the Company then believed was the upper range of
possible loss on termination for convenience, which was $350. On December
19, 1995, the U.S. Court of Federal Claims ordered that the Government's
termination of the A-12 contract for default be converted to a termination
for convenience of the Government. On December 13, 1996, the Court issued
an opinion confirming its prior no-loss adjustment and no-profit recovery
order. On December 5, 1997, the Court issued an opinion confirming its
preliminary holding that plaintiffs were entitled to certain adjustments
to the contract funding, increasing the plaintiffs' possible recovery to
$1,200. On March 31, 1998, the Court entered a judgment, pursuant to a
March 30, 1998, opinion and order, determining that plaintiffs were
entitled to be paid that amount, plus statutory interest from June 26,
1991, until paid. Although the Government has appealed the resulting
judgment, the Company believes the judgment will be sustained. Final
resolution of the A-12 litigation will depend on such appeals and possible
further litigation, or negotiations, with the Government. If sustained,
however, the expected damages judgment, including interest, could result
in pretax income that would more than offset the $350 loss provision
established in 1990.
25
<PAGE> 26
On October 31, 1997, a federal securities lawsuit was filed against the
Company in the U.S. District Court for the Western District of Washington
in Seattle. The lawsuit named as defendants the Company and three of its
executive officers. Additional lawsuits of a similar nature have been
filed. The plaintiffs in each lawsuit seek to represent a class of
purchasers of Boeing stock between July 21, 1997, and October 22, 1997,
(the Class Period), including recipients of Boeing stock in the McDonnell
Douglas merger. July 21, 1997, was the date on which the Company
announced its second quarter results, and October 22, 1997, was the date
on which the Company announced charges to earnings associated with
production problems being experienced on commercial aircraft programs.
The lawsuits generally allege that the defendants desired to keep the
Company's share price as high as possible in order to ensure that the
McDonnell Douglas shareholders would approve the merger and, in the case
of two of the individual defendants, to benefit directly from the sale of
Boeing stock during the Class Period. The plaintiffs seek compensatory
damages and treble damages. The Company believes that the allegations are
without merit and that the outcome of these lawsuits will not have a
material adverse effect on its earnings, cash flow or financial position.
On June 6, 1998, sixteen African American employees of The Boeing Company,
previously employed at several distinct units of The Boeing Company, McDonnell
Douglas Corporation and Rockwell International Corporation, filed a complaint in
the U.S. District Court for the Western District of Washington (Washington
Class Action) alleging, on the basis of race, discrimination in promotions and
training. The plaintiffs also allege retaliation and harassment and seek, among
other things, an order certifying a class of all African American employees who
are currently working or have worked for the three companies during the past few
years. Also, on July 31, 1998, seven African American employees of the
helicopter division of the Military Aircraft and Missile Systems Group in
Philadelphia filed an action in the U.S. District Court for the Eastern
District of Pennsylvania (Philadelphia Class Action) alleging, on the basis of
race, discrimination in compensation, promotions and terminations.
The complaint also alleges retaliation at that division. Plaintiffs are seeking
an order certifying a class of all African American employees of The Boeing
Company. In September 1998, the Court denied plaintiffs' motion seeking class
certification, but allowed plaintiffs to renew their motion upon completion of
class discovery. On January 25, 1999, the U.S. District Court in the Western
District of Washington entered an order preliminarily approving a proposed
Consent Decree, which settles both the Washington Class Action and the
Philadelphia Class Action, along with a multi-plaintiff racial discrimination
lawsuit. The order, inter alia, conditionally certified a nationwide class of
20,000 current and former African American Boeing (including all U.S.
subsidiaries and former McDonnell Douglas Corporation and Rockwell
International Corporation) employees. If approved by the Court, the Company
will pay $15 allocated in a manner described in the proposed Consent Decree.
The Company will devise systems changes that will inform hourly employee class
members about the promotion selection process, and which employee was awarded
a certain promotion; provide training and other programs to assist employees
with career development; employ a consultant to assess these system changes;
implement across the system a revised first-level management selection process
and revised internal complaint process; and implement enforcement procedures
to maintain a harassment-free workplace. Objections to the proposed settlement
have been filed. A hearing is set for May 26, 1999, to determine the fairness
of the proposed Consent Decree, and if so determined, for the Court to approve
the Consent Decree. The Company believes that the proposed Consent Decree, if
approved, will not have a materially adverse effect on its earnings, cash flow
or financial position.
26
<PAGE> 27
On June 21, 1994, a lawsuit was filed against McDonnell Douglas
Corporation ("MDC") in the U.S. District Court for the Northern District
of Oklahoma alleging a violation of the Employee Retirement Income
Security Act ("ERISA"). The lawsuit was certified as a class action
consisting of all employees of MDC at its Tulsa location as of December 3,
1993, and who were vested in one of two retirement plans offered at that
location. It alleges that a significant factor in the closing of the
Tulsa facility in 1994 was savings in pension and health care costs that
could be achieved through closing the plant. The plaintiffs seek
unspecified damages to compensate class members for the alleged loss of
benefits. MDC's motion for summary judgment was denied late in 1998.
Trial was conducted on the liability issues in April 1999. The Company
believes that the allegations are without merit and that the outcome of
this lawsuit will not have a material adverse effect on its earnings, cash
flow or financial position.
27
<PAGE> 28
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 26,
1999.
(b) At the Annual Meeting, in an uncontested election, four nominees of
the Board of Directors were elected directors for three-year terms
expiring on the date of the annual meeting in 2002. The votes were
as follows:
For Withheld
----------- ----------
Philip M. Condit 751,659,606 49,179,422
Kenneth M. Duberstein 778,095,333 22,743,695
John B. Fery 761,424,383 39,414,645
Lewis E. Platt 777,821,524 23,017,504
The terms of the following directors continued after the annual
meeting:
John H. Biggs John F. McDonnell Rozanne L. Ridgway
John E. Bryson William J. Perry Harry C. Stonecipher
Paul E. Gray Charles M. Pigott
(c) The results of voting on Proposals 2 through 6 were as follows:
2. A shareholder proposal asking the Board to establish a
committee to develop criteria for the bidding, acceptance and
implementation of military contracts failed to receive a
majority of the votes present.
# of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 34,984,076 3.74% 5.90% 6.29%
Against 520,965,798 55.64% 87.85% 93.71%
Abstain 37,089,612 3.96% 6.25%
Broker non-votes 207,799,542 22.19%
3. A shareholder proposal requesting the Board to adopt human
rights criteria for its business operations in or with the
People's Republic of China failed to receive a majority of the
votes present.
# of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 37,804,513 4.04% 6.37% 6.79%
Against 518,845,289 55.42% 87.49% 93.21%
Abstain 36,389,591 3.89% 6.14%
Broker non-votes 207,799,635 22.19%
4. A shareholder proposal recommending cumulative voting in the
election of directors failed to receive a majority of the votes
present.
# of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 150,395,918 16.06% 25.36% 26.53%
Against 416,524,028 44.49% 70.24% 73.47%
Abstain 26,097,344 2.79% 4.40%
Broker non-votes 207,821,738 22.20%
28
<PAGE> 29
5. A shareholder proposal requesting creation of the position
of independent lead director failed to receive a majority of
the votes present.
# of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 129,702,278 13.85% 21.87% 22.43%
Against 448,530,284 47.91% 75.63% 77.57%
Abstain 14,827,838 1.58% 2.50%
Broker non-votes 207,778,628 22.19%
6. A shareholder proposal recommending annual election of the
entire Board of Directors failed to receive a majority of
the votes present.
# of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 295,872,502 31.60% 49.89% 51.01%
Against 284,195,404 30.35% 47.92% 48.99%
Abstain 12,957,025 1.38% 2.18%
Broker non-votes 207,814,097 22.20%
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(15) Letter from independent accountants regarding unaudited
interim financial information. Page 30.
(27) Financial Data Schedule for the three-month period ending
March 31, 1999. Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered
by this report.
- - - - - - -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BOEING COMPANY
------------------------------
(Registrant)
May 10, 1999 /s/ Laurette T. Koellner
-------------- --------------------------------
(Date) Laurette T. Koellner
Vice President and Controller
29
<PAGE> 30
EXHIBIT (15)
Letter from Independent Accountants Regarding
Unaudited Interim Financial Information
The Boeing Company and Subsidiaries
The consolidated statement of financial position as of March 31, 1999, the
consolidated statements of operations for the three-month periods ended
March 31, 1999 and 1998, and the statements of cash flows for the three-
month periods ended March 31, 1999 and 1998, have been reviewed by the
registrant's independent accountants, Deloitte & Touche LLP, whose letter
regarding such unaudited interim financial information follows.
May 12, 1999
The Boeing Company
Seattle, Washington
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of The Boeing Company and subsidiaries (the
"Company") for the three-month periods ended March 31, 1999 and 1998 as
indicated in our report dated April 15, 1999; because we did not perform
an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in Registration Statement Nos. 2-48576, 33-
25332, 33-31434, 33-43854, 33-58798, 333-03191, 333-16363, 333-26867, 333-
32461, 333-32491, 333-32499, and 333-32567 of The Boeing Company on Form
S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of any
registration statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7
and 11 of that Act.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
30
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