BOEING CO - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-442

THE BOEING COMPANY

(Exact name of registrant as specified in its charter)


Delaware		91-0425694

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 N. Riverside, Chicago, IL		60606-1596

(Address of principal executive offices)		(Zip Code)

(312) 544-2000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

As of April 23, 2004, there were 843,131,222 shares of common stock, $5.00 par value, issued and outstanding.

THE BOEING COMPANY

FORM 10-Q

For the Quarter Ended March 31, 2004

INDEX


*Part I. Financial Information (Unaudited)*			*Page*

	Item 1.	Financial Statements
		Condensed Consolidated Statements of Operations	3
		Condensed Consolidated Statements of Financial Position	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

	Item 4.	Controls and Procedures	57

*Part II. Other Information*

	Item 1.	Legal Proceedings	58

	Item 6.	Exhibits and Reports on Form 8-K	58

	Review by Independent Public Accountants		62

	Independent Accountants’ Report		63

	Signature		64

	Exhibit (15) – Letter from Independent Accountants Regarding Unaudited Interim Financial Information		65

	Exhibit (31.1) – Section 302 Certification – CEO		66

	Exhibit (31.2) – Section 302 Certification – CFO		67

	Exhibit (32.1) – CEO Section 906 Certification		68

	Exhibit (32.2) – CFO Section 906 Certification		69

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The Boeing Company and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


(Dollars in millions except per share data)	Three months ended March 31

	2004			2003

Sales and other operating revenues	$	12,959		$	12,258
Cost of products and services		(10,728	)		(10,533	)
Boeing Capital Corporation interest expense		(103	)		(111	)

		2,128			1,614

Income/(loss) from operating investments, net		13			6
General and administrative expense		(710	)		(612	)
Research and development expense		(474	)		(361	)
Gain/(loss) on dispositions, net					7
Share-based plans expense		(119	)		(114	)
Goodwill impairment					(913	)
Impact of September 11, 2001, recoveries/(charges)					3

Earnings (loss) from operations		838			(370	)
Other income/(expense), net		159			16
Interest and debt expense		(84	)		(93	)

Earnings (loss) before income taxes		913			(447	)
Income tax (expense)/benefit		(290	)		(31	)

Net earnings (loss)	$	623		$	(478	)


Basic earnings (loss) per share	$	0.78		$	(0.60	)


Diluted earnings (loss) per share	$	0.77		$	(0.60	)


Cash dividends paid—per share	$	0.17		$	0.17

Average diluted shares (millions)		810.9			800.0

See notes to condensed consolidated financial statements.

The Boeing Company and Subsidiaries

Condensed Consolidated Statements of Financial Position

(Unaudited)


(Dollars in millions except per share data)	March 31 2004			December 31 2003

Assets

Cash and cash equivalents	$	3,950		$	4,633
Accounts receivable		4,844			4,466
Current portion of customer and commercial financing		847			857
Income taxes receivable					199
Deferred income taxes		1,716			1,716
Inventories, net of advances and progress billings		5,324			5,338

Total current assets		16,681			17,209
Customer and commercial financing		12,588			12,094
Property, plant and equipment, net		8,383			8,432
Goodwill		1,915			1,913
Other acquired intangibles, net		1,012			1,035
Prepaid pension expense		9,483			8,542
Deferred income taxes		1,182			1,242
Other assets		2,556			2,519

	$	53,800		$	52,986

Liabilities and Shareholders’ Equity

Accounts payable and other liabilities	$	13,514		$	13,514
Advances in excess of related costs		3,705			3,464
Income taxes payable		437			277
Short-term debt and current portion of long-term debt		916			1,144

Total current liabilities		18,572			18,399
Accrued retiree health care		5,802			5,745
Accrued pension plan liability		6,629			6,629
Deferred lease income		831			775
Long-term debt		13,107			13,299
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		2,846			2,880
Treasury shares, at cost – 168,828,977 and 170,383,053		(8,244	)		(8,322	)
Retained earnings		15,030			14,407
Accumulated other comprehensive income (loss)		(4,143	)		(4,145	)
ShareValue Trust Shares – 41,366,643 and 41,203,693		(1,689	)		(1,740	)

Total shareholders’ equity		8,859			8,139

	$	53,800		$	52,986

See notes to condensed consolidated financial statements.

The Boeing Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


(Dollars in millions)	Three months ended March 31

	2004			2003

Cash flows – operating activities:
Net earnings (loss)	$	623		$	(478	)
Adjustments to reconcile net earnings/(loss) to net cash (used)/provided by operating activities
Non-cash items:
Impairment of goodwill					913
Share-based plans expense		119			114
Depreciation		327			343
Amortization of other acquired intangibles		23			23
Amortization of debt discount/premium and issuance costs		4			4
Pension income		72			(42	)
Investment/asset impairment charges, net		25			52
Customer and commercial financing valuation provision		44			170
Gain on dispositions, net					(7	)
Other charges and credits, net		(17	)		27
Changes in assets and liabilities:
Accounts receivable		(378	)		25
Inventories, net of advances, progress billings and reserves		(512	)		(275	)
Accounts payable and other liabilities		101			(589	)
Advances in excess of related costs		241			(389	)
Income taxes receivable, payable and deferred		380			(303	)
Deferred lease income		56			(21	)
Prepaid pension expense		(1,002	)
Accrued retiree health care		57			76
Other		(68	)		(71	)

Net cash (used)/provided by operating activities		95			(428	)


Cash flows – investing activities:
Customer financing and properties on lease, additions		(293	)		(536	)
Customer financing and properties on lease, reductions		157			254
Property, plant and equipment, net additions		(182	)		(130	)
Acquisitions, net of cash acquired					(71	)
Proceeds from dispositions		67			62
Contributions to investment in strategic and non-strategic operations		(14	)		(7	)
Proceeds from investment in strategic and non-strategic operations		75			21

Net cash used by investing activities		(190	)		(407	)


Cash flows – financing activities:
New borrowings					1,037
Debt repayments		(471	)		(415	)
Stock options exercised, other		26			16
Dividends paid		(143	)		(143	)

Net cash (used)/provided by financing activities		(588	)		495


Net decrease in cash and cash equivalents		(683	)		(340	)

Cash and cash equivalents at beginning of year		4,633			2,333


Cash and cash equivalents at end of first quarter	$	3,950		$	1,993

See notes to condensed consolidated financial statements.

The Boeing Company and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

(Unaudited)

Note 1 – Basis of Presentation

The condensed consolidated interim financial statements included in this report have been prepared by The Boeing Company and its subsidiaries. In the opinion of management, all adjustments necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended March 31, 2004, 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 our 2003 Annual Report on Form 10-K. Certain reclassifications have been made to prior periods to conform with current reporting.

Note 2 – Standards Issued and Not Yet Implemented

In January 2004, Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was issued. FSP No. 106-1 permits the deferral of recognizing the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) in the accounting for post-retirement health care plans until authoritative guidance is issued on the accounting for the federal subsidy provided by the Act or until certain other events requiring plan remeasurement. We have elected the deferral provided by this FSP and are evaluating the magnitude of the potential favorable impact, if any, of the federal subsidy provided by the Act on our results of operations and financial position. The authoritative guidance on the accounting for the federal subsidy, when issued, could require us to change our previously reported information.

Note 3 – Goodwill and Acquired Intangibles

On January 1, 2003 we reorganized our Military Aircraft and Missile Systems and Space and Communications segments into Integrated Defense Systems (IDS) which triggered a goodwill impairment analysis. Our analysis took into consideration the lower stock price as of April 1, 2003, to include the impact of the required annual impairment test. As a result of this impairment analysis, we recorded a goodwill impairment charge during the three months ended March 31, 2003 of $913 ($818 net of tax).

The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2004, were as follows:


	December 31 2003		Goodwill Adjustment ⁽¹⁾		March 31 2004

Commercial Airplanes	$	282			$	282
Aircraft and Weapon Systems		317				317
Network Systems		1,194	$	2		1,196
Support Systems		117				117
Launch and Orbital Systems
Other		3				3

	$	1,913	$	2	$	1,915

(1)

The goodwill adjustment represents goodwill related to a post-acquisition purchase price adjustment.

The gross carrying amounts and accumulated amortization of our acquired finite-lived intangible assets as of March 31, 2004 and December 31, 2003, were as follows:


	March 31, 2004				December 31, 2003
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Developed technology	$	566	$	210	$	566	$	195
Product know-how		308		36		308		33
Customer base		106		24		106		22
Other		144		39		144		36

	$	1,124	$	309	$	1,124	$	286

Amortization expense for acquired finite-lived intangible assets for the three months ended March 31, 2004 and 2003, was $23. Estimated amortization expense for the five succeeding full years is as follows:



2005	$	89
2006		82
2007		82
2008		82
2009

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