BUSINESS ROUNDTABLE Moderator: Jim McNerney June 20, 2012 10:00 am CT

Coordinator:

Ladies and gentlemen thank you for joining Business Roundtables Briefing on its Second Quarter 2012 CEO Economic Outlook Survey.

The members of Business Roundtable are Chief Executive Officers of the Nations leading companies. Collectively, they represent more than 14 million employees, over $6 trillion in annual revenues, and generate $420 billion in sales for small and medium sized businesses annually. Conducted quarterly since the first quarter of 200, Business Roundtables CEO Economic Survey is a leading CEO-based survey of sales, capital spending, and employment projected over the next six months.

This quarters survey was completed between May 17 and June 8, 164 CEOs completed the Survey, which is 78% of the total BRTs membership. You can find an interactive chart illustrating these results, results from previous quarters, and comparisons with key economic metrics, such as GDP and employment at www.BRT.org/CEO_Survey.

Before I turn the call over to your host, please note that all telephone participants are in listen-only mode at this time. Later we will conduct a question-and-answer session where you will be given the opportunity to ask questions about the CEO Economic Outlook Survey. If you should require assistance during your call, please press star 0. Todays conference is being recorded. If you have any objections you may disconnect at this time.

With that I will now turn things over to your host, Mr. Jim McNerney, Chairman, President, and CEO of the Boeing Company, and the Chairman of Business Roundtable. Also joining Mr. McNerney is Governor Engler, President of Business Roundtable. Mr. McNerney?

Jim McNerney:

Hello, everyone, and thank you again for joining us for the release of Business Roundtables Second Quarter 2012 CEO Economic Outlook Survey.

In this quarters survey, CEOs expectations for sales, capital expenditures, and hiring over the next six months softened from last quarter. While expectations are for a continued slow expansion, the results reflect member CEOs continuing concern over obstacles to a stronger economic recovery.

Chief among those concerns is growing uncertainty, whether the Administration and Congress can resolve the so-called fiscal cliff issues of expiring tax rates, debt ceiling, and budget sequestration, failure to resolve these tax and spending questions, along with continuing concern about the Eurozone and questions about economic growth in Asia certainly act as a drag on potential economic growth and business expansion in the U.S.

Now, lets move to the Survey Results.

Taking a look at the data and what our members are projecting over the next six months we found that on sales 75% of member CEOs anticipate sales will increase in the next six months, which is down six points from last quarter; 20% expect sales to remain the same, up from 16% last quarter, and 6% of CEOs expect sales to decline, a rise from 3% in the fourth quarter of 2011. On capital spending 435 of member CEOs project higher spending in the next six months, which is lower from 48% last quarter; 45% expect spending to remain

the same, up from 41% last quarter, and 12% project a decline, which is essentially flat from last quarters 11%.

On the third topic of employment, 36% of member CEOs expect to add U.S. employees, which is down six points from 42% last quarter; 44% expect employment to remain steady, which is about the same as last quarter at 43%, and 20% project lower employment, up slightly from 16% in the first quarter of 2012.

Each quarter, as many of you recall, we combine the three categories, sales, CapEx, and employment into an index to provide a quick snapshot of anticipated economic conditions for the next six months. As I mentioned, this quarters CEO Economic Outlook Survey Index reflects a slight downturn in expectations, falling from an Index of 96.9 in the first quarter of 2012 to 89.1 for the second quarter. I want to remind you though that our Index is a composite diffusion index centered on 50 and results can range from negative 50 to positive 150. An Index reading lower than 50 is consistent with overall economic contraction, while a reading above 50, which is still where we are is consistent with expansion.

In closing, CEOs overall expectations are down slightly in each of our measures; sales, investment, and employment. The past quarter has seen continuing concerns about Europes sovereign debt issues, as well as continued political wrangling in D.C. that is holding up much needed tax and fiscal reforms that would provide greater certainty to business, reassure the markets, and enhance U.S. economic growth.

With that said, Id be happy with John as my sidekick to take your questions now.

Coordinator:

And if you are on the phone and would like to ask a question about Business Roundtables CEO Economic Outlook Survey, please press star 1. We request that you limit your questions to the CEO Economic Outlook Survey. We will now take your questions.

John Engler:

You know, Jim, while were waiting for the first question one other point that we might mention, theres just a little data point on CEO Outlook relative to GDP, and that has softened a little bit too. Were kind of back to where we were at the end of last year. That went down. Expectation 2.3 down to 2.1.

Jim McNerney:

Yep. Yeah. Yeah, good. Glad you mentioned that. Consistent. I guess we were unusually clear, John, today.

John Engler:

I think so, unless everybodys muted out. Operator, are we...

Coordinator:

We do have several questions. Our first question will come from Scott Malone of Reuters. Your line is open.

Scott Malone:

Morning, gentlemen.

Jim McNerney:

Good morning, Scott.

Scott Malone:

Wanted to hear a little bit more color on your concerns about Europe and how much of this is specifically a fear that, you know this is going to affect your sales, you know to European customers, and how much this - of this is a fear of, you know there being a risk of contagion and Europes downturn, you know spreading and pulling the - you know the broader U.S. economy along for the ride?

Jim McNerney:

I think we dont have perfect data on that question, but most American large corporations are exposed to Europe, in terms of sales and costs, and my guess is most of this reflects an expectation of an economic slowdown impacting sales, employment, capital expenditures, rather than a concern specifically about the sovereign debt situation. Those two things are obviously related, but I think the sense that we answered this question was more on impact of sales and costs and expenditures, which is - you know its a gathering concern certainly among our membership.

Scott Malone:

Thank you.

John Engler:

And I think...

Jim McNerney:

Yep.

John Engler:

...(thats right). The data point for the reporters is Europes about - about 1/4 of U.S. exports are headed toward Europe, so the Chairmans response, I mean thats your data point. So, when that weakens that can be felt.

Jim McNerney:

Yep.

Coordinator:

And our next question in queue from Chris Rugaber of Associated Press. Your line is open.

Chris Rugaber:

Hi -- excuse me. Hey, so - and I guess maybe could you give us little more also then on the fiscal cliff, so-called, budget and tax concerns. Are you - I mean, do you hear from members that theyre cutting back now? You know, how much of the actual impact on things like employment is taking place now, how much later? Is there any faith at all that this will be - I mean the politicians say theyll delay it, but...

Jim McNerney:

Yep. Yeah.

Chris Rugaber:

...you know how - you know...

Jim McNerney:

Chris, its a real concern, okay? And I think those of us that are directly impacted by projected sequestration cuts, for example the Defense industry is a piece of that where I have personal experience, the - were taking actions today. And so, some of that, because we cant afford to just wait until the last minute, and so theres a portion of action being taken today.

But, I think the concern is significant because we dont know how corporations or individuals or capital will be taxed. And its - and so theres sort of a little bit of a restraint leaning back in the saddle as we approach the end of the year. And we spend a lot of time, and Governor Engler probably spends half of his time right now trying to cause action, but there is - the cold eye view is that there is paralysis and it is likely to be a last minute thing. And that prospect, I think, is having an impact on these results that youre seeing here today.

Chris Rugaber:

Right. Thank you. And then, when you mentioned you guys taking actions today, what is that - I mean, do you mean delayed hiring? Anything you can point to specifically?

Jim McNerney:

Well, I think not only delayed hiring, but were being forced to trim employment in certain places, and I think a number of companies are doing that. Were trying to minimize that, but theres no way to approach the prospect of sequestration without hedging a bet. There is a no way.

Chris Rugaber:

Right. So, youre - can you give any numbers about employment that youre cutting and where?

Jim McNerney:

I just dont want to project for the industry, but I mean...

Chris Rugaber:

Right, but just at Boeing.

Jim McNerney:

Well, the - let me just say that the - that there are employment adjustments downward that are significant in anticipation of sequestration. Lets just leave it at that.

Chris Rugaber:

Sure, but I mean at your company or in the industry, or both?

Jim McNerney:

No, I was answer for Boeing, and I think there are - I think anybody in the aerospace industry would give you the same answer.

Chris Rugaber:

Okay.

John Engler:

And I think...

Chris Rugaber:

Thank you.

John Engler:

...that - we had 100 CEOs at our meeting last week and theres a lot of concern because this ripples down from the large employees to their supply chains. This uncertainty is pretty lethal and you have in Congress this sort of optimism that will handle of all of this in the lame duck, but these are real people with real jobs and real budgets and companies, and what happens if it isnt handled?

Chris Rugaber:

Right.

Jim McNerney:

And the - weve just come off the Super Committee experience...

Chris Rugaber:

Right.

Jim McNerney:

...so we dont - we have yet to regain faith that the process will deal with it.

Chris Rugaber:

All right, thank you.

Jim McNerney:

Yeah, youre welcome.

Coordinator:

Our next question will come from Lorraine Woellert of Bloomberg. Your line is open.

Lorraine Woellert: Hey, guys. The...

Jim McNerney:

Hi, Lorraine.

Lorraine Woellert: ...you know one potential outcome of the fiscal cliff is they kick the can down the road, which they like to do on The Hill. What is the potential response to that? I mean, if they just buy themselves six more months or three more months, what does that mean?

Jim McNerney:

Well, it just leaves - it just is a limbo we find ourselves in today, which causes us to hedge our bets with investment and employments, will just continue. So, the water torture will just continue, you know because itll be yet another example of not confronting the issue, and then pushing it out six months, which overall just has a damper on investment and growth in my opinion, and I think in the opinions of a lot of people who run companies in this country.

And its - and so we - you know we would all advocate for an imperfect solution over waiting forever for a perfect solution.

Lorraine Woellert: Okay. Okay, thank you.

Jim McNerney:

Yeah, youre welcome.

Coordinator:

Our next question will come from (Sarah Portlanc) of Dow Jones. Your line is open.

(Sara Portlanc):

Hi. Im curious how the Index figure compares historically.

Jim McNerney:

John, do you have that data in front of you? Its...

John Engler:

Yes, we do, and we make that available. We could give you basically a whole ten years, but what this is showing is that its come down, as weve reported, from the last quarter. And if you look back into 2011 you see where it had sort of been rising because optimism was coming up. If you look at the whole - the totality of the index over its time, and I think Chairman McNerney mentioned this, this is slightly above the average of the - of - but again what probably...

((Crosstalk))

Jim McNerney:

But, that was from the same periods a year ago, John, I think.

John Engler:

Yeah, and I think directions, you know...

Jim McNerney:

Yeah.

John Engler:

...is there momentum or not? You wouldnt say, This is momentum building.

Jim McNerney:

Yeah.

(Sara Portlanc):

Okay. Thank you.

Jim McNerney:

Yep.

Coordinator:

Our next question will come from Kevin Hall with McClatchy. Your line is open.

Kevin Hall:

Yes, hi. Thanks for doing this.

Jim McNerney:

Yes, Kevin.

Kevin Hall:

Quick question. I know this is supposed to stay more to the Survey, but do the Survey results give you any feel for what youd like to see the Federal Reserve do? Will any of this help mitigate? Obviously, the Europe situation and the long bond, the thought it is will have some beneficial effect for economic activity, but the Chairman has said himself - (unintelligible) has said himself that he cant offset the fiscal cliff. Is there anything that this tells you about today's - what were expecting to hear today about (twist) and...

Jim McNerney:

Yeah, I - listen, I dont think those moves have a big impact on economic activity. Thats a bit of a personal view. And as you implied in your question, the fiscal taxation, regulatory questions, budget questions are far, far more important to on the ground economic growth than the next move by the Fed, which probably has more relevance to traders than it does to people who make, sell, and buy things.

Kevin Hall:

Would it make any difference, in terms of the certainty, if, and again this is a hypothetical because we both know its not going to happen.

Jim McNerney:

Yeah.

Kevin Hall:

But, you know Warren Buffet said the last couple weeks that, you know whether we had a 39.6% rate or a 50% rate, American business always found a way to thrive. Would it make a difference really where the rates are? Would you - is that what you were getting at with an imperfect solution?

Jim McNerney:

Well, yeah. I mean, I didnt have those two numbers in mind, but having what...

((Crosstalk))

Jim McNerney:

...I really was in my mind was Simpson Bowles is not a bad place to start, okay? And that has slightly more spending cuts than it does revenue raisers, and obviously theres a large group of our membership that would like to see no revenue raisers and only cuts. But, I think what I meant by my comment is wed rather see a budgetary solution that shades in the right direction to be sure, but if theres some compromises that have to be made in order to get some certainty, I think I speak for the membership when I say that wed support that. Weve told both Presidential Candidates that.

Kevin Hall:

Thanks.

Jim McNerney:

Yep.

Coordinator:

And our next question will come from Ricardo Lopez of L.A. Times. Your line is open.

Ricardo Lopez:

Hi. Good morning. I was just...

Jim McNerney:

Good morning.

Ricardo Lopez:

...wondering if you could talk a bit more about the slowdown in China. Im just curious whether the slowdown in the Asian markets is a bigger worry for members of the Roundtable than the Eurozone problem.

Jim McNerney:

I think its probably less of a worry. Its - if you would force me to make a comment, I think the European situation could decelerate quickly. We hope it doesnt, but I think it has a greater possibility to decelerate quickly. Whereas China the issue is more 6% growth as opposed to 9% growth for a while, which would be less of a concern longer-term.

Ricardo Lopez:

Okay, thank you.

Jim McNerney:

Yep.

Coordinator:

And our last question will come from Jeffry Bartash with MarketWatch Dow Jones. Your line is open.

Jeffry Bartash:

Yeah, Jim and John, good morning. The Fed recently...

Jim McNerney:

Good morning.

Jeffry Bartash:

...revised numbers showing companies have much less cash on hand than previously estimated. The profits are high by historical standards. Are

companies hoarding cash, and if so what are the reasons and what can be done to get the money off the sidelines, aside from the things weve already talked about today, like the fiscal cliff?

Jim McNerney:

Well, I think the fiscal cliff and the budget is the point thought. I mean, its - I think the regulatory and tax and budget environment is not clear, and I do know of some companies who are holding back for some clarity. I mean, these investments are for 20 years, and youve got to make some assumptions. And those fiscally and - fiscal and tax-oriented things are important assumptions in these things and - as is the regulatory environment youre going to be in.

So, those are important things and its - my personal view is that there are lots of projects that will be unleashed. I mean, energy is one area, chemicals is another, where the politics and the regulatory it can be difficult. Weve experienced some of that in aerospace with our South Carolina incident, you know which was not, what youd call, investment-friendly discussions with our government.

And so, I think that is the point and our - and theres a lot of very competitive companies in this country that are just waiting to go.

Jeffry Bartash:

Thank you.

Jim McNerney:

Yeah.

John Engler:

I think, Jim, we could add to that. I mean, youre exactly right. You mentioned energy that there is probably - the American Chemistry Council was telling me, their leader was saying they probably are $30 billion worth of projects right now that are announced on the drawing board likely to go. But, he said theres a vast number of others that are still tentative and that - and its

just is the energy policy going to be reliable? And thats just one area, but the regulatory side of the House matters as well as the tax side.

The only other - the last point Id make, I think it was the last question, this Survey, one thing that, its in the release and everything, but it is worthy of note this was the highest response weve ever had from CEOs to the Survey; 78% of all Business Roundtable CEOs responded to this Survey. So, its - you know that...

((Crosstalk))

Jim McNerney:

(Its of absolute validity). Yeah. Yeah. Okay.

John Engler:

Okay, one more?

Woman:

We actually have one more question teed up. Operator, if you want to send that through.

Jim McNerney:

Okay.

Coordinator:

The next question comes from Kevin Hall with McClatchy. Your line is open.

Kevin Hall:

Yeah, hi. I wanted to just follow-up on something you just said, just out of curiosity, about the certainty and the need for certainty, and why people are pulling back. Clearly, you know the tax situation is that, but you mentioned the regulatory uncertainty and I hear it a lot, and I perplexes me. Im hoping maybe you guys can flush it out a little bit, because Im a young 50 years old and for most of my adult life I remember regulation has always been in regardless of what industry it is theres always a reality of changes...

Jim McNerney:

Yeah.

Kevin Hall:

...in degrees of regulation. What is this? Is there anything that (I havent) seen...

Jim McNerney:

I think...

Kevin Hall:

...that is wildly different today than has been...

Jim McNerney:

Yeah, it is...

Kevin Hall:

...(for the rest of my life)?

Jim McNerney:

...different today, and Im a approaching my mid-60s, so I have a little more perspective. No, I think - I dont mean that lightly, I mean its a very serious subject. But, if you just go down the agencies, you know NLRB, EPA, FDA, they - there are example after example, and these are things that not make the National Press. Some of them do. I mean, the NLRB suit with Boeing made the National Press, but that sought to obviate a $2 billion investment down in South Carolina for globally - a very globally competitive company.

I think the device makers in the healthcare world would characterize the some elements of the FDAs oversight as being a much more difficult process. It always start - they would say that guilty until proven innocent, no partnership. You saw the quote of the EPA Leader down in the Southwest, relative to, you know his view of carbon, you know which is the lifeblood of our economy. I forgot what the quote was, but again its one of these guilty until proven innocent.

So, the attitudes different and its - unless you live it its hard to see it, and wed just like to see it rebalanced. I mean, were not arguing that regulation is bad. We need regulation. I mean, we have to preserve the safety and the environment and the well-being of our employees. We have to give labor a balanced position in our economy and in our society, but its gone way beyond that. And there are many examples, but youve sort of got to dig into them to find them.

And it has an effect. I mean, we hear about them all day, because we hear about them from our organizations.

John Engler:

I think the Dow Chemical plant, that (cracker) theyre talking about down in the Gulf is maybe a $4 to $5 billion investment. Look at the hearings that were held on, you know that featured Jamie Dimon on their loss for a couple of billion dollars.

Im not minimizing them, but I think the point is the best today in 2012 are so much bigger on all of these projects and commitments than they were in the past. And I think bigger just for - not - you know its not just that passage of time everything, you know costs more than that, but these are so big that a little bit of uncertainty is a complicated thing to factor through.

And the Chairmans examples are absolutely spot on; FDA, two years or more approval longer in this country than over in Europe, so where would you do the research?

Jim McNerney:

Yep.

Kevin Hall:

Thanks.

John Engler:

Thanks, everyone.

Jim McNerney:

Okay. Yep. Thank you, Governor. Thanks...

John Engler:

Thank you very much.

Jim McNerney:

...everybody. Thanks you...

((Crosstalk))

John Engler:

Very good.

Jim McNerney:

Okay.

John Engler:

Bye-bye.

Jim McNerney:

Bye.

Coordinator:

This concludes Business Roundtables Briefing on the Second Quarter 2012 CEO Economic Outlook Survey.

A transcript of this call will be available tomorrow. Please visit www.BRT.org/CEO_Survey for more information. Thank you.

END