The Boeing Company’s [NYSE: BA] 2007 net income increased 84 percent to a record $4.1 billion, or $5.28 per share, up from $2.2 billion, or $2.85 per share, in 2006 on higher commercial airplane deliveries, strong growth in defense earnings, companywide productivity improvements, and certain charges recorded in 2006 (Table 1). Revenue rose 8 percent to a record $66.4 billion, while the operating margin expanded to 8.8 percent driven by double-digit margins in its commercial airplanes and defense businesses.

Fourth-quarter revenue held at $17.5 billion while the operating margin increased to 8.7 percent driven by margin expansion in its core businesses. Operating earnings grew 32 percent, while earnings per share increased 5 percent to $1.36 per share affected by a higher effective tax rate.

Boeing raised its 2008 earnings per share guidance to between $5.70 and $5.85, as productivity gains are being realized ahead of earlier plans.

 

"Our 2007 results demonstrate the kind of quality financial performance we can achieve through our simultaneous focus on growth and productivity," said Chairman, President and Chief Executive Officer Jim McNerney. "We added substantial backlog, made major efficiency gains, and executed well on our production and services programs. Despite some development program challenges, we are a strong company growing
stronger, and we expect continued improvement in our financial results in 2008 and beyond."

Full-year operating cash flow grew 28 percent to a record $9.6 billion, reflecting strong operating earnings, higher commercial airplane orders, and a decrease in working capital requirements. Free cash flow* increased 35 percent to a record $7.9 billion (Table2). Total company backlog at year-end reached a record $327 billion, up 31 percent in the last twelve months driven by commercial airplane orders and defense program wins.

Table 2. Cash Flow
(Millions) 2007 2006 2007 2006
Operating Cash Flow 1 $1,893 $2,441 $9,584 $7,499
Less Additions to Property, Plant & Equipment ($449) ($588) ($1,731) ($1,681)
Free Cash Flow* $1,444 $1,853 $7,853 $5,818
1 Operating cash flow includes $580 pension plans contribution in full-year 2007 and $522 in full-year 2006.
4th Quarter Full Year
Cash and investments in marketable securities totaled $12.1 billion at year-end,
up 30 percent from the same period last year and down slightly from the end of the third
quarter (Table 3). During the fourth quarter, the company increased its share
repurchase authorization by $7 billion and spent $890 million for 9.4 million shares.
Share repurchases for the year totaled $2.8 billion for 29.0 million shares. Also in the
fourth quarter, the company increased its dividend by 14 percent. Consolidated debt
decreased 5 percent as Boeing Capital Corporation repaid maturing debt.
Table 3. Cash, Marketable Securities and Debt Balances
(Billions) 4Q07 3Q07
Cash $7.0 $8.9
Marketable Securities1 $5.1 $3.3
Total $12.1 $12.2
Debt Balances:
The Boeing Company $3.9 $3.9
Boeing Capital Corporation $4.3 $4.7
Total Consolidated Debt $8.2 $8.6
Quarter-End
1 Marketable securities consists primarily of investments in high-quality fixed-income and asset-backed securities classified as
"short-term investments" and "investments." At December 31, 2007, it also includes time deposits of $1.0 billion and commercial
paper of $0.8 billion classified as "short-term investments."
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Segment Results
Commercial Airplanes
Boeing Commercial Airplanes (BCA) fourth-quarter revenues increased 17 percent
to $8.9 billion on a 9 percent increase in deliveries, to 112 airplanes, and higher
commercial aviation services revenue (Table 4). Operating earnings grew 46 percent to
$973 million on favorable product mix, and operating margins expanded to 11.0 percent.
Margins in the latest quarter primarily reflect higher operating leverage and expanding
productivity.
(Millions, except deliveries & margin percent) 2007 2006 2007 2006
Commercial Airplanes Deliveries 112 103 9% 441 398 11%
Revenues $8,866 $7,606 17% $33,386 $28,465 17%
Earnings from Operations $973 $665 46% $3,584 $2,733 31%
Operating Margins 11.0% 8.7% 2.3 Pts 10.7% 9.6% 1.1 Pts
Table 4. Commercial Airplanes Operating Results
Change Change
4th Quarter Full Year
For the full year, BCA revenues rose 17 percent to $33.4 billion on an 11 percent
increase in airplane deliveries and higher services volume. Operating earnings grew 31
percent to $3.6 billion while margins expanded to 10.7 percent, driven by higher delivery
volume and services sales, partially offset by increased R&D spending.
BCA booked 520 gross orders during the quarter and a record 1,423 during the
year. Contractual backlog rose to a record $255 billion, increasing 46 percent in 2007 to
more than seven times BCA’s annual revenues.
Progress on the new 787 Dreamliner continues on the revised schedule
announced earlier this month. Boeing continues to address challenges associated with
assembly of the first airplanes, including start-up issues in our factory and in our extended
global supply chain. The company expects the first flight to occur around the end of the
second quarter of 2008 with first delivery in early 2009. The program won a record 369
787 orders in 2007, bringing total firm orders since launch to 857 airplanes from 56
customers.
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Integrated Defense Systems
Boeing Integrated Defense Systems (IDS) expanded operating margins more
than 100 basis points to 11.7 percent in the fourth-quarter on revenue of $8.4 billion.
Revenues declined from the same period last year driven by timing of aircraft deliveries
and the December 2006 formation of the United Launch Alliance (ULA) joint venture.
For the full year, IDS grew operating earnings by 13 percent to $3.4 billion and
expanded operating margins to 10.7 percent on revenues of $32.1 billion. IDS results
reflect strong execution in all segments and extensive productivity improvements.
During the year, IDS won nine out of eleven significant competitions, demonstrating the
value its defense products provide to customers worldwide.
(Millions, except margin percent) 2007 2006 2007 2006
Revenues
Precision Engagement & Mobility Systems $3,622 $4,259 (15%) $13,685 $14,107 (3%)
Network & Space Systems $2,891 $3,414 (15%) $11,696 $11,941 (2%)
Support Systems $1,857 $2,014 (8%) $6,699 $6,391 5%
Total IDS Revenues $8,370 $9,687 (14%) $32,080 $32,439 (1%)
Earnings (Loss) from Operations
Precision Engagement & Mobility Systems $397 $293 35% $1,629 $1,208 35%
Network & Space Systems $295 $467 (37%) $891 $952 (6%)
Support Systems $286 $267 7% $920 $872 6%
Total IDS Earnings from Operations $978 $1,027 (5%) $3,440 $3,032 13%
Operating Margins 11.7% 10.6% 1.1 Pts 10.7% 9.3% 1.4 Pts
Table 5. Integrated Defense Systems Operating Results
4th Quarter
Change
Full Year
Change
1
Precision Engagement & Mobility Systems expanded fourth-quarter operating
margin to 11.0 percent on lower revenue of $3.6 billion. Margin results were driven by
strong execution across aircraft production programs, including EA-18G and C-17. The
change in revenues reflects lower aircraft deliveries compared to the year-ago period.
Network & Space Systems achieved significant milestones on several key
programs. Operating margin expanded to 10.2 percent in the quarter driven by strong
performance across the segment’s broad array of programs, including Future Combat
Systems and Ground-based Midcourse Defense, which captured 100 percent of award
fees. Revenues fell to $2.9 billion on the removal of ULA-reported revenue.
Support Systems again generated strong profits on its broad portfolio of services
and logistics programs. Operating margin grew to 15.4 percent on solid program
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execution and contract mix, while revenues for the quarter fell to $1.9 billion on lower
volume and timing of aircraft modifications,
IDS’ backlog at quarter-end grew to $71.7 billion reflecting new orders that
exceeded current-period revenues. Significant new orders in the quarter include the
Tracking & Data Relay Satellites, Singapore F-15SGs and Ares I Instrument Unit
Avionics award.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) reported fourth-quarter pre-tax earnings of $30
million compared to $37 million in the same period last year which included a larger
portfolio (Table 6). BCC’s portfolio balance at the end of the quarter was $6.5 billion, down
from $8.0 billion at the beginning of the year primarily on normal portfolio run-off, customer
prepayments and depreciation. BCC contributed $92 million in cash dividends to the
company during the quarter and $408 million in 2007. BCC’s debt-to-equity ratio remained
steady at 5.0-to-1.
(Millions) 2007 2006 2007 2006
Revenues $196 $241 (19%) $815 $1,025 (20%)
Pre-Tax Income $30 $37 (19%) $234 $291 (20%)
Table 6. Boeing Capital Corporation Operating Results
4th Quarter
Change
Full Year
Change
Additional Information
The “Other” segment consists primarily of Boeing Engineering, Operations and
Technology and the Connexion business (which was exited at the end of 2006), as well
as certain results related to the consolidation of all business units. Other segment
expense was $165 million in the fourth quarter, up from $93 million of expense in the
same period last year due to higher environmental remediation expenses.
Unallocated share-based-plans expense was $6 million, down from $140 million
in the same period last year due to changes in the company’s long-term compensation
plans implemented in 2006. Reversal of deferred compensation expense recorded
earlier in the year contributed $66 million to earnings due to a lower share price and
broad stock market conditions. Pension expense for the quarter rose $80 million to
$301 million, of which $141 million was recorded in unallocated expense, and the
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balance was recorded as expense at BCA and IDS. At year-end, Boeing’s pension
plans were more than fully funded at 110 percent of the projected benefit obligation.
Outlook
The company’s financial guidance summarized in Table 7 reflects strong
business performance forecasts at IDS and BCA, increasing commercial airplane
deliveries, continued investment in new airplane development and company-wide
productivity gains. As previously disclosed, Boeing will provide complete financial
guidance for 2009 when the company issues its first-quarter 2008 earnings report in late
April, which will follow the assessment of the impact of the previously announced 787
schedule changes.
Boeing’s 2008 revenue guidance is now between $67 billion and $68 billion,
down from between $67.5 billion and $68.5 billion due to the 787 delay. Earnings-pershare
guidance for 2008 is raised to $5.70 to $5.85 per share, from $5.55 to $5.75 per
share, as productivity gains are being realized ahead of earlier plans. Operating cash
flow guidance for 2008 is reduced to greater than $2.5 billion reflecting the 787
schedule, from greater than $3 billion.
For 2009, the outlook for the company’s defense business and in-production
commercial airplane programs remains very strong. As a result, the company continues
to expect strong earnings per share growth in 2009.
Commercial Airplanes now expects to deliver between 475 and 480 airplanes in
2008 and is sold out, down slightly from 480 to 490 airplanes to reflect the rescheduling
of initial 787 deliveries into 2009. BCA revenue guidance for 2008 is now $34.5 billion
to $35 billion, down from $35 billion to $36 billion, and operating margin guidance is
increased to approximately 11.5 percent from approximately 11 percent as productivity
gains are being realized ahead of earlier plans.
IDS revenue guidance for 2008 is unchanged at $32 billion to $33 billion.
Guidance for 2008 IDS operating margin is unchanged at approximately 10.5 percent.
Boeing’s total R&D forecast for 2008 is unchanged at between $3.2 billion and
$3.4 billion, a decline of approximately 14 percent from the 2007 level. Annual capital
expenditures are expected to be approximately $1.8 billion in 2008.
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The company’s non-cash pension expense is expected to be approximately $0.8
billion for 2008. Discretionary funding of Boeing’s pension plans in 2008 is expected to
be approximately $500 million.
Table 7. Financial Outlook
(Billions, except per share data) 2008
The Boeing Company
Revenues $67 - $68
Earnings Per Share (GAAP) $5.70 - $5.85
Operating Cash Flow1 > $2.5
Boeing Commercial Airplanes
Deliveries 475 - 480
Revenues $34.5 - $35
Operating Margin ~ 11.5%
Integrated Defense Systems
Revenues
Precision Engagement & Mobility Systems ~ $13.5
Network & Space Systems ~ $12
Support Systems ~ $7
Total IDS Revenues $32 - $33
Operating Margin
Precision Engagement & Mobility Systems ~ 11%
Network & Space Systems ~ 9%
Support Systems ~ 12.5%
Total IDS Operating Margin ~ 10.5%
Boeing Capital Corporation
Portfolio Size Lower
Revenue ~ $0.7
Return on Assets ~ 1.5%
Research & Development $3.2 - $3.4
Capital Expenditures ~ $1.8
1 After forecast pension contributions of $0.5 billion in 2008.
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Non-GAAP Measure Disclosure
Management believes that the non-GAAP (Generally Accepted Accounting
Principles) measures (indicated by an asterisk *) used in this report provide investors
with important perspectives into the company’s ongoing business performance. The
company does not intend for the information to be considered in isolation or as a
substitute for the related GAAP measures. Other companies may define the measures
differently. The following definitions are provided:
Adjusted Earnings per Share
Adjusted earnings per share is defined as GAAP diluted earnings per share
adjusted for certain significant charges or credits. Management believes adjusted
earnings per share is important to understanding the company’s on-going operations
and provide additional insights into underlying business performance. Significant
charges or credits are described in the attachments to this release which provide
reconciliations between GAAP earnings per share and adjusted earnings per share.
Free Cash Flow
Free cash flow is defined as GAAP operating cash flow less capital expenditures
for property, plant and equipment additions. Management believes free cash flow
provides investors with an important perspective on the cash available for shareholders,
debt repayment, and acquisitions after making the capital investments required to
support ongoing business operations and long term value creation. Free cash flow
does not represent the residual cash flow available for discretionary expenditures as it
excludes certain mandatory expenditures such as repayment of maturing debt.
Management uses free cash flow internally to assess both business performance and
overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow
and free cash flow.