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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
June 30, 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 July 31, 2000, there were 897,265,854 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)
Six months ended Three months ended
June 30 June 30
-------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------
Sales and other operating revenues $24,751 $29,514 $14,841 $15,122
Cost of products and services 21,491 26,178 12,944 13,420
-------------------------------------------------------------------------------
3,260 3,336 1,897 1,702
Equity in income (loss) from joint ventures 30 12 (1) 4
General and administrative expense 1,032 1,016 542 525
Research and development expense 663 711 375 350
Gain on dispositions, net 13 7 13 12
Share-based plans expense 127 96 67 50
-------------------------------------------------------------------------------
Operating earnings $ 1,481 $ 1,532 $ 925 $ 793
Other income, principally interest 222 375 73 335
Interest and debt expense (210) (219) (107) (110)
-------------------------------------------------------------------------------
Earnings before income taxes 1,493 1,688 891 1,018
Income taxes 455 518 271 317
-------------------------------------------------------------------------------
Net earnings $ 1,038 $ 1,170 $ 620 $ 701
===============================================================================
Basic earnings per share $1.20 $1.25 $.71 $.75
===============================================================================
Diluted earnings per share $1.18 $1.24 $.71 $.75
===============================================================================
Cash dividends per share $ .28 $ .28 $.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)
June 30 December 31
2000 1999
-------------------------------------------------------------------------------
Assets (Unaudited)
-------------------------------------------------------------------------------
Cash and cash equivalents $ 4,772 $ 3,354
Short-term investments 100 100
Accounts receivable 3,552 3,453
Current portion of customer and commercial financing 319 799
Deferred income taxes 1,906 1,467
Inventories, net of advances and progress billings 6,193 6,539
-------------------------------------------------------------------------------
Total current assets 16,842 15,712
Customer and commercial financing 5,227 5,205
Property, plant and equipment, net 8,070 8,245
Goodwill 2,191 2,233
Prepaid pension expense 4,114 3,845
Other assets 1,033 907
-------------------------------------------------------------------------------
$37,477 $36,147
===============================================================================
Liabilities and Shareholders' Equity
-------------------------------------------------------------------------------
Accounts payable and other liabilities $11,318 $11,269
Advances in excess of related costs 1,449 1,215
Income taxes payable 962 420
Short-term debt and current portion of long-term debt 933 752
-------------------------------------------------------------------------------
Total current liabilities 14,662 13,656
Deferred income taxes 141 172
Accrued retiree health care 4,968 4,877
Long-term debt 5,657 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 1,814 1,684
Treasury shares, at cost - 104,199,201 and 102,356,897 (4,468) (4,161)
Retained earnings 11,272 10,487
Accumulated other comprehensive income 4 6
Unearned compensation (10) (12)
ShareValue Trust shares - 38,845,646 and 38,696,289 (1,622) (1,601)
-------------------------------------------------------------------------------
Total shareholders' equity 12,049 11,462
-------------------------------------------------------------------------------
$37,477 $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)
Six months ended
June 30
-------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------
Cash flows - operating activities:
Net earnings $1,038 $1,170
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Share-based plans 127 96
Depreciation 641 749
Amortization of goodwill and intangibles 57 53
Customer and commercial financing valuation provision 9 20
Gain on dispositions, net (13) (7)
Changes in assets and liabilities -
Short-term investments 54
Accounts receivable (102) (410)
Inventories, net of advances and progress billings 350 (282)
Accounts payable and other liabilities 51 950
Advances in excess of related costs 234 (48)
Income taxes payable and deferred 72 158
Other (416) (278)
Accrued retiree health care 91 42
-------------------------------------------------------------------------------
Net cash provided by operating activities 2,139 2,267
-------------------------------------------------------------------------------
Cash flows - investing activities:
Customer financing and properties on lease, additions (669) (927)
Customer financing and properties on lease, reductions 1,040 891
Property, plant and equipment, net additions (452) (712)
Proceeds from dispositions 75 48
-------------------------------------------------------------------------------
Net cash used by investing activities (6) (700)
-------------------------------------------------------------------------------
Cash flows - financing activities:
New borrowings 196 145
Debt repayments (338) (210)
Common shares purchased (348) (676)
Stock options exercised, other 29 41
Dividends paid (254) (273)
-------------------------------------------------------------------------------
Net cash used by financing activities (715) (973)
-------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,418 594
Cash and cash equivalents at beginning of year 3,354 2,183
-------------------------------------------------------------------------------
Cash and cash equivalents at end of 2nd quarter $4,772 $2,777
===============================================================================
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 June 30, 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 June 30, 2000 and 1999, are as
follows:
First Six Months Second Quarter
---------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Basic shares 867.8 934.2 866.6 931.3
Diluted shares 876.9 942.6 876.1 940.5
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.
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Note 3 - Available for Sale Securities
The Company holds certain common stock investments with a readily determinable
fair market value. Under Statement of Financial Accounting Standard (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, such
equity securities are carried as available for sale and reported at market
value. The aggregate value of all available for sale securities held on June
30, 2000, totaled $33, and is included in "other assets" on the condensed
Consolidated Statements of Financial Position.
The unrealized gains and losses are excluded from earnings and reported in a
separate component of shareholders' equity. The gross unrealized holding losses
totaled $6 for the period ended June 30, 2000.
Note 4 - Income Taxes
The effective income tax provision rate of 30.5% for the first six 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 $351 and $563 for the six months ended
June 30, 2000 and 1999.
Note 5 - Accounts Receivable
Accounts receivable consisted of the following:
June 30 December 31
2000 1999
-------------------------------------------------------------------------------
U.S. Government contracts $2,007 $1,970
Other 1,545 1,483
-------------------------------------------------------------------------------
$3,552 $3,453
===============================================================================
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Note 6 - Inventories
Inventories consisted of the following:
June 30 December 31
2000 1999
-------------------------------------------------------------------------------
Commercial aircraft programs and
long-term contracts in progress $ 19,169 $ 19,537
Commercial spare parts, general
stock materials and other 1,912 2,042
-------------------------------------------------------------------------------
21,081 21,579
Less advances and progress billings (14,888) (15,040)
-------------------------------------------------------------------------------
$ 6,193 $ 6,539
===============================================================================
Inventory costs at June 30, 2000, included unamortized tooling of $1,240 and
$510 relating to the 777 and Next-Generation 737, and excess deferred
production costs of $1,368 and $627 relating to the 777 and Next-Generation 737
programs. There are no significant deferred production costs or unamortized
tooling associated with the 717 program.
Note 7 - Customer and Commercial Financing
Customer and commercial financing consisted of the following:
June 30 December 31
2000 1999
-------------------------------------------------------------------------------
Aircraft financing
Notes receivable $ 673 $ 781
Investment in sales-type/financing leases 989 1,497
Operating lease equipment, at cost,
Less accumulated depreciation of $327 and $304 2,090 2,357
Commercial equipment financing
Notes receivable 828 730
Investment in sales-type/financing leases 661 506
Operating lease equipment, at cost,
Less accumulated depreciation of $72 and $92 507 408
-------------------------------------------------------------------------------
Less valuation allowance (202) (275)
-------------------------------------------------------------------------------
$5,546 $6,004
===============================================================================
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Note 7 - 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 six months of 2000
consisted of the following:
Valuation
Allowance
-------------------------------------------------------------------------------
Beginning balance - December 31, 1999 $(275)
Charged to costs and expenses (9)
Deductions from reserves 82
-------------------------------------------------------------------------------
Ending balance - June 30, 2000 $(202)
===============================================================================
Note 8 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the following:
June 30 December 31
2000 1999
-------------------------------------------------------------------------------
Accounts payable $ 5,042 $ 4,909
Accrued compensation and employee benefit costs 2,559 2,421
Dividends payable 126 128
Lease and other deposits 429 647
Other 3,162 3,164
-------------------------------------------------------------------------------
$11,318 $11,269
===============================================================================
Note 9 - Postretirement Plans
Beginning January 1, 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 5.50%. 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 second quarter of 2000 and $42 for the six months
ended June 30, 2000.
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Note 10 - Debt
Short- and long-term debt consisted of the following:
June 30 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 50 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 206 207
6 5/8% due Jun. 1, 2005 294 293
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
7.865% 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 27 30
Senior medium-term notes,
5.6% - 7.6%, due through 2017 1,350 1,426
Subordinated medium-term notes,
5.5% - 8.3%, due through 2004 45 45
Capital lease obligations due through 2008 420 386
Other notes 267 363
-------------------------------------------------------------------------------
$6,590 $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 $259 and $261 for the six-month periods ended June 30,
2000 and 1999, and interest payments were $253 and $239, respectively.
Additionally, Boeing Capital Corporation (BCC), a wholly owned subsidiary of
the Company, has filed shelf registrations with the Securities and Exchange
Commission totaling $1,200, on which $1,060 has been drawn. BCC has
additionally filed a Form S-3 Registration Statement for a public shelf
registration of $2,500 in debt securities, and has made no draw-downs as of
June 30, 2000.
Short-term debt and current portion of long-term debt as of June 30, 2000,
consist of the following: $376 of unsecured debentures and notes, $300 of
senior debt securities, senior medium-term notes, and subordinated medium-term
notes, $71 of capital lease obligations, and $186 of other notes.
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Note 11 - Shareholders' Equity
Changes in shareholders' equity for the six-month periods ended June 30, 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 - June 30 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 127 96
Treasury shares issued for
incentive stock plans, net (22) (26)
Tax benefit related to incentive stock plans 4 5
ShareValue Trust market value adjustment 21 431
-------------------------------------------------------------------------------
Ending balance - June 30 $ 1,814 $ 1,653
===============================================================================
Treasury stock
Beginning balance - January 1 102,357 $(4,161) 35,846 $(1,321)
Treasury shares issued for
incentive stock plans, net (1,017) 41 (1,597) 59
Treasury shares acquired 8,700 (348) 16,286 (676)
-------------------------------------------------------------------------------
Ending balance - June 30 110,040 $(4,468) 50,535 $(1,938)
===============================================================================
Retained earnings
Beginning balance - January 1 $10,487 $ 8,706
Net earnings 1,038 1,170
Cash dividends declared (253) (271)
-------------------------------------------------------------------------------
Ending balance - June 30 $11,272 $ 9,605
===============================================================================
Accumulated other comprehensive income
Beginning balance - January 1 $ 6 $ (23)
Unrealized losses on certain investments (6)
Foreign currency translation adjustment 4
-------------------------------------------------------------------------------
Ending balance - June 30 $ 4 $ (23)
===============================================================================
Unearned compensation
Beginning balance - January 1 $ (12) $ (17)
Amortization 2 1
Forfeitures 2
-------------------------------------------------------------------------------
Ending balance - June 30 $ (10) $ (14)
===============================================================================
ShareValue Trust
Beginning balance - January 1 38,696 $(1,601) 38,167 $(1,235)
Shares acquired from dividend reinvestment 281 278
Market value adjustment (21) (431)
-------------------------------------------------------------------------------
Ending balance - June 30 38,977 $(1,622) 38,445 $(1,666)
===============================================================================
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Note 11 - Shareholders' Equity (continued)
For the six months ended June 30, 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 $4 currency translation adjustment
and $6 unrealized losses on certain investments reported for the six months
ended June 30, 2000. As a result, comprehensive income and net earnings were
substantially the same for these periods.
Note 12 - Share-Based Compensation
Share-based plans expense consisted of the following:
Six months ended Three months ended
June 30 June 30
-------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------
Performance shares $ 58 $36 $32 $22
ShareValue Trust 36 36 18 18
Stock Options, other 33 24 17 10
-------------------------------------------------------------------------------
$127 $96 $67 $50
===============================================================================
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. 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 June 30, 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
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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 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 June 30, 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. 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 period from April
7, 1997 through October 22, 1997. By order dated May 1, 2000, the Court
certified two subclasses of plaintiffs in the action: a. all persons or
entities who purchased Boeing stock or call options or who sold put options
during the period from July 21, 1997 through October 22, 1997, and b. all
persons or entities who purchased McDonnell Douglas stock on or after April 7,
1997 and who held such stock until it converted to Boeing stock pursuant to the
merger. The plaintiffs seek compensatory damages and treble damages. The action
is currently set for trial on June 4, 2001. 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.
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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 charged one employee with participation in the alleged
conspiracy; the indictment has since been dismissed as against this employee.
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.
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.
Plaintiffs' motion for class certification must be filed by August 25, 2000.
The Company intends to vigorously contest this lawsuit.
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Note 14 - Business Segment Data
Segment information for revenues, earnings, and research and development
consisted of the following:
Six months ended Three months ended
June 30 June 30
-------------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------------
Revenues:
Commercial Airplanes $15,051 $19,917 $ 9,880 $10,122
Military Aircraft and Missiles 6,057 6,177 3,158 3,210
Space and Communications 3,457 3,272 1,798 1,729
Customer and Commercial Financing/Other 355 357 180 184
Accounting differences/eliminations (169) (209) (175) (123)
-------------------------------------------------------------------------------
Operating revenues $24,751 $29,514 $14,841 $15,122
===============================================================================
Earnings from operations:
Commercial Airplanes $ 1,141 $ 844 $ 882 $ 448
Military Aircraft and Missiles 548 690 250 368
Space and Communications 22 155 (38) 94
Customer and Commercial Financing/Other 220 192 115 104
Accounting differences/eliminations (247) (120) (199) (91)
Share-based plans (127) (96) (67) (50)
Other unallocated expense (76) (133) (18) (80)
-------------------------------------------------------------------------------
Earnings from operations $ 1,481 $ 1,532 $ 925 $ 793
Other income, principally interest 222 375 73 335
Interest and debt expense (210) (219) (107) (110)
-------------------------------------------------------------------------------
Earnings before income taxes $ 1,493 $ 1,688 $ 891 $ 1,018
Income taxes 455 518 271 317
-------------------------------------------------------------------------------
Net earnings $ 1,038 $ 1,170 $ 620 $ 701
===============================================================================
Research and development:
Commercial Airplanes $ 263 $ 366 $ 160 $ 184
Military Aircraft and Missiles 125 119 64 57
Space and Communications 275 226 151 109
-------------------------------------------------------------------------------
Total research and development expense $ 663 $ 711 $ 375 $ 350
===============================================================================
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. For the 717 program, the cost of the specific units
delivered is reduced, on a per-unit basis, by the amount previously recognized
for forward losses. Proceeds from certain Commercial Airplanes segment suppliers
attributable to participation in development efforts are accounted for as a
reduction in the cost of inventory received from the supplier under the program
accounting method, and as an expense reduction in the period the proceeds are
received for internal measurement purposes. These adjustments between the
internal measurement method and the program accounting method are included in
the 'Accounting differences/eliminations' caption of net earnings. These
adjustments totaled $(321) and $(7) for the six months ended June 30, 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 the first six months of 1999, $27 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
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 differences 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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-------------------------------------------------------------------------------
| 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 |
| 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. |
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16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues
--------
Sales of $24.8 billion for the first six months of 2000 were 16% lower than
sales for the comparable period of 1999. Sales of $14.8 billion in second
quarter 2000 were 2% lower than sales for the comparable period of 1999. For
the first six months, a total of 242 commercial aircraft were delivered in 2000
(including one Airborne Laser 747), compared with 313 for the same period in
1999. In second quarter 2000, 167 commercial airplanes were delivered compared
with 165 in second quarter 1999. Approximately 490 commercial aircraft
deliveries are currently projected for the full year 2000, compared with 620 in
1999. Total sales for 2000 are projected to be in the $51 billion range,
compared with $58 billion in 1999.
Commercial jet aircraft deliveries were as follows:
Six months ended Three months ended
June 30 June 30
--------------------------------------------------------------------
Model 2000 1999 2000 1999
--------------------------------------------------------------------
717 11 (5) - 8 (4) -
737 Classic 2 25 - 11
737 Next-Generation 141 139 102 78
747 12* 26 8 12
757 28 36 18 19
767 18 25 13 14
777 27 45 17 22
MD-80 - 8 (8) - 6 (6)
MD-90 - 6 - 1
MD-11 3 3 1 2
--------------------------------------------------------------------
Total 242 313 167 165
====================================================================
*Includes one Airborne Laser 747
Commercial jet aircraft deliveries included deliveries under operating lease,
which are identified by parentheses in the table above. Aircraft accounted for
as operating leases have minimal revenues recorded at the time of delivery.
17
<PAGE> 18
Military Aircraft and Missiles segment deliveries included the following:
Six months ended Three months ended
June 30 June 30
----------------------------------------------------------------
Model 2000 1999 2000 1999
----------------------------------------------------------------
C-17 6 5 3 3
F-15 5 21 1 12
F/A-18C/D 14 14 8 8
F/A-18E/F 11 6 7 4
T-45TS 9 6 5 3
CH-47 4 7 3 4
AH-64 Intl (New Builds) 4 6 2 3
AH-64 Reman 29 23 15 12
Space and Communications segment deliveries included the following:
Six months ended Three months ended
June 30 June 30
----------------------------------------------------------------
Model 2000 1999 2000 1999
----------------------------------------------------------------
767 AWACS - 2 - -
Delta II 2 5 - 3
Delta III - 1 - 1
Earnings
--------
Net earnings for the second quarter of 2000 were $620 million, compared with
$701 million for the same period in 1999. The second quarter 1999 results
included net interest income of $289 million, or $181 million after tax,
associated with a partial agreement between the Company and the Internal
Revenue Service on an IRS examination of the years 1988 through 1991.
Net earnings for the first half of 2000 were $1,038 million, or 11.3% lower
than the net earnings of $1,170 million for the same period of 1999. Earnings
for the first six months of 2000 included a pretax gain of $41 million, or $26
million on an after-tax basis, on a sale of a long-held equity instrument, and
interest income of $53 million, or $33 million on an after-tax basis, related
to interest income from a federal income tax audit settlement. Net earnings
for the first six months of 1999 included the second-quarter interest income
from the partial tax agreement discussed above.
Research and development expense for the first six months of 2000 totaled $663
million. This represents a 6.7% decrease from the same period in 1999. Research
and development expense totaled $375 million for the quarter, compared with
$350 million for the same period of 1999. Commercial Airplanes research and
development expense of $160 million for second quarter 2000 was lower than the
$184 million expense for second quarter 1999, principally due to reduced
spending attributable to the 767-400ER and 717 programs. Commercial Airplanes
research and development for 2000 includes increased spending attributable to
development of two longer-range 777 models. Total Commercial Airplanes research
and development expense is projected to increase in the second half of 2000
since first-half 2000 spending was impacted by the 40-day work stoppage by the
18
<PAGE> 19
Society of Professional Engineering Employees in Aerospace (SPEEA) which ended
March 19, 2000. Space and Communications segment research and development
expense of $151 million for second quarter 2000 was higher than the $109
million expense for the second quarter of 1999, and principally reflects
continued spending on the Delta IV program and development for Connexion by
Boeing, a mobile, high-speed, broad-band, two-way data communications service
for global travelers. 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.
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.
19
<PAGE> 20
Operating Earnings
------------------
Commercial Airplanes
Second quarter 2000 commercial jet aircraft deliveries totaled 167 compared
with 165 during the same period in 1999, and 75 for first quarter 2000. The
increase in second quarter 2000 deliveries relative to the first quarter
resulted from the Company substantially recovering from the first-quarter 2000
SPEEA strike. Commercial Airplanes segment second quarter 2000 operating
earnings, based on the unit cost of airplanes delivered, were $882 million,
compared with $448 million for the same period in 1999. The overall Commercial
Airplanes segment operating profit margin was approximately 8.9% for the second
quarter of 2000, compared with 4.4% for the same period in 1999 and 5.0% for
the first quarter of 2000. The second quarter 2000 margin increase over the
same period in 1999 primarily reflects improvements in the production process.
The margin increase over first quarter 2000 additionally reflects margin
improvements due to airplanes substantially built in the first quarter but
delivered in the second quarter.
As of June 30, 2000, the Company had cumulatively delivered 23 717 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 four have delivered. In April 1999,
Moody's rating agency lowered TWA's outlook from Stable to Negative.
Military Aircraft and Missiles
Military Aircraft and Missiles segment second quarter 2000 operating earnings
were $250 million, compared with $368 million for the same period in 1999. The
operating margin of 7.9% for second quarter 2000 compares with a second quarter
1999 margin of 11.5%. The lower earnings in second quarter 2000 reflect fewer
F-15 deliveries, less favorable program performance on certain helicopter
programs, and lower margins associated with various aerospace support
contracts. The second quarter 1999 segment operating earnings also reflected a
$45 million charge related to a decision by the government of Greece to forego
the purchase of F-15 aircraft.
In second quarter 2000, the U.S. Navy signed a multi-year contract for 222
F/A-18E/F Super Hornet aircraft. The five-year, $8.9 billion contract joins the
other 62 F/A-18E/F already on contract, for a total of 284 planes. The first
aircraft under the multi-year contract will be delivered later this year.
The United Kingdom announced its selection of the C-17 for its strategic
airlift requirement and the Meteor air-to-air missile system for its fleet of
20
<PAGE> 21
Eurofighters. The United Kingdom agreed to lease four C-17s. Assembly on the
first C-17 for the United Kingdom began on June 27. The Company is a member of
the international team developing the Meteor missile and will assist with
aircraft-weapon systems integration, risk management and marketing activities
in selected markets.
The $3.1 billion development contract for the RAH-66 Comanche helicopter was
signed in second quarter 2000. Boeing is a 50% partner in this program with
United Technologies. The program will manufacture and deliver 13 new
helicopters for development and operational testing. The Company also reached
an agreement with the U.S. Army to proceed with a second multi-year
procurement of Apache attack helicopters. The agreement, worth up to $2.6
billion, authorizes as many as 298 aircraft.
Space and Communications
Space and Communications had an operating loss of $38 million for the second
quarter of 2000, compared with operating earnings of $94 million in the same
period in 1999. The reduced earnings reflect $42 million of additional research
and development expense in second quarter 2000 relative to second quarter 1999.
Second quarter 2000 results were also impacted by a pretax charge of $55
million associated with the incurred costs of a planned demonstration launch of
a Delta III rocket in August 2000. Some additional costs will be expensed as
incurred in the third quarter up to the time of launch.
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's decision to perform a demonstration launch at company expense is
intended to prove system reliability. The Company continues to monitor
potential exposures for the Delta III program by assessing the estimated
revenues attributable to future Delta III launches, including revenue for
launch positions that are currently unsold, along with assessing inventory and
supplier commitments.
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. On
June 12, 2000, the Oversight Board reached full consensus that corrective
actions were being implemented satisfactorily. The next launch for the Sea
Launch venture occurred July 28, 2000, and was a mission success.
The Company to date has extended customer guarantees totaling $273 million to
cover contingent exposures in the event certain future launches are not
successful or the venture fails to perform launches. A portion of any
payments made under these guarantees would be subject to reimbursement by
other venture partners. The Sea Launch venture could also incur a significant
financial exposure from continued softening of the launch market.
In the second quarter, the Company announced its intent to purchase Autometric
Inc., a leading supplier of software products and services in the geospatial
information technology marketplace. This acquisition is in keeping with the
Company's strategy to make niche acquisitions in key areas in order to provide
the skill and technologies necessary to enhance the Company's global leadership
in large-scale systems integration.
21
<PAGE> 22
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 by the end of third quarter 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 $4.9 billion at June 30, 2000, after repurchasing 8.7
million shares for $348 million during the first six months of 2000. To date,
the Company has repurchased 116 million shares for $4.7 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 29% of total shareholders' equity plus debt. The
consolidated long-term debt, including BCC, is at 35% 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 $140 million on its $1.2 billion shelf registration, and an
additional shelf registration of $2.5 billion.
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):
June 30 March 31 December 31
----------------------------------------------------------------
2000 2000 1999
----------------------------------------------------------------
Commercial Airplanes $ 77.1 $ 75.7 $73.0
Military Aircraft and Missiles 18.8 16.8 15.6
Space and Communications 9.1 9.6 10.6
----------------------------------------------------------------
Total contractual backlog $105.0 $102.1 $99.2
================================================================
22
<PAGE> 23
Unobligated U.S. Government contract funding not included in backlog totaled
$24.5 billion at June 30, 2000, compared with $24.4 billion at December 31,
1999.
Derivative Instruments and Hedging Activities
---------------------------------------------
The Company will be required to adopt Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, at the beginning of 2001. The Company has begun evaluating the
impact that will result from adopting SFAS No. 133; however, since this
evaluation has not been completed, the Company cannot assess the impact on the
financial statements at this time.
Revenue Recognition
-------------------
The Company has reviewed Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. The
Company's revenue recognition practices were already consistent with SAB No.
101, so its promulgation had no impact on the Company's financial statements.
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 June 30, 2000, the notional value of such derivatives was $464
million, with a net unrealized loss of $30 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.
23
<PAGE> 24
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 June 30, 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.
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 June 30, 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
24
<PAGE> 25
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. 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 period from April
7, 1997 through October 22, 1997. By order dated May 1, 2000, the Court
certified two subclasses of plaintiffs in the action: a. all persons or
entities who purchased Boeing stock or call options or who sold put options
during the period from July 21, 1997 through October 22, 1997, and b. all
persons or entities who purchased McDonnell Douglas stock on or after April 7,
1997 and who held such stock until it converted to Boeing stock pursuant to the
merger. The plaintiffs seek compensatory damages and treble damages. The action
is currently set for trial on June 4, 2001. 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 charged one employee with participation in the alleged
conspiracy; the indictment has since been dismissed as against this employee.
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.
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
25
<PAGE> 26
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.
Plaintiffs' motion for class certification must be filed by August 25, 2000.
The Company intends to vigorously contest this lawsuit.
26
<PAGE> 27
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Articles of Incorporation and By Laws
(i) By-Laws, as amended and restated on May 1, 2000.
Filed herewith.
(10) Material Contracts
Management Contracts and Compensatory Plans.
(i) Amendment No. 1, dated as of June 26, 2000, to
Employment Agreement with Harry C. Stonecipher
dated August 1, 1997. Filed herewith.
(ii) 1999 Bonus and Retention Award Plan, as adopted
on April 26, 1999. Filed herewith.
(iii) 1997 Incentive Stock Plan, as amended on May 1,
2000. (Exhibit 99.1 of the Company's Registration
Statement on Form S-8 (File No. 333-41920), filed
July 21, 2000.)
(15) Letter from independent accountants regarding unaudited
interim financial information. Page 55.
(27) Financial Data Schedule for the six-month period ending
June 30, 2000. Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by
this report.
27
<PAGE> 28
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed consolidated statement of financial position as of June 30, 2000,
the condensed consolidated statements of operations for the six-month periods
ended June 30, 2000 and 1999, and the condensed consolidated statements of cash
flows for the three- and six-month periods ended June 30, 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 June 30,
2000, and the related condensed consolidated statements of operations for the
three- and six-month periods ended June 30, 2000 and 1999, and the related
condensed consolidated statements of cash flows six-month periods ended June
30, 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
July 21, 2000
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- - - - - - -
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)
August 2, 2000 /s/ Laurette T. Koellner
---------------- ------------------------------
(Date) Laurette T. Koellner
Vice President of Finance
& Corporate Controller
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EXHIBIT (3)(i)
BY-LAWS
OF
THE BOEING COMPANY
(As amended and restated May 1, 2000)
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THE BOEING COMPANY
BY-LAWS
TABLE OF CONTENTS
ARTICLE I
Stockholders' Meetings
Page
----
Section 1. Annual Meetings 1
Section 2. Special Meetings 1
Section 3. Place of Meeting 1
Section 4. Notice of Meetings 1
Section 5. Waivers of Notice 2
Section 6. Quorum 2
Section 7. Proxies 2
7.1 Appointment 2
7.2 Delivery to Corporation; Duration 3
Section 8. Inspectors of Election 3
8.1 Appointment 3
8.2 Duties 3
8.3 Determination of Proxy Validity 3
Section 9. Fixing the Record Date 3
9.1 Meetings 3
9.2 Consent to Corporate Action Without a Meeting 4
9.3 Dividends, Distributions, and Other Rights 4
9.4 Voting List 4
Section 10. Action By Stockholders Without a Meeting 5
Section 11. Business and Nominations at Stockholders' Meetings 5
11.1 Business and Nominations at Annual Meetings 5
11.2 Stockholder Notice 6
11.3 Business and Nominations at Special Meetings 6
11.4 Stockholder Meeting Procedures 6
11.5 Public Announcement of Stockholders' Meetings 7
Section 12. Notice to Corporation 7
ARTICLE II
Board of Directors
Section 1. Number and Term of Office 7
Section 2. Nomination and Election 7
2.1 Nomination 7
2.2 Election 7
Section 3. Place of Meeting 8
Section 4. Annual Meeting 8
Section 5. Stated Meetings 8
Section 6. Special Meetings 8
6.1 Convenors and Notice 8
6.2 Waiver of Notice 8
Section 7. Quorum and Manner of Acting 8
Section 8. Chairman of the Board 9
Section 9. Resignations 9
Section 10. Removal of Directors 9
Section 11. Filling of Vacancies Not Caused by Removal 9
Section 12. Directors' Fees 9
Section 13. Action Without a Meeting 9
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ARTICLE III
Board Committees
Section 1. Audit Committee 9
Section 2. Other Committees 10
2.1 Committee Powers 10
2.2 Committee Members 10
Section 3. Quorum and Manner of Acting 10
ARTICLE IV
Officers and Agents:
Terms, Compensation, Removal, Vacancies
Section 1. Officers 10
Section 2. Term of Office 11
Section 3. Salaries of Elected Officers 11
Section 4. Bonuses 11
Section 5. Removal of Elected and Appointed Officers 11
Section 6. Vacancies 11
ARTICLE V
Officers' Duties and Powers
Section 1. Chairman of the Board 11
Section 2. President 11
Section 3. Chief Executive Officer 12
Section 4. Vice Presidents and Controller 12
Section 5. Secretary 12
Section 6. Treasurer 12
Section 7. Additional Powers and Duties 12
Section 8. Disaster Emergency Powers of Acting Officers 12
ARTICLE VI
Stock and Transfers of Stock
Section 1. Stock Certificates 13
Section 2. Transfer Agents and Registrars 13
Section 3. Transfers of Stock 14
Section 4. Lost Certificates 14
ARTICLE VII
Miscellaneous
Section 1. Fiscal Year 14
Section 2. (Repealed)
Section 3. Signing of Negotiable Instruments 14
Section 4. Indemnification of Directors and Officers 14
4.1 Right to Indemnification 14
4.2 Right of Indemnitee to Bring Suit 15
4.3 Nonexclusivity of Rights 16
4.4 Insurance, Contracts, and Funding 16
4.5 Persons Serving Other Entities 16
4.6 Indemnification of Employees and Agents 16
of the Corporation
4.7 Procedures for the Submission of Claims 16
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ARTICLE VIII
Amendments
Section 1. Amendment of the By-Laws: General 17
Section 2. Amendments as to Compensation and Removal of Officers 17
Section 3. Amendments as to Shareholder Meetings, Directors 17
Section 4. Amendment of this Article VIII 17
BY-LAWS
OF
THE BOEING COMPANY
ARTICLE I
Stockholders' Meetings
SECTION 1. Annual Meetings.
The Annual Meeting of the stockholders shall be held on the last Monday in the
month of April in each year, or, if that day be a legal holiday, on the next
succeeding day not a legal holiday, at 11:00 a.m., for the election of directors
and the transaction of such other business as may come before the meeting.
SECTION 2. Special Meetings.
A special meeting of the stockholders may be called at any time by the Board of
Directors, or by stockholders holding together at least twenty-five percent of
the outstanding shares of stock entitled to vote, except as otherwise provided
by statute or by the Certificate of Incorporation or any amendment thereto.
SECTION 3. Place of Meeting.
All meetings of the stockholders of the Corporation shall be held at such
place or places within or without the State of Delaware as may from time to
time be fixed by the Board of Directors or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
SECTION 4. Notice of Meetings.
Except as otherwise required by statute and as set forth below, notice of each
annual or special meeting of stockholders shall be given to each stockholder
of record entitled to vote at such meeting not less than thirty nor more than
sixty (or the maximum number permitted by applicable law) days before the
meeting date. If the Corporation has an Interested Stockholder as defined in
Article EIGHTH of the Certificate of Incorporation, notice of each special
meeting of stockholders shall be given to each stockholder of record entitled
to vote at such meeting not less than fifty-five nor more than sixty (or the
maximum number permitted by applicable law) days before the meeting date,
unless the calling of such meeting is ratified by the affirmative vote of a
majority of the Continuing Directors as defined in Article EIGHTH of the
Certificate of Incorporation, in which case notice of such special meeting
shall be given to each stockholder of record entitled to vote at such meeting
not less than thirty nor more than sixty (or the maximum number permitted by
applicable law) days before the meeting date. Such notice shall be given by
delivering to each stockholder a written or printed notice thereof either
personally or by mailing such notice in a postage-prepaid envelope addressed
to the stockholder's address as it appears on the stock books of the
Corporation. Except as otherwise required by statute, no publication of any
notice of a meeting of stockholders shall be required. Every notice of a
meeting of stockholders shall state the place, date, and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
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SECTION 5. Waivers of Notice.
Whenever any notice is required to be given to any stockholder under the
provisions of these By-Laws, the Certificate of Incorporation, or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. The
attendance of a stockholder at a meeting, in person or by proxy, shall
constitute a waiver of notice of such meeting, except when a stockholder
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 6. Quorum.
At all meetings of stockholders, except when otherwise provided by statute or
by the Certificate of Incorporation or any amendment thereto, or by the By-
Laws, the presence, in person or by proxy duly authorized, of the holders of
one-third of the outstanding shares of stock entitled to vote shall constitute
a quorum for the transaction of business; and except as otherwise provided by
statute or rule of law, or by the Certificate of Incorporation or any
amendment thereto, or by the By-Laws, the vote, in person or by proxy, of the
holders of a majority of the shares constituting such quorum shall be binding
upon all stockholders of the Corporation. In the absence of a quorum, a
majority of the shares present in person or by proxy and entitled to vote may
adjourn any meeting, from time to time but not for a period of more than
thirty days at any one time, until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
called. Unless otherwise provided by statute, no notice of an adjourned
meeting need be given.
SECTION 7. Proxies.
7.1 Appointment. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy. Such authorization may be accomplished by (a) the
stockholder or such stockholder's authorized officer, director, employee, or
agent executing a writing or causing his or her signature to be affixed to
such writing by any reasonable means, including facsimile signature, or (b) by
transmitting or authorizing the transmission of a telegram, cablegram, or
other means of electronic transmission to the intended holder of the proxy or
to a proxy solicitation firm, proxy support service, or similar agent duly
authorized by the intended proxy holder to receive such transmission;
provided, that any such telegram, cablegram, or other electronic transmission
must either set forth or be accompanied by information from which it can be
determined that the telegram, cablegram, or other electronic transmission was
authorized by the stockholder. Any copy, facsimile telecommunication, or
other reliable reproduction of the writing or transmission by which a
stockholder has authorized another person to act as proxy for such stockholder
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication, or other
reproduction shall be a complete reproduction of the entire original writing
or transmission.
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7.2 Delivery to Corporation; Duration. A proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting or the
delivery to the Corporation of the consent to corporate action in writing. A
proxy shall become invalid three years after the date of its execution, unless
otherwise provided in the proxy. A proxy with respect to a specified meeting
shall entitle the holder thereof to vote at any reconvened meeting following
adjournment of such meeting but shall not be valid after the final adjournment
thereof.
SECTION 8. Inspectors of Election.
8.1 Appointment. In advance of any meeting of stockholders, the Board of
Directors of the Corporation shall appoint one or more persons to act as
inspectors of election at such meeting and to make a written report thereof.
The Board of Directors may designate one or more persons to serve as alternate
inspectors to serve in place of any inspector who is unable or fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
chairman of such meeting shall appoint one or more persons to act as inspector
of elections at such meeting.
8.2 Duties. The inspectors shall: (a) ascertain the number of shares of the
Corporation outstanding and the voting power of each such share; (b) determine
the shares represented at the meeting and the validity of proxies and ballots;
(c) count all votes and ballots; (d) determine and retain for a reasonable
period of time a record of the disposition of any challenges made to any
determination by them; and (e) certify their determination of the number of
shares represented at the meeting and their count of the votes and ballots.
Each inspector of election shall, before entering upon the discharge of his or
her duties, take and sign an oath to faithfully execute the duties of inspector
with strict impartiality and according to the best of his or her ability. The
inspectors of election may appoint or retain other persons or entities to
assist them in the performance of their duties.
8.3 Determination of Proxy Validity. The validity of any proxy or ballot
executed for a meeting of stockholders shall be determined by the inspectors
of election in accordance with the applicable provisions of the Delaware
General Corporation Law as then in effect. In determining the validity of
any proxy transmitted by telegram, cablegram, or other electronic
transmission, the inspectors shall record in writing the information upon
which they relied in making such determination.
SECTION 9. Fixing the Record Date.
9.1 Meetings. For the purpose of determining stockholders entitled to notice
of and to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date on which the resolution fixing the record date is adopted by the Board
of Directors, and which record date shall be not fewer than thirty nor more than
sixty (or the maximum number permitted by applicable law) days before the date
of such meeting. If the corporation has an Interested Stockholder as defined in
Article EIGHTH of the Certificate of Incorporation, the record date for each
special meeting of stockholders shall be not fewer than fifty-five nor more than
sixty (or the maximum number permitted by applicable law) days before the
meeting date, unless the calling of such meeting is ratified by the affirmative
vote of a majority of the Continuing Directors, as defined in Article EIGHTH of
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the Certificate of Incorporation. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
and to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of and to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
9.2 Consent to Corporate Action Without a Meeting. For the purpose of
determining the stockholders entitled to consent to corporate action in writing
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date on which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
(or the maximum number permitted by applicable law) days after the date on
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by Chapter 1 of the Delaware General Corporation Law as
now or hereafter amended, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the records of proceedings of meetings of stockholders.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by Chapter 1 of the Delaware General Corporation Law as now or
hereafter amended, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
9.3 Dividends, Distributions, and Other Rights. For the purpose of
determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the resolu-
tion fixing the record date is adopted, and which record date shall be not more
than sixty (or the maximum number permitted by applicable law) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
9.4. Voting List. At least ten days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting shall be
made, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. This list shall be open to examination by any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at such meeting for
inspection by any stockholder who is present.
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SECTION 10. Action by Stockholders Without a Meeting.
Subject to the provisions of Article NINTH of the Certificate of
Incorporation, any action which could be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice,
and without a vote, if a consent or consents in writing, setting forth the
action so taken, are (a) signed by the holders of outstanding stock having
not fewer than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and (b) delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody
of the records of proceedings of meetings of stockholders. Delivery made to
the Corporation's registered office shall be by hand or by certified mail or
registered mail, return receipt requested. Every written consent shall bear
the date of signature of each stockholder who signs the consent and no
written consent shall be effective to take the corporate action referred to
therein unless written consents signed by a sufficient number of stockholders
to take such action are delivered to the Corporation, in the manner required
by this section, within sixty (or the maximum number permitted by applicable
law) days of the date of the earliest dated consent delivered to the
Corporation in the manner required by this section. The validity of any
consent executed by a proxy for a stockholder pursuant to a telegram,
cablegram, or other means of electronic transmission transmitted to such
proxy holder by or upon the authorization of the stockholder shall be
determined by or at the direction of the Secretary of the Corporation. A
written record of the information upon which the person making such
determination relied shall be made and kept in the records of the proceedings
of the stockholders. Any such consent shall be inserted in the minute book
as if it were the minutes of a meeting of the stockholders. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
SECTION 11. Business and Nominations at Stockholders' Meetings.
11.1 Business and Nominations at Annual Meetings. In addition to the
election of directors, other proper business may be transacted at the annual
meeting of stockholders, provided that such business is a proper matter for
stockholder action and is properly brought before such meeting. To be
properly brought before an annual meeting, nominations of persons for
election to the Board of Directors and business to be considered by
stockholders must be (a) made or brought by or at the direction of the Board
of Directors, or (b) made or brought before the meeting by a stockholder of
the Corporation who is a stockholder of record at the time of giving notice
as required in this By-Law, who is entitled to vote at the meeting, and who
complies with the notice procedures set forth in this By-Law. Notice by a
stockholder pursuant to (b) above must be in writing, in accordance with
Section 12 of this Article I, and received by the Secretary not earlier than
the one-hundred and twentieth day nor later than the close of business on the
ninetieth day prior to the date specified in Section 1 of this Article I for
such annual meeting; provided, however, that in the event that the date of
the annual meeting is more than thirty days before or more than sixty days
after such date, notice by the stockholder must be received by the Secretary
not earlier than the one-hundred and twentieth day prior to such annual
meeting and not later than the close of business on the ninetieth day prior
to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the Corporation.
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11.2 Stockholder Notice. Any stockholder notice given pursuant to Section
11.1 shall set forth (i) the name and address of the stockholder proposing
such business and of the beneficial owner, if any, on whose behalf the
proposal or nomination is made; (ii) a representation that the stockholder is
entitled to vote at such meeting and a statement of the number of shares of
the Corporation which are owned by the stockholder and the number of shares
which are beneficially owned by the beneficial owner, if any; (iii) a
representation that the stockholder intends to appear in person or by proxy
at the meeting to nominate the person or persons or to propose the business
specified in the notice; and (iv) as to each person the stockholder proposes
to nominate for election or re-election as a director, the name and address
of such person and such other information regarding such nominee as would be
required in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had such nominee been nominated by the
Board of Directors, and a description of any arrangements or understandings,
between the stockholder and such nominee and any other persons (including
their names), pursuant to which the nomination is to be made, and the written
consent of each such nominee to being named in the proxy statement as a
nominee and to serving as a director if elected; or, as to each matter the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, the language of the business matter (if
appropriate), and any material interest of the stockholder in such business.
11.3 Business and Nominations at Special Meetings. At any special meeting
of the stockholders, only such business as is specified in the notice of such
special meeting given by or at the direction of the person or persons calling
such meeting, in accordance with Section 2 of this Article I, shall come
before such meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or
at the direction of the Board of Directors or (b) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time
of giving of notice provided for in this By-Law, who shall be entitled to
vote at the meeting and who complies with the notice procedures set forth in
this By-Law. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board
of Directors, any such stockholder may nominate a person or persons for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph 11.1 of this By-
Law shall be delivered to the Secretary not earlier than the one hundred and
twentieth day nor later than the ninetieth day prior to such special meeting
or the tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting.
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11.4 Stockholder Meeting Procedures. No business shall be conducted nor
director nominations made at any meeting of stockholders except in accordance
with this Section 11. If the facts warrant, the Board of Directors, or the
chairman of a stockholders' meeting at which directors are to be elected, may
determine and declare (a) that a proposal does not constitute proper business
to be transacted at the meeting or (b) that business was not properly brought
before the meeting in accordance with the provisions of this Section 11 or
(c) that a nomination was not made in accordance with this Section 11; and,
if it is so determined, the defective proposal or nomination shall be
disregarded and shall not be transacted or acted upon. The right of
stockholders to bring business before or to make nominations pursuant to the
foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this Section 11 for
stockholders' bringing business before a stockholders' meeting or
stockholders' making nominations for the election of directors are in
addition to, and not in lieu or limitation of, (a) any procedures now in
effect or hereafter adopted by or at the direction of the Board of Directors
or any committee thereof and (b) the requirements set forth in Rule 14a-8 and
Rule 14a-11 under Section 14 of the Securities Exchange Act of 1934, or any
successor provisions.
11.5 Public Announcement of Stockholders' Meetings. For purposes of this By-
Law, "public announcement" as to an annual or special meeting of stockholders
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. In no
event shall the public announcement of an adjournment of an annual or special
meeting commence a new time period for the giving of a stockholder's notice
as described above.
SECTION 12. Notice to Corporation.
Any written notice required to be delivered by a stockholder to the
Corporation pursuant to Section 11.1 of this Article I or Section 2.1 of
Article II must be given, either by personal delivery or by registered or
certified mail, postage prepaid, to the Secretary at the Corporation's
executive offices in the City of Seattle, State of Washington.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office.
The number of directors shall be thirteen, but the number may be increased,
or decreased to not less than three, from time to time, either by the
directors by adoption of a resolution to such effect or by the stockholders
by amendment of the By-Laws in accordance with Article VIII hereof. The
directors shall be divided into three classes, each of which shall be
composed as nearly as possible of one-third of the directors. Each director
shall serve for the term to which the director was elected, and until a
successor shall have been elected and qualified or until the director's prior
death, resignation, or removal. At each annual election, directors shall be
chosen for a full three-year term to succeed those whose terms expire.
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SECTION 2. Nomination and Election.
2.1 Nomination. Only persons who are nominated in accordance with Article
I, Section 11 of these By-Laws shall be eligible for election as directors.
2.2 Election. At each election of directors, the persons receiving the
greatest number of votes shall be the directors.
SECTION 3. Place of Meeting.
Meetings of the Board of Directors, or of any committee thereof, may be held
either within or without the State of Delaware.
SECTION 4. Annual Meeting.
Each year the Board of Directors shall meet in connection with the annual
meeting of stockholders for the purpose of electing officers and for the
transaction of other business. No notice of such meeting is required. Such
annual meeting may be held at any other time or place which shall be specified
in a notice given as hereinafter provided for special meetings of the Board,
or in a consent and waiver of notice thereof, signed by all the directors.
SECTION 5. Stated Meetings.
The Board of Directors may, by resolution adopted by affirmative vote of a
majority of the whole Board, from time to time appoint the time and place for
holding stated meetings of the Board, if by it deemed advisable; and such
stated meetings shall thereupon be held at the time and place so appointed,
without the giving of any special notice with regard thereto. In case the day
appointed for a stated meeting shall fall upon a legal holiday, such meeting
shall be held on the next following day, not a legal holiday, at the regularly
appointed hour. Except as otherwise provided in the By-Laws, any and all
business may be transacted at any stated meeting.
SECTION 6. Special Meetings.
6.1 Convenors and Notice. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board or any two directors.
Notice of a special meeting of the Board of Directors, stating the place, day,
and hour of the meeting, shall be given to each director in writing (by mail,
wire, facsimile, or personal delivery) or orally (by telephone or in person).
6.2 Waiver of Notice. With respect to a special meeting of the Board of
Directors, a written waiver, signed by a director, shall be deemed equivalent
to notice to that director. A director's attendance at a meeting shall
constitute that director's waiver of notice of such meeting, except when the
director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the waiver of notice of such meeting.
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SECTION 7. Quorum and Manner of Acting.
Except as herein otherwise provided, forty percent of the total number of
directors fixed by or in the manner provided in these By-Laws at the time of
any stated or special meeting of the Board or, if vacancies exist on the Board
of Directors, forty percent of such number of directors then in office,
provided, however, that such number may not be less than one-third of the
total number of directors fixed by or in the manner provided in these By-Laws,
shall constitute a quorum for the transaction of business; and, except as
otherwise required by statute or by the Certificate of Incorporation or any
amendment thereto, or by the By-Laws, the act of a majority of the directors
present at any such meeting at which a quorum is present shall be the act of
the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn any meeting, from time to time, until a quorum
is present. No notice of any adjourned meeting need be given.
SECTION 8. Chairman of the Board.
The Chairman of the Board shall preside, when present, at all meetings of the
Board, except as otherwise provided by law.
SECTION 9. Resignations.
Any director of the Corporation may resign at any time by giving written
notice thereof to the Secretary. Such resignation shall take effect at the
time specified therefor or if the time is not specified, upon delivery
thereof; and, unless otherwise specified with respect thereto, the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 10. Removal of Directors.
Any director may be removed solely for cause by the affirmative vote of the
holders of record of a majority of the outstanding shares of stock entitled
to vote, at a meeting of the stockholders called for the purpose; and the
vacancy on the Board caused by any such removal may be filled by the
stockholders at such meeting or at any subsequent meeting.
SECTION 11. Filling of Vacancies Not Caused by Removal.
In case of any increase in the number of directors, or of any vacancy created
by death or resignation, the additional director or directors may be elected
or, as the case may be, the vacancy or vacancies may be filled, either (a) by
the Board of Directors at any meeting, (i) if the Corporation has an
Interested Stockholder as defined in Article EIGHTH of the Certificate of
Incorporation, by the affirmative vote of a majority of the Continuing
Directors, as defined in Article EIGHTH, or (ii) if the Corporation does not
have an Interested Stockholder, by the affirmative vote of a majority of the
remaining directors, though less than a quorum; or (b) by the stockholders
entitled to vote, either at an annual meeting or at a special meeting thereof
called for the purpose, by the affirmative vote of a majority of the
outstanding shares entitled to vote at such meeting.
SECTION 12. Directors' Fees.
The Board of Directors shall have authority to determine from time to time
the amount of compensation which shall be paid to its members for attendance
at meetings of the Board or of any committee of the Board.
SECTION 13. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
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ARTICLE III
Board Committees
SECTION 1. Audit Committee.
In addition to any committees appointed pursuant to Section 2 of this Article,
there shall be an Audit Committee, appointed annually by the Board of
Directors, consisting of at least three directors who are not members of
management. It shall be the responsibility of the Audit Committee to review
the scope and results of the annual independent audit of books and records of
the Corporation and its subsidiaries and to discharge such other
responsibilities as may from time to time be assigned to it by the Board of
Directors. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board of
Directors as they consider appropriate.
SECTION 2. Other Committees.
2.1 Committee Powers. The Board of Directors may appoint standing or
temporary committees and invest such committees with such powers as it may see
fit, with power to subdelegate such powers if deemed desirable by the Board of
Directors; but no such committee shall have the power or authority of the
Board of Directors to adopt, amend, or repeal the By-Laws of the Corporation
or approve, adopt or recommend to the stockholders of the Corporation any
action or matter expressly required by the Certificate of Incorporation, these
By-Laws or the Delaware General Corporation Law to be submitted to
stockholders for approval.
2.2 Committee Members. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member.
SECTION 3. Quorum and Manner of Acting.
A majority of the number of directors composing any committee of the Board of
Directors, as established and fixed by resolution of the Board of Directors,
shall constitute a quorum for the transaction of business at any meeting of
such committee but, if less than a majority are present at a meeting, a
majority of such directors present may adjourn the meeting from time to time
without further notice. The act of a majority of the members of a committee
present at a meeting at which a quorum is present shall be the act of such
committee.
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ARTICLE IV
Officers and Agents: Terms, Compensation, Removal, Vacancies
SECTION 1. Officers.
The elected officers of the Corporation shall be a Chairman of the Board (who
shall be a director), a President (who shall be a director), and one or more
Vice Presidents (each of whom may be assigned by the Board of Directors or the
Chief Executive Officer an additional title descriptive of the functions
assigned to such officer and one or more of whom may be designated Executive
or Senior Vice President). The Board may also elect one or more Vice Chairmen.
The Board of Directors shall also designate either the Chairman of the Board or
the President as the Chief Executive Officer of the Corporation. The Board of
Directors shall appoint a Controller, a Secretary, and a Treasurer. Any number
of offices, whether elective or appointive, may be held by the same person.
The Chief Executive Officer may, by a writing filed with the Secretary,
designate titles as officers for employees and agents and appoint Assistant
Secretaries and Assistant Treasurers, as, from time to time, may appear to be
necessary or advisable in the conduct of the affairs of the Corporation and
may, in the same manner, terminate or change such titles.
SECTION 2. Term of Office.
So far as practicable, all elected officers shall be elected at the annual
meeting of the Board in each year, and shall hold office until the annual
meeting of the Board in the next subsequent year and until their respective
successors are chosen. The Controller, Secretary, and Treasurer shall hold
office at the pleasure of the Board.
SECTION 3. Salaries of Elected Officers.
The salaries paid to the elected officers of the Corporation shall be
authorized or approved by the Board of Directors.
SECTION 4. Bonuses.
None of the officers, directors, or employees of the Corporation or any of
its subsidiary corporations shall at any time be paid any bonus or share in
the earnings or profits of the Corporation or any of its subsidiary
corporations except pursuant to a plan approved by affirmative vote of two-
thirds of the members of the Board of Directors.
SECTION 5. Removal of Elected and Appointed Officers.
Any elected or appointed officer may be removed at any time, either for or
without cause, by affirmative vote of a majority of the whole Board of
Directors, at any meeting called for the purpose.
SECTION 6. Vacancies.
If any vacancy occurs in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
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ARTICLE V
Officers' Duties and Powers
SECTION 1. Chairman of the Board.
The Chairman of the Board shall preside, when present, at all meetings of the
stockholders (except as otherwise provided by statute) and at all meetings of
the Board of Directors. The Chairman shall have general power to execute
bonds, deeds, and contracts in the name of the Corporation; to affix the
corporate seal; to sign stock certificates; and to perform such other duties
and services as shall be assigned to or required of the Chairman by the Board
of Directors.
SECTION 2. President.
The President shall have general power to execute bonds, deeds, and contracts
in the name of the Corporation and to affix the corporate seal; to sign stock
certificates; during the absence or disability of the Chairman of the Board
to exercise the Chairman's powers and to perform the Chairman's duties; and
to perform such other duties and services as shall be assigned to or required
of the President by the Board of Directors; provided, that if the office of
President is vacant, the Chairman shall exercise the duties ordinarily
exercised by the President until such time as a President is elected or
appointed.
SECTION 3. Chief Executive Officer.
The officer designated by the Board of Directors as the Chief Executive Officer
of the Corporation shall have general and active control of its business and
affairs. The Chief Executive Officer shall have general power to appoint or
designate all employees and agents of the Corporation whose appointment or
designation is not otherwise provided for and to fix the compensation thereof,
subject to the provisions of these By-Laws; to remove or suspend any employee or
agent who shall not have been elected or appointed by the Board of Directors or
other body; to suspend for cause any employee, agent, or officer, other than an
elected officer, pending final action by the body which shall have appointed
such employee, agent, or officer; and to exercise all the powers usually
pertaining to the office held by the Chief Executive Officer of a corporation.
SECTION 4. Vice Presidents and Controller.
The several Vice Presidents and the Controller shall perform all such duties
and services as shall be assigned to or required of them, from time to time,
by the Board of Directors or the Chief Executive Officer, respectively.
SECTION 5. Secretary.
The Secretary shall attend to the giving of notice of all meetings of
stockholders and of the Board of Directors and shall keep and attest true
records of all proceedings thereat. The Secretary shall have charge of the
corporate seal and have authority to attest any and all instruments or
writings to which the same may be affixed and shall keep and account for all
books, documents, papers, and records of the Corporation relating to its
corporate organization. The Secretary shall have authority to sign stock
certificates and shall generally perform all the duties usually appertaining
to the office of secretary of a corporation. In the absence of the
Secretary, an Assistant Secretary or Secretary pro tempore shall perform the
duties of the Secretary.
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SECTION 6. Treasurer.
The Treasurer shall have the care and custody of all moneys, funds, and
securities of the Corporation, and shall deposit or cause to be deposited all
funds of the Corporation in accordance with directions or authorizations of
the Board of Directors or the Chief Executive Officer. The Treasurer shall
have power to sign stock certificates, to indorse for deposit or collection,
or otherwise, all checks, drafts, notes, bills of exchange, or other
commercial paper payable to the Corporation, and to give proper receipts or
discharges therefor. In the absence of the Treasurer, an Assistant Treasurer
shall perform the duties of the Treasurer.
SECTION 7. Additional Powers and Duties.
In addition to the foregoing especially enumerated duties and powers, the
several officers of the Corporation shall perform such other duties and
exercise such further powers as may be provided in these By-Laws or as the
Board of Directors may from time to time determine, or as may be assigned to
them by any superior officer.
SECTION 8. Disaster Emergency Powers of Acting Officers.
If, as a result of a disaster or other state of emergency, the Chief
Executive Officer is unable to perform the duties of that office, (a) the
powers and duties of the Chief Executive Officer shall be performed by the
employee with the highest base salary who shall be available and capable of
performing such powers and duties and, if more than one such employee has the
same base salary, by the employee whose surname begins with the earliest
letter of the alphabet among the group of those employees with the same base
salary; and (b) the officer performing such duties shall continue to perform
such powers and duties until the Chief Executive Officer becomes capable of
performing those duties or until the Board of Directors shall have elected a
new Chief Executive Officer or designated another individual as Acting Chief
Executive Officer; and (c) such officer shall have the power in addition to
all other powers granted to the Chief Executive Officer by these By-Laws and
by the Board of Directors to appoint an acting President, acting Vice
President-Finance, acting Controller, acting Secretary, and acting
Treasurer, if any of the persons duly elected to any such office is not by
reason of such disaster or emergency able to perform the duties of such
office, each of such acting appointees to serve in such capacities until the
officer for whom the appointee is acting becomes capable of performing the
duties of such office or until the Board of Directors shall have designated
another individual to perform such duties or have elected another person to
fill such office; and (d) any such acting officer so appointed shall be
entitled to exercise all powers vested by the By-Laws or the Board of
Directors in the duly elected officer for whom the acting officer is acting;
and (e) anyone transacting business with this Corporation may rely upon a
certification by any two officers of the Corporation that a specified
individual has succeeded to the powers of the Chief Executive Officer and
that such person has appointed other acting officers as herein provided and
any person, firm, corporation, or other entity to which such certification
has been delivered by such officers may continue to rely upon it until
notified of a change in writing signed by two officers of this Corporation.
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ARTICLE VI
Stock and Transfers of Stock
SECTION 1. Stock Certificates.
Every stockholder shall be entitled to a certificate, signed by the Chairman
of the Board or the President or a Vice President and the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, certifying
the number of shares owned by the stockholder in the Corporation. Any and
all of the signatures on a certificate may be a facsimile. If any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if he or she were such officer,
transfer agent, or registrar at the date of issue.
SECTION 2. Transfer Agents and Registrars.
The Board of Directors may, in its discretion, appoint responsible banks or
trust companies in the Borough of Manhattan, in the City of New York, State
of New York, and in such other city or cities as the Board may deem
advisable, from time to time, to act as transfer agents and registrars of the
stock of the Corporation; and, when such appointments shall have been made,
no stock certificate shall be valid until countersigned by one of such
transfer agents and registered by one of such registrars.
SECTION 3. Transfers of Stock.
Shares of stock may be transferred by delivery of the certificates therefor,
accompanied either by an assignment in writing on the back of the
certificates or by written power of attorney to sell, assign, and transfer
the same, signed by the record holder thereof; but no transfer shall affect
the right of the Corporation to pay any dividend upon the stock to the holder
of record thereof, or to treat the holder of record as the holder in fact
thereof for all purposes, and no transfer shall be valid, except between the
parties thereto, until such transfer shall have been made upon the books of
the Corporation.
SECTION 4. Lost Certificates.
The Board of Directors may provide for the issuance of new certificates of
stock to replace certificates of stock lost, stolen, mutilated, or destroyed,
or alleged to be lost, stolen, mutilated, or destroyed, upon such terms and
in accordance with such procedures as the Board of Directors shall deem
proper and prescribe.
ARTICLE VII
Miscellaneous
SECTION 1. Fiscal Year.
The fiscal year of the Corporation shall be the calendar year.
SECTION 2. (Repealed in its entirety by vote of the stockholders, May 5,
1975.)
SECTION 3. Signing of Negotiable Instruments.
All bills, notes, checks, or other instruments for the payment of money shall
be signed or countersigned by such officer or officers and in such manner as
from time to time may be prescribed by resolution (whether general or
special) of the Board of Directors.
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SECTION 4. Indemnification of Directors and Officers.
4.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was
a director or officer of the Corporation or that, being or having been such a
director or officer or an employee of the Corporation, he or she is or was
serving at the request of an executive officer of the Corporation as a
director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as such a director, officer, employee, or agent or in any other
capacity while serving as such a director, officer, employee, or agent, shall
be indemnified and held harmless by the Corporation to the full extent
permitted by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), or by other applicable
law as then in effect, against all expense, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) actually and reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall
continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that except as provided in
Section 4.2 with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized or ratified by the
Board of Directors of the Corporation. The right to indemnification conferred
in this Section 4.1 shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that an advancement of expenses incurred by
an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an under-taking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not
entitled to be indemnified for such expenses under this Section 4.1 or
otherwise; and provided, further, that an advancement of expenses shall not
be made if the Corporation's Board of Directors makes a good faith
determination that such payment would violate law or public policy.
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4.2 Right of Indemnitee to Bring Suit. If a claim under Section 4.1 is not
paid in full by the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking,
the indemnitee shall also be entitled to be paid the expense of prosecuting
or defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Section 4 upon submission of a written claim (and,
in an action brought to enforce a claim for an advancement of expenses, where
the required undertaking has been tendered to the Corporation), and
thereafter the Corporation shall have the burden of proof to overcome the
presumption that the indemnitee is not so entitled. Neither the failure of
the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such suit that indemnification of the indemnitee is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit
or create a presumption that the indemnitee is not so entitled.
4.3 Nonexclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Section 4 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provisions of the Certificate of Incorporation, By-Laws, agreement,
vote of stockholders or disinterested directors, or otherwise. Notwith-
standing any amendment to or repeal of this Section 4, or of any of the
procedures established by the Board of Directors pursuant to Section 4.7, any
indemnitee shall be entitled to indemnification in accordance with the
provisions hereof and thereof with respect to any acts or omissions of such
indemnitee occurring prior to such amendment or repeal.
4.4 Insurance, Contracts, and Funding.
The Corporation may maintain insurance, at its expense, to protect itself and
any director, officer, employee, or agent of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise against
any expense, liability, or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability, or loss
under the Delaware General Corporation Law. The Corporation may, without
further stockholder approval, enter into contracts with any indemnitee in
furtherance of the provisions of this Section 4 and may create a trust fund,
grant a security interest, or use other means (including, without limitation,
a letter of credit) to ensure the payment of such amounts as may be necessary
to effect indemnification as provided in this Section 4.
4.5 Persons Serving Other Entities. Any person who is or was a director,
officer, or employee of the Corporation who is or was serving (i) as a
director or officer of another corporation of which a majority of the shares
entitled to vote in the election of its directors is held by the Corporation
or (ii) in an executive or management capacity in a partnership, joint
venture, trust, or other enterprise of which the Corporation or a wholly
owned subsidiary of the Corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of an executive
officer of the Corporation and entitled to indemnification and advancement of
expenses under Section 4.1.
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4.6 Indemnification of Employees and Agents of the Corporation. The
Corporation may, by action of its Board of Directors, authorize one or more
executive officers to grant rights to advancement of expenses to employees or
agents of the Corporation on such terms and conditions as such officer or
officers deem appropriate under the circumstances. The Corporation may, by
action of its Board of Directors, grant rights to indemnification and
advancement of expenses to employees or agents or groups of employees or
agents of the Corporation with the same scope and effect as the provisions of
this Section 4 with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation; provided, however,
that an undertaking shall be made by an employee or agent only if required by
the Board of Directors.
4.7 Procedures for the Submission of Claims. The Board of Directors may
establish reasonable procedures for the submission of claims for
indemnification pursuant to this Section 4, determination of the entitlement
of any person thereto, and review of any such determination. Such procedures
shall be set forth in an appendix to these By-Laws and shall be deemed for
all purposes to be a part hereof.
ARTICLE VIII
Amendments
SECTION 1. Amendment of the By-Laws: General.
Except as herein otherwise expressly provided, the By-Laws of the Corporation
may be altered or repealed in any particular and new By-Laws, not inconsistent
with any provision of the Certificate of Incorporation or any provision of law,
may be adopted, either by the affirmative vote of the holders of record of a
majority in number of the shares present in person or by proxy and entitled to
vote at an annual meeting of stockholders or at a special meeting thereof, the
notice of which special meeting shall include the form of the proposed altera-
tion or repeal or of the proposed new By-Laws, or a summary thereof; or either
(a) by the affirmative vote of a majority of the whole Board of
Directors at any meeting thereof, or
(b) by the affirmative vote of all the directors present at any
meeting at which a quorum, less than a majority, is present;
provided, in either of the latter cases, that the notice of such meeting shall
include the form of the proposed alteration or repeal or of the proposed new
By-Laws, or a summary thereof.
SECTION 2. Amendments as to Compensation and Removal of Officers.
Notwithstanding anything contained in these By-Laws to the contrary, the
affirmative vote of the holders of record of a majority of the Voting Stock, as
defined in Article EIGHTH of the Certificate of Incorporation, at a meeting of
the stockholders called for the purpose, shall be required to alter, amend,
repeal, or adopt any provision inconsistent with Sections 3, 4 and 5
of Article IV hereof, notice of which meeting shall include the form of the
proposed amendment, or a summary thereof.
SECTION 3. Amendments as to Stockholders' Meetings, Directors.
Notwithstanding anything contained in these By-Laws to the contrary, either (a)
the affirmative vote of a majority of the Continuing Directors, as defined in
Article EIGHTH of the Certificate of Incorporation, or (b) the affirmative vote
of the holders of record of at least seventy-five percent of the Voting Stock,
as defined in Article EIGHTH of the Certificate of Incorporation, shall be
required to alter, amend, repeal, or adopt any provision inconsistent with
Sections 1, 2, and 4 of Article I and Sections 1, 10, and 11 of Article II.
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SECTION 4. Amendment of this Article VIII.
Notwithstanding anything contained in these By-Laws to the contrary, either (a)
the recommendation of a majority of the Continuing Directors, as defined in
Article EIGHTH of the Certificate of Incorporation, together with the
affirmative vote of the holders of record of a majority of the Voting Stock, as
defined in Article EIGHTH of the Certificate of Incorporation, or (b) the
affirmative vote of the holders of record of at least seventy-five percent of
the Voting Stock, as defined in Article EIGHTH of the Certificate of
Incorporation, shall be required to alter, amend, repeal, or adopt any
provision inconsistent with this Article VIII.
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EXHIBIT (10)(i)
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of June 26, 2000, to the Amended and Restated
Employment Agreement (the "Agreement") between The Boeing Company (the
"Company") and Harry C. Stonecipher ("Executive").
WHEREAS, the Agreement provides that the Employment Period (as defined therein)
shall not extend beyond May 16, 2001; and
WHEREAS, the Company has asked Executive to continue to serve as President and
Chief Operating Officer for an additional year beyond such date and Executive
has agreed to do so;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree
that the final sentence of Section 2 of the Agreement is amended to read in its
entirety as follows:
Notwithstanding any other provision of this Section 2, in no event
shall the Employment Period extend beyond May 16, 2002.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of
the day and year first written above.
THE BOEING COMPANY
By: /s/ James B. Dagnon /s/ Harry C. Stonecipher
------------------- ------------------------
James B. Dagnon Harry C. Stonecipher
Senior Vice President - People
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EXHIBIT (10)(ii)
The Boeing Company
1999 Bonus and Retention Award Plan
1. Purpose. The purpose of this Plan is to permit the payment of extraordinary
types of compensation, such as signing bonuses, bonuses associated with
certain transactions, and any other non-base pay awards, to certain employees
of The Boeing Company and its subsidiaries, without such payments being
contingent upon earnings or profits of the Company. In addition, the Plan is
intended to authorize management to enter into retention incentive
arrangements and similar agreements where it is determined that entering into
such agreements, and the payment of amounts thereunder, is in the best
interest of the Company.
2. Administration. The Plan shall be administered by the Senior Vice President-
People, or his delegate.
3. Eligibility and Participation. All employees of The Boeing Company and its
subsidiaries who are not elected officers shall be eligible to receive awards
under this Plan. Participation shall be in the discretion of management.
4. Report of Payments under the Plan. On a semi-annual basis, or more often as
requested by the Compensation Committee, management shall report to the
Committee on the types and amounts of awards made under this Plan.
5. Forms of Awards. Awards under this Plan shall be made entirely in cash,
except that in the case of corporate dispositions or similar transactions,
awards of stock or stock options in any successor company may be
substituted for cash.
6. Term of the Plan. The Plan shall become effective upon approval by a
two-thirds majority of the members of the Board of Directors, and shall
remain in effect until termination by the Board.
7. Amendment. The Plan may be amended by the Compensation Committee of the
Board of Directors.
8. No Right to Employment. Nothing in this Plan shall be construed to confer
upon any employee of Plan participant any right to continue in the employ
of the Company.
9. Nonassignability. No awards authorized or made pursuant to the Plan shall
be subject in any manner to assignment, alienation, transfer, attachment or
any other legal process, and any attempt to subject any such award to any
of the foregoing shall be void.
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EXHIBIT (15)
Letter from Independent Accountants Regarding
Unaudited Interim Financial Information
The Boeing Company and Subsidiaries
See Deloitte & Touche LLP letter on page 55.
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July 31, 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 and six-month periods ended June 30, 2000 and 1999 as indicated in our
report dated July 21, 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 June 30, 2000, is
incorporated by reference in Registration Statement Nos. 2-48576, 33-25332,
33-31434, 33-43854, 33-52773, 33-58798, 333-03191, 333-16363, 333-26867,
333-32461, 333-32491, 333-32499, 333-32567, and 333-35324 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
55
