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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, 2000
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 May 1, 2000, there were 907,147,937 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions except per share data)
(Unaudited)
Three months ended
March 31
- ------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------
Sales and other operating revenues $9,910 $14,392
Cost of products and services 8,547 12,758
- ------------------------------------------------------------------------------
1,363 1,634
Equity in income from joint ventures 31 8
General and administrative expense 490 491
Research and development expense 288 361
Loss on dispositions, net (5)
Share-based plans expense 60 46
- ------------------------------------------------------------------------------
Operating earnings 556 739
Other income, principally interest 149 40
Interest and debt expense (103) (109)
- ------------------------------------------------------------------------------
Earnings before income taxes 602 670
Income taxes 184 201
- ------------------------------------------------------------------------------
Net earnings $ 418 $ 469
==============================================================================
Basic earnings per share $.48 $.50
==============================================================================
Diluted earnings per share $.48 $.50
==============================================================================
Cash dividends per share $.14 $.14
==============================================================================
See notes to condensed consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in millions except per share data)
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
Assets (Unaudited)
- ------------------------------------------------------------------------------
Cash and cash equivalents $ 2,628 $ 3,354
Short-term investments 99 100
Accounts receivable 3,422 3,453
Current portion of customer and commercial financing 351 799
Deferred income taxes 1,708 1,467
Inventories, net of advances and progress billings 7,974 6,539
- ------------------------------------------------------------------------------
Total current assets 16,182 15,712
Customer and commercial financing 5,006 5,205
Property, plant and equipment, net 8,142 8,245
Goodwill 2,212 2,233
Prepaid pension expense 3,979 3,845
Other assets 1,039 907
- ------------------------------------------------------------------------------
$36,560 $36,147
==============================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------
Accounts payable and other liabilities $10,931 $11,269
Advances in excess of related costs 1,251 1,215
Income taxes payable 652 420
Short-term debt and current portion of long-term debt 1,044 752
- ------------------------------------------------------------------------------
Total current liabilities 13,878 13,656
Deferred income taxes 196 172
Accrued retiree health care 4,922 4,877
Long-term debt 5,709 5,980
Shareholders' equity:
Common shares, par value $5.00 -
1,200,000,000 shares authorized;
Shares issued - 1,011,870,159 and 1,011,870,159 5,059 5,059
Additional paid-in capital 1,621 1,684
Treasury shares, at cost - 104,199,201 and 102,356,897 (4,240) (4,161)
Retained earnings 10,905 10,487
Accumulated other comprehensive income 9 6
Unearned compensation (11) (12)
ShareValue Trust shares - 38,845,646 and 38,696,289 (1,488) (1,601)
- ------------------------------------------------------------------------------
Total shareholders' equity 11,855 11,462
- ------------------------------------------------------------------------------
$36,560 $36,147
==============================================================================
See notes to condensed consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Three months ended
March 31
- ------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $ 418 $ 469
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Share-based plans 60 46
Depreciation 323 381
Amortization of goodwill and intangibles 29 21
Customer and commercial financing valuation provision 1
Loss on dispositions, net 5
Changes in assets and liabilities -
Short-term investments 1 3
Accounts receivable 31 (203)
Inventories, net of advances and progress billings (1,435) (648)
Accounts payable and other liabilities (211) 551
Advances in excess of related costs 36 107
Income taxes payable and deferred 15 53
Other (274) (20)
Accrued retiree health care 45 21
- ------------------------------------------------------------------------------
Net cash provided (used) by operating activities (961) 786
- ------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and properties on lease, additions (397) (469)
Customer financing and properties on lease, reductions 1,011 436
Property, plant and equipment, net additions (205) (350)
Proceeds from dispositions 17 22
- ------------------------------------------------------------------------------
Net cash provided (used) by investing activities 426 (361)
- ------------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 125 79
Debt repayments (104) (68)
Common shares purchased (104) (103)
Stock options exercised, other 19 19
Dividends paid (127) (137)
- ------------------------------------------------------------------------------
Net cash used by financing activities (191) (210)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (726) 215
Cash and cash equivalents at beginning of year 3,354 2,183
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of 1st quarter $ 2,628 $2,398
==============================================================================
See notes to condensed consolidated financial statements.
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THE BOEING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Note 1 - Condensed Consolidated Interim Financial Statements
The condensed 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, 2000, 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 1999 Annual
Report. Certain reclassifications have been made to prior periods to conform
with current reporting.
Note 2 - Earnings per Share
The weighted average number of shares outstanding (in millions) used to
compute earnings per share for the periods ended March 31, 2000 and 1999,
are as follows:
First Quarter
-------------
2000 1999
---- ----
Basic shares 869.3 937.4
Diluted shares 878.0 945.2
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 3 - Income Taxes
The effective income tax provision rate of 30.5% for the first three months of
2000 is lower than the statutory federal rate, principally due to Foreign Sales
Corporation tax benefits. Partially offsetting this reduction from the statutory
federal rate are state income taxes and non-deductibility of goodwill. Net
income tax payments were $175 and $168 for the three months ended March 31, 2000
and 1999.
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Note 4 - Accounts Receivable
Accounts receivable consisted of the following:
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
U.S. Government contracts $1,894 $1,970
Other 1,528 1,483
- ------------------------------------------------------------------------------
$3,422 $3,453
==============================================================================
Note 5 - Inventories
Inventories consisted of the following:
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
Commercial aircraft programs and long-term
contracts in progress $ 21,191 $ 19,537
Commercial spare parts, general stock
materials and other 1,979 2,042
- ------------------------------------------------------------------------------
23,170 21,579
Less advances and progress billings (15,196) (15,040)
- ------------------------------------------------------------------------------
$ 7,974 $ 6,539
==============================================================================
Inventory costs at March 31, 2000, included unamortized tooling of $1,373 and
$566 relating to the 777 and Next-Generation 737 programs, and excess deferred
production costs of $1,424 and $750 relating to the 777 and Next-Generation 737
programs. There are no significant unamortized tooling or deferred production
costs associated with the 717 program.
Note 6 - Customer and Commercial Financing
Customer and commercial financing consisted of the following:
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 721 $ 781
Investment in sales type/financing leases 1,025 1,497
Operating lease equipment, at cost,
Less accumulated depreciation of $284 and $304 2,070 2,357
Commercial equipment financing
Notes receivable 781 730
Investment in sales-type/financing leases 511 506
Operating lease equipment, at cost,
Less accumulated depreciation of $103 and $92 527 408
- ------------------------------------------------------------------------------
Less valuation allowance (278) (275)
- ------------------------------------------------------------------------------
$5,357 $6,004
==============================================================================
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Note 6 - Customer and Commercial Financing (continued)
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.
The change in the valuation allowance for the first three months of 2000
consisted of the following:
Valuation
Allowance
- ------------------------------------------------------------------------------
Beginning balance - December 31, 1999 $(275)
Charged to costs and expenses (1)
Transfer from accrued liabilities (2)
- ------------------------------------------------------------------------------
Ending balance - March 31, 2000 $(278)
==============================================================================
Note 7 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
Accounts payable $ 4,689 $ 4,909
Accrued compensation and employee benefit costs 2,401 2,421
Lease and other deposits 694 647
Other 3,147 3,292
- ------------------------------------------------------------------------------
$10,931 $11,269
==============================================================================
Note 8 - Postretirement Plans
As of March 31, 2000, the actuarial assumptions used to calculate net periodic
pension income were the following: a discount rate of 7.50%, an expected return
on plan assets of 9.25%, and an annual rate of compensation increase of 5.5%.
The increase in the expected return on plan assets from 9.00% as of December 31,
1999, to 9.25% resulted in additional net periodic pension income of $21 in the
first quarter of 2000.
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Note 9 - Debt
Short- and long-term debt consisted of the following:
March 31 December 31
2000 1999
- ------------------------------------------------------------------------------
Unsecured debentures and notes:
8.25% due Jul. 1, 2000 $ 200 $ 200
8 3/8% due Feb. 15, 2001 176 177
7.565% due Mar. 30, 2002 52 52
9.25% due Apr. 1, 2002 120 120
6 3/4% due Sep. 15, 2002 299 298
6.35% due Jun. 15, 2003 300 300
7 7/8% due Feb. 15, 2005 207 207
6 5/8% due Jun. 1, 2005 293 293
6.875% due Nov. 1, 2006 249 248
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 28 30
Senior medium-term notes,
5.6% - 7.6%, due through 2017 1,357 1,426
Subordinated medium-term notes,
5.5% - 8.3%, due through 2004 45 45
Capital lease obligations due through 2008 375 386
Other notes 465 363
- ------------------------------------------------------------------------------
$6,753 $6,732
==============================================================================
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. Total debt interest, including
amounts capitalized, was $128 and $131 for the three-month periods ended March
31, 2000 and 1999, and interest payments were $143 and $156, respectively.
Additionally, Boeing Capital Corporation (BCC), a subsidiary wholly owned by the
Company, has filed shelf registrations with the Securities and Exchange
Commission totaling $1,200, on which $1,008 has been drawn. BCC has
additionally filed a Form S-3 Registration Statement for a public shelf
registration of $2,500 in debt securities.
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Note 10 - Shareholders' Equity
Changes in shareholders' equity for the three-month periods ended March 31, 2000
and 1999, consisted of the following:
- ------------------------------------------------------------------------------
2000 1999
(Shares in thousands) Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Common stock
Beginning balance - January 1 1,011,870 $ 5,059 1,011,870 $ 5,059
- ------------------------------------------------------------------------------
Ending balance - March 31 1,011,870 $ 5,059 1,011,870 $ 5,059
==============================================================================
Additional paid-in capital
Beginning balance - January 1 $ 1,684 $ 1,147
Share-based compensation 60 46
Treasury shares issued for
incentive stock plans, net (12) (12)
Tax benefit related to incentive stock plans 2 2
ShareValue Trust market value adjustment (113) 80
- ------------------------------------------------------------------------------
Ending balance - March 31 $ 1,621 $ 1,263
==============================================================================
Treasury stock
Beginning balance - January 1 102,357 $(4,161) 35,846 $(1,321)
Treasury shares issued for
incentive stock plans, net (608) 25 (714) 27
Treasury shares acquired 2,450 (104) 2,969 (103)
- ------------------------------------------------------------------------------
Ending balance - March 31 104,199 $(4,240) 38,101 $(1,397)
==============================================================================
Retained earnings
Beginning balance - January 1 $10,487 $ 8,706
Net earnings 418 469
- ------------------------------------------------------------------------------
Ending balance - March 31 $10,905 $ 9,175
==============================================================================
Accumulated other comprehensive income
Beginning balance - January 1 $ 6 $ (23)
Currency translation adjustment 3
- ------------------------------------------------------------------------------
Ending balance - March 31 $ 9 $ (23)
==============================================================================
Unearned compensation
Beginning balance - January 1 $ (12) $ (17)
Forfeitures 1
Amortization 1 1
- ------------------------------------------------------------------------------
Ending balance - March 31 $ (11) $ (15)
==============================================================================
ShareValue Trust
Beginning balance - January 1 38,696 $(1,601) 38,167 $(1,235)
Shares acquired from dividend
reinvestment 150 155
Market value adjustment 113 (80)
- ------------------------------------------------------------------------------
Ending balance - March 31 38,846 $(1,488) 38,322 $(1,315)
==============================================================================
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Note 10 - Shareholders' Equity (continued)
For the three months ended March 31, 2000 and 1999, the Company did not incur
items to be reported in comprehensive income that were not already included in
the reported net earnings, except for the $3 currency translation adjustment
reported for the three months ended March 31, 2000. As a result, comprehensive
income and net earnings were substantially the same for these periods.
Note 11 - Share-Based Compensation
Share-based plans expense for the three months ended March 31 included $26, $18
and $16 in 2000 and $14, $18 and $14 in 1999 attributable to Performance Shares,
ShareValue Trust, and stock options and other, respectively.
Note 12 - 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. Major
contingencies are discussed below.
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. As of March 31, 2000, 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 July 1, 1999, the United States Court of Appeals for the Federal Circuit
reversed a March 31, 1998, judgment of the United States Court of Federal Claims
for the Team. The 1998 judgment was based on a determination that the Government
had not exercised the required discretion before issuing a termination for
default. It converted the termination to a termination for convenience, and
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determined the Team was entitled to be paid $1,200, plus statutory interest from
June 26, 1991, until paid. The Court of Appeals remanded the case to the Court
of Federal Claims for a determination as to whether the Government is able to
sustain the burden of showing a default was justified and other proceedings.
Final resolution of the A-12 litigation will depend on such litigation and
possible further appeals or negotiations with the Government.
In the Company's opinion, the loss provision continues to provide adequately for
the reasonably possible reduction in value of A-12 net contracts in process as
of March 31, 2000, as a result of a termination of the contract for the
convenience of the Government. The Company has been provided with an opinion of
outside counsel that (i) the Government's termination of the contract for
default was contrary to law and fact, (ii) the rights and obligations of the
Company are the same as if the termination had been issued for the convenience
of the Government, and (iii) subject to prevailing on the issue that the
termination is properly one for the convenience of the Government, the probable
recovery by the Company is not less than $250.
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 names as defendants the Company and three of its then executive
officers. Additional lawsuits of a similar nature have been filed in the same
court. These lawsuits were consolidated on February 24, 1998. Initially, the
plaintiffs sought 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. By orders dated September 15, 1999, and February 3, 2000, plaintiffs
were granted leave to amend their complaint to broaden their action (1) to
encompass claims of the original proposed class members for Boeing securities
purchases made between April 7, 1997, and July 20, 1997; (2) to include certain
alleged misstatements purportedly made by the Company going back to April 7,
1997; and (3) to add allegations that the Company's 10-Q reports for the first
and second quarters of 1997 were false and misleading. The plaintiffs seek
compensatory damages and treble damages. The court has not yet ruled on
class certification. The action is currently set for trial on October 2, 2000.
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 October 19, 1999, an indictment was returned by a federal grand jury sitting
in the District of Columbia charging that McDonnell Douglas Corporation (MDC),
a wholly owned subsidiary of the Company, and MDC's Douglas Aircraft Company
division, conspired to and made false statements and concealed material
facts on export license applications and in connection with export licenses, and
possessed and sold machine tools in violation of the Export Administration Act.
The indictment also charges one employee with participation in the alleged
conspiracy. The indictment relates to the sale and export to China in 1993-1995
of surplus, used machine tools sold by Douglas Aircraft Company to China
National Aero-Technology Import and Export Corporation for use in connection
with the MD-80/90 commercial aircraft Trunkliner Program in China.
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As a result of the indictment, the Department of State has discretion to deny
defense-related export privileges to MDC or a division or subsidiary of MDC.
The agency exercised that discretion on January 5, 2000, by establishing a
"denial policy" with respect to defense-related exports of MDC and its
subsidiaries; most of MDC's major existing defense programs were, however,
excepted from that policy due to overriding U.S. foreign policy and national
security interests. Other exceptions may be granted. There can, however, be no
assurance as to how the Department will exercise its discretion as to program
or transaction exceptions for other programs or future defense-related exports.
In addition, the Department of Commerce has authority to temporarily deny other
export privileges to, and the Department of Defense has authority to suspend or
debar from contracting with the military departments, MDC or a division or
subsidiary of MDC. Neither agency has taken action adverse to MDC or its
divisions or subsidiaries thus far. Based upon all available information, the
Company does not expect actions that would have a material adverse effect on its
financial position or continuing operations. In the unanticipated event of a
conviction, MDC would be subject to Department of State and Department of
Commerce denials or revocations of MDC export licenses. MDC also would be
subject to Department of Defense debarment proceedings.
On February 25, 2000, a purported class action lawsuit alleging gender
discrimination and harassment was filed against The Boeing Company, Boeing North
American, Inc. and McDonnell Douglas Corporation. The complaint, filed with the
United States District Court in Seattle, alleges that the Company has engaged in
a pattern and practice of unlawful discrimination, harassment and retaliation
against females over the course of many years. The complaint, Beck v. Boeing,
names 28 women who have worked for Boeing in the Puget Sound area; Wichita,
Kansas; St. Louis, Missouri; and Tulsa, Oklahoma. On March 15, an amended
complaint was filed naming an additional 10 plaintiffs, including the first from
California. The lawsuit attempts to represent all women who currently work for
the Company, or who have worked for the Company in the past several years.
The Company has denied the allegation that it has engaged in any unlawful
"pattern and practice" and believes that the plaintiffs cannot satisfy the
rigorous requirements necessary to achieve the class action status they seek.
The Company intends to vigorously contest this lawsuit.
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Note 13 - Business Segment Data
Segment information for revenues, earnings, and research and development
consisted of the following:
- -------------------------------------------------------------------------------
Three months ended
March 31
2000 1999
- -------------------------------------------------------------------------------
Revenues:
Commercial Airplanes $5,171 $ 9,795
Military Aircraft and Missiles 2,899 2,967
Space and Communications 1,659 1,543
Customer and Commercial Financing/Other 175 173
Accounting differences/eliminations 6 (86)
- -------------------------------------------------------------------------------
Operating revenues $9,910 $14,392
===============================================================================
Earnings from operations:
Commercial Airplanes $ 259 $ 396
Military Aircraft and Missiles 298 322
Space and Communications 60 61
Customer and Commercial Financing/Other 105 88
Accounting differences/eliminations (48) (29)
Share-based plans (60) (46)
Other unallocated expense (58) (53)
- -------------------------------------------------------------------------------
Earnings from operations 556 739
Other income, principally interest 149 40
Interest and debt expense (103) (109)
- -------------------------------------------------------------------------------
Earnings before income taxes 602 670
Income taxes (184) (201)
- -------------------------------------------------------------------------------
Net earnings $ 418 $ 469
===============================================================================
Research and development:
Commercial Airplanes $ 103 $ 182
Military Aircraft and Missiles 61 62
Space and Communications 124 117
- -------------------------------------------------------------------------------
Total research and development expense $ 288 $ 361
===============================================================================
For internal reporting purposes, the Company records Commercial Airplanes
segment revenues 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 revenues for these transfers are eliminated in the 'Accounting
differences/eliminations' caption.
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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 1999 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 revenues, 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 $(78) and $28 for the three months
ended March 31, 2000 and 1999.
Customer advance payments prior to delivery may be delayed or contractually
deferred from a baseline schedule, resulting in the recognition of interest
income. Beginning in first quarter 2000, revenues and income resulting from
deferred customer advances were identified to the Commercial Airplanes
segment, and had previously been identified to the Customer and Commercial
Financing/Other segment. For first quarter 1999, $14 of revenues and
operating income had been reclassified from the Customer and Commercial
Financing/Other segment to the Commercial Airplanes segment to conform with
the first quarter 2000 presentation.
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
Revenues
- --------
Sales of $9.9 billion for the first three months of 2000 were 31% lower than
sales for the comparable period of 1999. Due to a strike by the Society of
Professional Engineering Employees in Aerospace (SPEEA), Commercial Airplanes
delivered 75 jets this quarter compared with 125 planned and 148 delivered in
the first quarter of 1999. The 40-day work stoppage ended on March 19, 2000. The
Company expects to recover and deliver about 490 airplanes for the full year
2000, as originally planned, compared with 620 in 1999. Total sales for 2000
are projected to be approximately $50 billion, compared with $58 billion in
1999.
Commercial jet aircraft deliveries were as follows:
1st Quarter
-------------------------------------------------
Model 2000 1999
-------------------------------------------------
717 3 (1) -
737 Classic 2 14
737 Next-Generation 39 61
747 4* 14
757 10 17
767 5 11
777 10 23
MD-80 - 2 (2)
MD-90 - 5
MD-11 2 1
-------------------------------------------------
Total 75 148
=================================================
*Includes one Airborne Laser 747
===============================================================================
| Forward-Looking Information Is Subject to Risk and Uncertainty |
| Certain statements in this release contain "forward-looking" information |
| that involves risk and uncertainty, including projections for new business |
| and new business opportunities (including "new frontier" aerospace |
| opportunities and e-commerce global aerospace and defense trading exchange),|
| revenues and revenue growth potential, execution of post-strike recovery |
| plans, operating margins and margin growth potential, deliveries, |
| compliance with delivery schedules, performance against company targets, |
| research and development, new products, current and future markets for the |
| Company's products, acquisition of the Hughes space and communications |
| business and synergies expected in connection therewith, orders and |
| contracts for company products, decisions regarding production of company |
| products, launches, sales, earnings, cash, disposition of certain company |
| businesses, performance against key metrics of the Company's value |
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| scorecard, inventory turns, facilities consolidation, overhead reduction, |
| supplier base reduction, and other trend projections. This forward-looking |
| information is based upon a number of assumptions including assumptions |
| regarding demand; current and future markets for the Company's products and |
| services; internal performance; product performance; customer financing; |
| customer, supplier and subcontractor performance; customer model selections;|
| favorable outcomes of certain pending sales campaigns; supplier contract |
| negotiations; price escalation; government policies and actions; successful |
| negotiation of contracts with the Company's labor unions; regulatory |
| approvals; and successful execution of acquisition and divestiture plans. |
| 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 continued research and development, production |
| recovery, production rate increases and decreases, production system |
| initiatives, timing of product deliveries and launches, supplier contract |
| negotiations, asset management plans, acquisition and divestiture plans, |
| procurement plans, and other cost-reduction efforts; acceptance of new |
| products and services; product performance risks; the cyclical nature of |
| some of the Company's businesses; volatility of the market for certain |
| products and services; domestic and international competition in the |
| defense, space and commercial areas; continued integration of acquired |
| businesses; uncertainties associated with regulatory certifications of the |
| Company's commercial aircraft by the U.S. Government and foreign |
| governments; actions by regulatory agencies in regard to the proposed |
| acquisition of the Hughes space and communications business and other new |
| ventures; other regulatory uncertainties; collective bargaining labor |
| disputes; performance issues with key suppliers, subcontractors and |
| customers; 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; real estate market fluctuations in areas where company|
| facilities are located; price escalation trends; the outcome of political |
| and legal processes, including uncertainty regarding government funding of |
| certain programs; 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; legal, |
| financial and governmental risks related to international transactions; |
| legal proceedings; and other economic, political and technological risks and|
| uncertainties. Additional information regarding these factors is contained |
| in the Company's SEC filings, including, without limitation, the Company's |
| Annual Report on Form 10-K for the year ended 1999. |
===============================================================================
Commercial jet aircraft deliveries included deliveries under operating lease,
which are identified by parentheses in the previous table. Aircraft accounted
for as operating leases have minimal revenues recorded at the time of
delivery.
16
<PAGE> 17
Military Aircraft and Missiles segment deliveries included the following:
1st Quarter
------------------------------------------------
Model 2000 1999
------------------------------------------------
C-17 3 2
F-15 4 9
F/A-18 C/D 6 6
F/A-18 E/F 4 2
T-45TS 4 3
CH-47 1 3
AH-64 Intl (New Builds) 2 3
AH-64 Reman 14 11
Space and Communications segment deliveries included the following:
1st Quarter
------------------------------------------------
Model 2000 1999
------------------------------------------------
767 AWACS - 2
Delta II 2 2
Earnings
- --------
Net earnings for the first quarter of 2000 were $418 million, compared with $469
million for the same period last year. First quarter earnings, on an after-tax
basis, included a $26 million, or $.03 per share, gain on the sale of a
long-held equity investment; and $33 million, or $.04 per share, of interest
income from a federal income tax audit settlement. Excluding these items,
first quarter earnings were $.41 per share.
Research and development expense totaled $288 million for the quarter, compared
with $361 million for the same period of 1999. Commercial Airplanes segment
research and development expense of $103 million for first quarter 2000 was
lower than the $182 million expense for first quarter 1999, principally due to
reduced spending attributable to the effects of the SPEEA strike. Based on
current programs and schedules, research and development expense for the full
year 2000 is projected to be approximately $1.5 billion, compared with $1.3
billion in 1999.
For first quarter 2000, the calculation of net periodic benefit income related
to pensions was based on a discount rate of 7.5%, an expected return on plan
assets of 9.25%, and an annual rate of compensation increase of 5.5%. The full
year pension income for 2000 is estimated to be $470 million. Additionally,
the net periodic benefit costs attributable to retiree health care is
estimated to be $548 million for the full year 2000.
17
<PAGE> 18
Income taxes have been settled with the Internal Revenue Service (IRS) for all
years through 1978, and all IRS examinations have been completed through 1991.
Issues not resolved at the IRS examination stage are either in appeals with
the IRS or are being litigated. The Company has 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 million 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 Company's position
prevailed when 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 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 those years.
The European Union filed a challenge to U.S. Foreign Sales Corporation tax
provisions with the World Trade Organization (WTO). On February 25, 2000, the
WTO issued a final decision upholding this challenge. Officials representing
the United States on trade issues continue to seek resolution through a
negotiated settlement. It is not possible to predict what impact, if any, this
issue will have on future earnings pending final determination of the manner
and scope of the U.S. Government response.
The Company has significant financing assets and off-balance-sheet commitments
that are impacted by the market value of various jet aircraft. 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 market value, however, could result in the requirement to
adjust related reserves. The Company will continue to monitor this market.
Operating Earnings
- ------------------
Commercial Airplanes
First quarter 2000 commercial jet aircraft deliveries totaled 75, compared with
148 in the same period in 1999. Commercial Airplanes segment first quarter
2000 operating earnings, based on the unit cost of airplanes delivered, were
$259 million, compared with $396 million for the same period in 1999. The
overall Commercial Airplanes segment operating profit margin was approximately
5.0% for the first quarter of 2000, compared with 4.0% for the same period
in 1999. The first quarter 2000 deliveries reflect a less favorable airplane
model mix regarding margins; however, this was more than offset principally by
productivity improvements. In addition, the Company realized in the
first quarter 2000, $50 million of advance payments resulting from the
cancellation of customer orders.
18
<PAGE> 19
As of March 31, 2000, the Company had cumulatively delivered 15 717 program
aircraft. The 717 program is accounted for under the program method of
accounting described in Note 1 to the audited consolidated financial
statements in the Company's 1999 Annual Report. The Company has established
the program accounting quantity at 200 units. The Company will record 717
deliveries on a break-even basis until such time as program reviews indicate
positive gross profit within the program accounting quantity. Such program
reviews could include revised assumptions of revenues and costs, or an increase
in the program quantity if warranted by additional program orders.
Current firm contracts for the 717 program include a contract for 50 airplanes
with Trans World Airlines (TWA) of which one has delivered. In April 1999,
Moody's rating agency lowered TWA's Outlook from Stable to Negative.
Two longer-range 777 models were launched during the first quarter of 2000 to
address market demand for airlines to offer long-range, point-to-point
services. The new 777-200 will carry up to 301 passengers and have a range of
10,148 miles, while the larger new 777-300 will carry up to 359 passengers and
have a range of 8,314 miles.
Military Aircraft and Missiles
Military Aircraft and Missiles segment first quarter 2000 operating earnings
were $298 million, compared with $322 million operating earnings for the same
period in 1999. Increased deliveries of the C-17 were offset by fewer F-15
deliveries. The operating margin of 10.3% for first quarter of 2000 compares
with a first quarter 1999 margin of 10.9%, or 9.0% when adjusted for a
one-time first quarter 1999 gain due to a contract settlement.
On April 4, the Boeing Sikorsky RAH-66 Comanche program won approval to begin
its $3.1 billion engineering and manufacturing development phase. The new U.S.
Army Aviation Modernization Plan also has recommended acquisition of more than
1,200 Comanche helicopters valued at nearly $34 billion over the production
cycle of the program.
Space and Communications
Space and Communications segment first quarter 2000 operating earnings were $60
million, compared with $61 million operating earnings for the same period in
1999. The segment's operating margin for the first quarter was 3.6%,
compared with 4.0% for the same period in 1999. Higher research and
development costs in first quarter 2000 relate principally to the Delta IV
launch vehicle and the new 737-based early warning and control aircraft.
Delta II had two successful launches in the quarter. Delta III is expected to
return to flight later this year, and production at the new Delta IV facility
in Decatur, Alabama, is on schedule for an initial launch in 2001. In
addition, Boeing and Mitsubishi Heavy Industries Ltd. announced a joint effort
to design and develop a new, higher performing, upper stage engine for the
next generation of expendable launch vehicles.
19
<PAGE> 20
The commercial satellite market is the key factor in determining the need for
commercial launch services. Recent delays in the start-up of commercial
satellite programs and system changes have caused a softening of the market.
These factors, combined with the lack of a successful Delta III launch, may
adversely affect the future financial condition of Delta III program. The
Company may be required to accept a reduced-price launch to return the program
to flight, or perform a demonstration launch at company expense to prove
system reliability.
On March 12, 2000, Sea Launch, a joint venture of which Boeing is a 40%
partner, experienced a mission failure. A Joint Review Failure Oversight Board
was formed to identify the root cause of the failure and the corrective action
required. Sea Launch continues to pursue return-to-flight scenarios through
negotiations with customers and anticipates another launch this summer.
Continued softening of the launch market could result in significant financial
exposure to the venture.
During the quarter, the first Airborne Laser 747-400 was delivered to the U.S.
Air Force for modification to carry the laser systems and the third successful
Patriot Advance Capability-3 (PAC-3) missile defense intercept test was
performed.
On January 13, 2000, the Company announced an agreement to acquire the Hughes
space and communications business and related operations for $3.75 billion. The
transaction is subject to regulatory and government reviews and is expected to
be finalized in the last half of 2000. Hughes is a technological leader in
space-based communications, reconnaissance, surveillance and imaging systems.
It is also a leading manufacturer of commercial satellites. Under the
definitive agreement, the Company will acquire Hughes Electron Dynamics, a
supplier of electronic components for satellites, and Spectrolab, a provider
of solar cells and panels for satellites.
Customer and Commercial Financing/Other
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, 2000, after repurchasing
2.5 million shares for $104 million during the first three months of 2000. To
date the Company has repurchased 106.6 million shares for $4.3 billion under a
share repurchase plan approved by the Board of Directors. Excluding Boeing
Capital Corporation (BCC), a financing subsidiary wholly owned by the Company,
total long-term debt is at 26% of total shareholders' equity plus debt.
The consolidated long-term debt, including BCC, is at 33% of total shareholders'
equity plus debt. Revolving credit line agreements with a group of major banks,
totaling $2.40 billion, remain available but unused. Also, BCC has an unused
balance of $192 million on its $1.2 billion shelf registration, and an
additional shelf registration of $2.5 billion.
20
<PAGE> 21
The Company believes its internally generated liquidity, together with access to
external capital resources, will be sufficient to satisfy existing commitments
and plans, and also to provide adequate financial flexibility to take advantage
of potential strategic business opportunities should they arise.
Backlog
- -------
Contractual backlog of unfilled orders (which excludes purchase options and
announced orders for which definitive contracts have not been executed, and
unobligated U.S. Government contract funding) was as follows (dollars in
billions):
March 31 December 31
------------------------------------------------------------
2000 1999
------------------------------------------------------------
Commercial Airplanes $ 75.7 $73.0
Military Aircraft and Missiles 16.8 15.6
Space and Communications 9.6 10.6
------------------------------------------------------------
Total contractual backlog $102.1 $99.2
============================================================
Unobligated U.S. Government contract funding not included in backlog totaled
$23.7 billion at March 31, 2000, compared with $24.4 billion at December 31,
1999.
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, 2000, the notional value of such derivatives was
$466 million, with a net unrealized loss of $16 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.
21
<PAGE> 22
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. Major
contingencies are discussed below.
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. As of March 31, 2000, inventories included approximately
$581 million of recorded costs on the A-12 contract, against which the Company
has established a loss provision of $350 million. 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 million, 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 million.
On July 1, 1999, the United States Court of Appeals for the Federal Circuit
reversed a March 31, 1998, judgment of the United States Court of Federal
Claims for the Team. The 1998 judgment was based on a determination that the
Government had not exercised the required discretion before issuing a
termination for default. It converted the termination to a termination for
convenience, and determined the Team was entitled to be paid $1,200 million,
plus statutory interest from June 26, 1991, until paid. The Court of Appeals
remanded the case to the Court of Federal Claims for a determination as to
whether the Government is able to sustain the burden of showing a default was
justified and other proceedings. Final resolution of the A-12 litigation will
depend on such litigation and possible further appeals or negotiations with
the Government.
22
<PAGE> 23
In the Company's opinion, the loss provision continues to provide adequately for
the reasonably possible reduction in value of A-12 net contracts in process as
of March 31, 2000, as a result of a termination of the contract for the
convenience of the Government. The Company has been provided with an opinion
of outside counsel that (i) the Government's termination of the contract for
default was contrary to law and fact, (ii) the rights and obligations of the
Company are the same as if the termination had been issued for the convenience
of the Government, and (iii) subject to prevailing on the issue that the
termination is properly one for the convenience of the Government, the
probable recovery by the Company is not less than $250 million.
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 names as defendants the Company and three of its then executive
officers. Additional lawsuits of a similar nature have been filed in the same
court. These lawsuits were consolidated on February 24, 1998. Initially, the
plaintiffs sought 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. By orders dated September 15, 1999, and
February 3, 2000, plaintiffs were granted leave to amend their complaint to
broaden their action (1) to encompass claims of the original proposed class
members for Boeing securities purchases made between April 7, 1997 and July
20, 1997; (2) to include certain alleged misstatements purportedly made by the
Company going back to April 7, 1997; and (3) to add allegations that the
Company's 10-Q reports for the first and second quarters of 1997 were false
and misleading. The plaintiffs seek compensatory damages and treble damages.
The court has not yet ruled on class certification. The action is currently
set for trial on October 2, 2000. 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 October 19, 1999, an indictment was returned by a federal grand jury sitting
in the District of Columbia charging that McDonnell Douglas Corporation (MDC),
a wholly owned subsidiary of the Company, and MDC's Douglas Aircraft Company
division, conspired to and made false statements and concealed material facts
on export license applications and in connection with export licenses, and
possessed and sold machine tools in violation of the Export Administration
Act. The indictment also charges one employee with participation in the
alleged conspiracy. The indictment relates to the sale and export to China in
1993-1995 of surplus, used machine tools sold by Douglas Aircraft Company to
China National Aero-Technology Import and Export Corporation for use in
connection with the MD-80/90 commercial aircraft Trunkliner Program in China.
23
<PAGE> 24
As a result of the indictment, the Department of State has discretion to deny
defense-related export privileges to MDC or a division or subsidiary of MDC.
The agency exercised that discretion on January 5, 2000, by establishing a
"denial policy" with respect to defense-related exports of MDC and its
subsidiaries; most of MDC's major existing defense programs were, however,
excepted from that policy due to overriding U.S. foreign policy and national
security interests. Other exceptions may be granted. There can, however, be no
assurance as to how the Department will exercise its discretion as to program
or transaction exceptions for other programs or future defense-related
exports. In addition, the Department of Commerce has authority to temporarily
deny other export privileges to, and the Department of Defense has authority
to suspend or debar from contracting with the military departments, MDC or a
division or subsidiary of MDC. Neither agency has taken action adverse to MDC
or its divisions or subsidiaries thus far. Based upon all available
information, the Company does not expect actions that would have a material
adverse effect on its financial position or continuing operations. In the
unanticipated event of a conviction, MDC would be subject to Department of
State and Department of Commerce denials or revocations of MDC export
licenses. MDC also would be subject to Department of Defense debarment
proceedings.
On February 25, 2000, a purported class action lawsuit alleging gender
discrimination and harassment was filed against The Boeing Company, Boeing
North American, Inc. and McDonnell Douglas Corporation. The complaint, filed
with the United States District Court in Seattle, alleges that the Company has
engaged in a pattern and practice of unlawful discrimination, harassment and
retaliation against females over the course of many years. The complaint, Beck
v. Boeing, names 28 women who have worked for Boeing in the Puget Sound area;
Wichita, Kansas; St. Louis, Missouri; and Tulsa, Oklahoma. On March 15, an
amended complaint was filed naming an additional 10 plaintiffs, including the
first from California. The lawsuit attempts to represent all women who
currently work for the Company, or who have worked for the Company in the past
several years.
The Company has denied the allegation that it has engaged in any unlawful
"pattern and practice" and believes that the plaintiffs cannot satisfy the
rigorous requirements necessary to achieve the class action status they seek.
The Company intends to vigorously contest this lawsuit.
24
<PAGE> 25
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May 1,
2000.
(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 2003. The
votes were as follows:
For Withheld
----------- ----------
Paul E. Gray 698,745,934 34,260,063
John F. McDonnell 698,429,415 34,576,582
John M. Shalikashvili 707,917,521 25,088,476
Harry C. Stonecipher 689,580,275 43,425,722
The terms of the following directors continued after the annual
meeting:
John H. Biggs Kenneth M. Duberstein Lewis E. Platt
John E. Bryson John F. Fery Rozanne L. Ridgway
Philip M. Condit Charles M. Pigott
(c) The results of voting on Proposals 2 through 9 were as follows:
2. A management proposal requesting shareholder approval of an
amendment to The Boeing Company 1997 Incentive Stock Plan to
increase the number of shares that may be issued under the
plan from 30 million to 61 million.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 595,637,887 68.66% 81.26% 82.23%
Against 128,726,951 14.84% 17.56% 17.77%
Abstain 8,641,159 1.00% 1.18%
3. A shareholder proposal requesting the Company to disclose all
significant promises made to foreign governments or foreign
firms in connection with foreign military sales, intended to
offset their U.S. dollar cost of weapons purchased by foreign
nations.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 40,191,140 4.63% 7.11% 7.56%
Against 491,266,667 56.62% 86.93% 92.44%
Abstain 33,673,477 3.88% 5.96%
Broker non-votes 167,874,714 19.35%
25
<PAGE> 26
4. A shareholder proposal requesting the Board to institute a
special Executive Compensation Review to find ways to link
compensation of its key executives with corporate social
performance.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 56,548,717 6.52% 10.01% 10.42%
Against 486,239,202 56.05% 86.04% 89.58%
Abstain 22,343,365 2.58% 3.95%
Broker non-votes 167,874,714 19.35%
5. A shareholder proposal requesting the Board to adopt a policy
of cumulative voting.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 142,190,297 16.39% 25.16% 25.68%
Against 411,565,408 47.44% 72.83% 74.32%
Abstain 11,345,851 1.31% 2.01%
Broker non-votes 167,903,841 19.35%
6. A shareholder proposal requesting the Board to adopt a policy
requiring an independent outside Lead Director when the offices
of Chair and CEO are held by the same person.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 147,350,146 16.98% 26.07% 26.71%
Against 404,236,170 46.59% 71.53% 73.29%
Abstain 13,544,925 1.56% 2.40%
Broker non-votes 167,874,757 19.35%
7. A shareholder proposal requesting the Board to amend the
corporate by-laws adopt annual election of all directors as
corporate policy.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 273,303,711 31.50% 48.36% 49.16%
Against 282,651,943 32.58% 50.02% 50.84%
Abstain 9,170,215 1.06% 1.62%
Broker non-votes 167,880,129 19.35%
26
<PAGE> 27
8. A shareholder proposal requesting the Board to adopt a
policy of paying non-employee directors solely in stock units
and tying their compensation to the rank of the Company's
earnings per share compared with the earnings per share of
other companies in the S&P Aerospace Index.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 72,596,194 8.37% 12.85% 13.09%
Against 482,068,748 55.56% 85.30% 86.91%
Abstain 10,466,341 1.21% 1.85%
Broker non-votes 167,874,715 19.35%
9. A shareholder proposal recommending deduction of certain
litigation costs from Executive Compensation.
Number of % of Eligible % of Votes % of Votes
Votes Votes Present For or Against
----------- ------------- ---------- --------------
For 61,022,063 7.03% 10.80% 11.03%
Against 492,416,171 56.76% 87.14% 88.97%
Abstain 11,659,659 1.34% 2.06%
Broker non-votes 167,908,105 19.35%
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(15) Letter from independent accountants regarding unaudited
interim financial information. Page 28.
(27) Financial Data Schedule for the three-month period ending
March 31, 2000. Filed herewith.
- - - - - - -
27
<PAGE> 28
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed consolidated statement of financial position as of March 31, 2000,
the condensed consolidated statements of operations for the three-month
periods ended March 31, 2000 and 1999, and the condensed consolidated
statements of cash flows for the three-month periods ended March 31, 2000 and
1999, have been reviewed by the registrant's independent accountants, Deloitte &
Touche LLP, whose report covering their review of the financial statements
follows.
28
<PAGE> 29
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, 2000, and the related condensed consolidated statements of operations for
the three-month periods ended March 31, 2000 and 1999, and the related
condensed consolidated statements of cash flows for the three-month periods
ended March 31, 2000 and 1999. 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 auditing standards generally accepted in the
United States of America, 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 accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated statement of
financial position of the Company as of December 31, 1999, 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 28, 2000, 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, 1999, 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
Deloitte & Touche LLP
Seattle, Washington
April 27, 2000
29
<PAGE> 30
- - - - - - -
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 5, 2000 /s/ Laurette T. Koellner
------------- ---------------------------------------
(Date) Laurette T. Koellner
Vice President and Corporate Controller
30
<PAGE> 31
EXHIBIT (15)
Letter from Independent Accountants Regarding
Unaudited Interim Financial Information
The Boeing Company and Subsidiaries
See Deloitte & Touche LLP letter on page 32.
31
<PAGE> 32
May 5, 2000
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, 2000 and 1999 as indicated in our report
dated April 27, 2000; 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, 2000, 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
32
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