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Press release from PR Newswire

Boeing Reports Third-Quarter Results and Raises 2012 Guidance

Wednesday, October 24, 2012

Boeing Reports Third-Quarter Results and Raises 2012 Guidance07:30 EDT Wednesday, October 24, 2012CHICAGO, Oct. 24, 2012 /PRNewswire/ -- Earnings per share of $1.35 reported on revenue of $20.0 billion Operating earnings rose at Commercial Airplanes and Defense, Space & Security Backlog grew to $378 billion driven by $24 billion of new orders Operating cash flow before pension contributions* totaled $2.3 billion Cash and marketable securities of $11.2 billion provide strong liquidity Guidance increased for revenue, EPS and operating cash flow Table 1.  Summary Financial Results Third QuarterChangeNine MonthsChange(Dollars in Millions, except per share data)2012201120122011Revenues$20,008$17,72713%$59,396$49,18021%Earnings From Operations$1,564$1,714(9%)$4,682$4,24710%Operating Margin 7.8%9.7% (1.9) Pts 7.9%8.6% (0.7)PtsNet Income$1,032$1,098(6%)$2,922$2,62511%Earnings per Share$1.35$1.46(8%)$3.84$3.4910%Operating Cash Flow Before Pension Contributions* $2,346$949NM  $4,854$1,592NM  Operating Cash Flow$1,596$449NM  $3,341$1,092NM  * Non-GAAP measure.  Complete definitions of Boeing's use of non-GAAP measures, identified by an asterisk (*), are found on page 7, "Non-GAAP Measure Disclosures."  The Boeing Company (NYSE: BA) reported third-quarter net income of $1.0 billion, or $1.35 per share, on continued strong core performance and revenue of $20.0 billion.  Increased earnings at Commercial Airplanes and Defense, Space & Security were more than offset by higher pension expense of $194 million ($0.18 per share).  Earnings per share guidance for 2012 was raised to between $4.80 and $4.95.  The company also raised its revenue guidance to between $80.5 and $82 billion on higher Defense, Space & Security revenue, and increased its 2012 operating cash flow outlook to greater than $5.5 billion. "Strong core operating performance drove increased earnings in both our major businesses, along with higher overall revenues, improved cash flow, and solid earnings per share even as pension headwinds rose," said Boeing Chairman, President and Chief Executive Officer Jim McNerney.  "Our Defense, Space & Security business maintained double-digit margins in a challenging environment while Commercial Airplanes continued to build momentum with 787 deliveries and 737 MAX orders.  Underpinned by our solid performance to date and positive outlook, we are raising our year-end guidance for revenue, earnings and operating cash flow.  We remain well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution," McNerney said.Table 2.  Cash FlowThird QuarterNine Months(Millions)2012201120122011Operating Cash Flow Before Pension Contributions*$2,346$949$4,854$1,592   Pension Contributions($750)($500)($1,513)($500)Operating Cash Flow$1,596$449$3,341$1,092   Less Additions to Property, Plant & Equipment($428)($380)($1,208)($1,142)Free Cash Flow* $1,168$69$2,133($50)Boeing's quarterly operating cash flow before pension contributions* was $2.3 billion.  Operating cash flow was $1.6 billion, with higher commercial airplane deliveries and strong operating performance more than offsetting continued investment in the 787 program and discretionary pension funding.  Free cash flow* was $1.2 billion in the quarter (Table 2). Table 3.  Cash, Marketable Securities and Debt Balances Quarter-End(Billions)3Q122Q12Cash$6.6$6.3Marketable Securities1$4.6$4.0   Total$11.2$10.3Debt Balances:The Boeing Company$8.6$8.6Boeing Capital Corporation$2.6$2.6   Total Consolidated Debt$11.2$11.21Marketable securities consists primarily of time deposits due within one year classified as "short-term investments." Cash and investments in marketable securities totaled $11.2 billion at quarter-end (Table 3), up from $10.3 billion at the beginning of the quarter.  Debt was $11.2 billion, unchanged from the prior quarter.Total company backlog at quarter-end was $378 billion, up from $374 billion at the beginning of the quarter, and included net orders for the quarter of $24 billion.  Segment Results  Commercial Airplanes Table 4. Commercial Airplanes Operating Results  Third QuarterChangeNine MonthsChange(Dollars in Millions)2012201120122011Commercial Airplanes Deliveries14912717%43634925%Revenues$12,186$9,51528%$34,966$25,47637%Earnings from Operations$1,153$1,0856%$3,445$2,51437%Operating Margins9.5%11.4%(1.9) Pts9.9%9.9%0.0 Pts Boeing Commercial Airplanes third-quarter revenue increased by 28 percent to $12.2 billion on higher delivery volume.  Operating margin was 9.5 percent, reflecting the dilutive impact of 787 and 747-8 deliveries and higher period costs partially offset by lower R&D (Table 4).  During the quarter, Commercial Airplanes began major assembly on the 787-9, and, in October, delivered the first 787 built in South Carolina.Commercial Airplanes booked 369 net orders during the quarter.  Backlog remains strong with approximately 4,100 airplanes valued at $307 billion.Boeing Defense, Space & SecurityTable 5.  Defense, Space & Security Operating Results Third QuarterChangeNine MonthsChange(Dollars in Millions)2012201120122011Revenues   Boeing Military Aircraft$3,789$3,964(4%)$12,227$10,99811%   Network & Space Systems$1,990$2,269(12%)$5,672$6,693(15%)   Global Services & Support $2,060$1,9675%$6,365$5,8149%Total BDS Revenues$7,839$8,200(4%)$24,264$23,5053%Earnings from Operations   Boeing Military Aircraft$445$39712%$1,245$1,1528%   Network & Space Systems$161$178(10%)$360$511(30%)   Global Services & Support $221$249(11%)$712$63013%Total BDS Earnings from Operations$827$8240%$2,317$2,2931%Operating Margins10.5%10.0%     0.5 Pts9.5%9.8%   (0.3)Pts Boeing Defense, Space & Security's (BDS) third-quarter revenue was $7.8 billion, while operating margin was 10.5 percent (Table 5). Boeing Military Aircraft (BMA) third-quarter revenue decreased to $3.8 billion, driven by delivery mix.  Operating margin increased to 11.7 percent, on strong performance across various programs.  During the quarter, BMA was awarded the P-8A low rate initial production contract III with the U.S. Navy, while the first P-8I aircraft for the Indian Navy began its official flight test program.Network & Space Systems (N&SS) third-quarter revenue decreased to $2.0 billion, driven by lower volume on Brigade Combat Team Modernization. Operating margin was 8.1 percent.  During the quarter, N&SS was awarded a contract to build and launch the tenth Wideband Global Communications satellite, while the second Intelsat 702 medium power satellite was launched and is on orbit.Global Services & Support (GS&S) third-quarter revenue increased to $2.1 billion, primarily due to higher volume in training systems.  Operating margin decreased to 10.7 percent, reflecting lower earnings in integrated logistics.  During the quarter, GS&S was awarded a follow-on upgrade contract from the U.S. Air Force for the B-1 bomber. Backlog at BDS was $71 billion, more than two times the unit's projected 2012 revenue.  Additional Financial InformationTable 6.  Additional Financial Information Third QuarterChangeNine MonthsChange(Dollars in Millions)2012201120122011Revenues    Boeing Capital Corporation$101$126(20%)$325$416(22%)    Other segment$27$33$93$107    Unallocated items and eliminations($145)($147)($252)($324)Earnings from Operations    Boeing Capital Corporation$33$1974%$102$133(23%)    Other segment expense($74)$92($203)$11    Unallocated items and eliminations($375)($306)($979)($704)Other income, net$17$49$39$76Interest and debt expense($115)($121)($346)($374)Effective tax rate29.5%33.4%33.1%33.6%At quarter-end, Boeing Capital Corporation's (BCC) portfolio balance was $4.1 billion, unchanged from the beginning of the quarter.  BCC's debt-to-equity ratio was 5.0-to-1. The "Other" segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC.  Other segment expense was $74 million in the quarter compared with Other segment income of $92 million in 2011 due to a $141 million gain in the third quarter of 2011 from an upgraded credit rating assigned to certain financing receivables.The loss in unallocated items and eliminations increased due to higher pension expense.  The third quarter of 2011 included a $161 million charge for post-retirement medical.  Total pension expense for the third quarter was $583 million, as compared to $389 million in the same period last year.  OutlookThe company's 2012 financial guidance (Table 7) has been updated to reflect the strong core performance in both businesses.  Table 7.  Financial Outlook (Dollars in Billions, except per-share data)2012The Boeing Company  Revenue$80.5 - 82.0  Earnings Per Share (GAAP)$4.80 - 4.95  Operating Cash Flow1> $5.5Boeing Commercial Airplanes   Deliveries 2585 - 600  Revenue$47.5 - 49.5  Operating Margin~ 9.0%Boeing Defense, Space & Security  Revenue    Boeing Military Aircraft~ $16.3    Network & Space Systems~ $7.7    Global Services & Support~ $8.7  Total BDS Revenue$32.5 - 33.0  Operating Margin    Boeing Military Aircraft~ 9.75%    Network & Space Systems~ 6.5%    Global Services & Support~ 11.25%  Total BDS Operating Margin> 9.25%Boeing Capital Corporation  Portfolio SizeLower  Revenue~ $0.4  Return on Assets~ 1.0%Research & Development$3.3 - 3.5Capital Expenditures~ $1.8Pension Expense 3$2.51  After discretionary cash pension contributions of $1.5 billion and assuming new aircraft financings under $0.5 billion.2  2012 is sold out and includes an expected 70 to 85 787 and 747-8 deliveries, of which approximately half are 787 aircraft.  3 Approximately $0.8 billion is expected to be recorded in unallocated items and eliminations.  Earnings per share guidance for 2012 increased to between $4.80 and $4.95, up from between $4.40 and $4.60, reflecting the strong core operating performance.   Total company 2012 revenue increased to between $80.5 and $82 billion, from between $79.5 and $81.5 billion, on higher Defense, Space & Security revenues.  Operating cash flow guidance for 2012 is now expected to be greater than $5.5 billion, up from greater than $5 billion.BDS's revenue guidance increased to between $32.5 and $33 billion, from between $31.5 and $32 billion, reflecting increased volume. BDS's operating margin is now greater than 9.25 percent, up from greater than 9 percent.BCC's return on assets is now expected to be approximately 1.0 percent, up from approximately 0.5 percent.Capital expenditures for 2012 have been reduced to approximately $1.8 billion, down from approximately $2.0 billion.Based on current interest rates and market conditions, pension expense in 2013 is estimated to be approximately $3.5 billion, of which approximately $1.8 billion is expected to be recorded in unallocated items and eliminations.  2013 pension expense will be determined at year end based on market conditions at that time.Non-GAAP Measure DisclosuresManagement 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:Operating Cash Flow Before Pension ContributionsOperating cash flow before pension contributions is defined as GAAP operating cash flow less pension contributions.  Management believes operating cash flow before pension contributions provides additional insights into underlying business performance.  Table 2 provides a reconciliation between GAAP operating cash flow and operating cash flow before pension contributions.Free Cash FlowFree 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.Caution Concerning Forward-Looking StatementsThis press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions are used to identify these forward-looking statements.  Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact.  Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate.  These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements.  Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) our commercial development programs, planned production rate increases across multiple commercial airline programs and the overall health of our aircraft production system; (4) changing acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials, (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-U.S. operations, including sales to non-U.S. customers; (13) potential adverse developments in new or pending litigation and/or government investigations; (14) customer and aircraft concentration in Boeing Capital's  customer financing portfolio; (15) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates in order to fund our operations and contractual commitments; (16) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (17) the adequacy of our insurance coverage to cover significant risk exposures; (18) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks or natural disasters; (19) work stoppages or other labor disruptions; (20) significant changes in discount rates and actual investment return on pension assets; (21) potential environmental liabilities; and (22) threats to the security of our or our customers' information.Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.Contact:Investor Relations:     Stephanie Pope or Matt Welch (312) 544-2140Communications:       Chaz Bickers (312) 544-2002The Boeing Company and SubsidiariesConsolidated Statements of Operations (Unaudited)Nine months endedThree months endedSeptember 30September 30(Dollars in millions, except per share data)2012201120122011Sales of products$51,441$40,441$17,415$14,907Sales of services7,9558,7392,5932,820Total revenues59,39649,18020,00817,727Cost of products  (43,103)(32,335)(14,683)(12,006)Cost of services(6,431)(7,177)(2,089)(2,319)Boeing Capital interest expense(69)(94)(22)(32)Total costs and expenses(49,603)(39,606)(16,794)(14,357)9,7939,5743,2143,370Income from operating investments, net21120212052General and administrative expense (2,774)(2,544)(916)(807)Research and development expense, net(2,545)(3,005)(853)(901)(Loss)/gain on dispositions, net(3)20(1)Earnings from operations4,6824,2471,5641,714Other income, net39761749Interest and debt expense(346)(374)(115)(121)Earnings before income taxes4,3753,9491,4661,642Income tax expense(1,450)(1,325)(432)(548)Net earnings from continuing operations2,9252,6241,0341,094Net (loss)/gain on disposal of discontinued operations, net of taxes of $2, $0, $1 and ($2)(3)1(2)4Net earnings$2,922$2,625$1,032$1,098Basic earnings per share from continuing operations$3.86$3.52$1.36$1.47Net (loss)/gain on disposal of discontinued operations, net of taxesBasic earnings per share$3.86$3.52$1.36$1.47Diluted earnings per share from continuing operations$3.84$3.49$1.35$1.46Net (loss)/gain on disposal of discontinued operations, net of taxesDiluted earnings per share$3.84$3.49$1.35$1.46Cash dividends paid per share$1.32$1.26$0.44$0.42Weighted average diluted shares (millions)762.3751.8765.2753.9 The Boeing Company and SubsidiariesConsolidated Statements of Financial Position(Unaudited)September 30December 31(Dollars in millions, except per share data)20122011AssetsCash and cash equivalents$  6,582$  10,049Short-term and other investments4,5901,223Accounts receivable, net5,4375,793Current portion of customer financing, net318476Deferred income taxes3429Inventories, net of advances and progress billings36,81732,240Total current assets53,77849,810Customer financing, net4,0284,296Property, plant and equipment, net of accumulated depreciation of $14,554 and $13,9939,4969,313Goodwill4,9614,945Acquired intangible assets, net2,9303,044Deferred income taxes5,5205,892Investments1,1951,043Other assets, net of accumulated amortization of $471 and $7171,7461,643Total assets$ 83,654$ 79,986Liabilities and equityAccounts payable$ 9,152$ 8,406Accrued liabilities11,77312,239Advances and billings in excess of related costs15,61915,496Deferred income taxes and income taxes payable4,1362,780Short-term debt and current portion of long-term debt2,1722,353Total current liabilities42,85241,274Accrued retiree health care7,4547,520Accrued pension plan liability, net15,58616,537Non-current income taxes payable166122Other long-term liabilities 900907Long-term debt9,01410,018Shareholders' equity:Common stock, par value $5.00 ? 1,200,000,000 shares authorized;    1,012,261,159 shares issued5,0615,061Additional paid-in capital4,0684,033Treasury stock, at cost ? 258,532,626 and 267,556,388 shares(16,055)(16,603)Retained earnings29,77527,524Accumulated other comprehensive loss(15,261)(16,500)Total shareholders' equity7,5883,515Noncontrolling interest9493Total equity7,6823,608Total liabilities and equity$ 83,654$ 79,986The Boeing Company and SubsidiariesConsolidated Statements of Cash Flows(Unaudited)Nine months endedSeptember 30(Dollars in millions)20122011Cash flows - operating activities:    Net earnings$ 2,922$ 2,625    Adjustments to reconcile net earnings to net cash provided by operating activities:      Non-cash items ?           Share-based plans expense148141           Depreciation and amortization1,3131,237           Investment/asset impairment charges, net5950           Customer financing valuation provision(4)(220)           Loss/(gain) on disposal of discontinued operations5(1)           Loss/(gain) on dispositions, net3(20)           Other charges and credits, net559358           Excess tax benefits from share-based payment arrangements(43)(35)       Changes in assets and liabilities ?           Accounts receivable150(911)           Inventories, net of advances and progress billings(4,588)(8,245)           Accounts payable8571,447           Accrued liabilities(123)(449)           Advances and billings in excess of related costs1231,996           Income taxes receivable, payable and deferred1,0851,314           Other long-term liabilities22107           Pension and other postretirement plans5711,445           Customer financing, net 254171           Other2882Net cash provided by operating activities3,3411,092Cash flows - investing activities:    Property, plant and equipment additions(1,208)(1,142)    Property, plant and equipment reductions2954    Acquisitions, net of cash acquired(18)(42)    Contributions to investments(10,331)(6,089)    Proceeds from investments6,9418,006    Receipt of economic development program funds69    Purchase of distribution rights(6)Net cash (used)/provided by investing activities(4,593)856Cash flows - financing activities:    New borrowings34789    Debt repayments(1,273)(895)    Repayments of distribution rights financing(72)(436)    Stock options exercised, other96106    Excess tax benefits from share-based payment arrangements4335    Employee taxes on certain share-based payment arrangements(72)(21)    Dividends paid(990)(932)Net cash used by financing activities(2,234)(1,354)Effect of exchange rate changes on cash and cash equivalents191Net (decrease)/increase in cash and cash equivalents(3,467)595Cash and cash equivalents at beginning of year10,0495,359Cash and cash equivalents at end of period$ 6,582$ 5,954The Boeing Company and SubsidiariesSummary of Business Segment Data(Unaudited)Nine months endedThree months endedSeptember 30September 30(Dollars in millions)2012201120122011Revenues:   Commercial Airplanes$ 34,966$ 25,476$ 12,186$ 9,515   Defense, Space & Security:      Boeing Military Aircraft12,22710,9983,7893,964      Network & Space Systems5,6726,6931,9902,269      Global Services & Support6,3655,8142,0601,967   Total Defense, Space & Security24,26423,5057,8398,200   Boeing Capital325416101126   Other segment931072733   Unallocated items and eliminations(252)(324)(145)(147)Total revenues$ 59,396$ 49,180$ 20,008$ 17,727Earnings from operations:   Commercial Airplanes$    3,445$  2,514$  1,153$  1,085   Defense, Space & Security:      Boeing Military Aircraft1,2451,152445397      Network & Space Systems360511161178      Global Services & Support712630221249   Total Defense, Space & Security2,3172,293827824   Boeing Capital1021333319   Other segment(203)11(74)92   Unallocated items and eliminations(979)(704)(375)(306)Earnings from operations4,6824,2471,5641,714Other income, net39761749Interest and debt expense(346)(374)(115)(121)Earnings before income taxes4,3753,9491,4661,642Income tax expense(1,450)(1,325)(432)(548)Net earnings from continuing operations2,9252,6241,0341,094Net (loss)/gain on disposal of discontinued operations, net of taxes of $2, $0, $1 and ($2)(3)1(2)4Net earnings$    2,922$  2,625$    1,032$  1,098Research and development expense, net:   Commercial Airplanes$    1,638$  2,191$  534$  633   Defense, Space & Security:      Boeing Military Aircraft455369166119      Network & Space Systems335327116110      Global Services & Support78772421   Total Defense, Space & Security868773306250   Other39411318Total research and development expense, net$    2,545$    3,005$    853$  901Unallocated items and eliminations:   Share-based plans $     (64)$  (63)$  (23)$  (19)   Deferred compensation (49)4(15)64   Pension(608)(216)(204)(58)   Post-retirement(79)(208)(30)(175)   Capitalized interest(53)(39)(16)(8)   Eliminations and other(126)(182)(87)(110)Total$     (979)$  (704)$     (375)$  (306)     The Boeing Company and SubsidiariesOperating and Financial Data(Unaudited)Nine months endedThree months endedDeliveriesSeptember 30September 30Commercial Airplanes201220112012201173731028110210074721876720147577762532021787231121    Total436349149127Defense, Space & SecurityBoeing Military Aircraft     F/A-18 Models36381213     F-15 Models8113     C-17 Globemaster81134     KC-767 International Tanker1     CH-47 Chinook4022186     AH-64 Apache1310     AEW&C222     P-8A Poseidon32Network & Space Systems     Commercial and Civil Satellites32     Military Satellites6231September 30June 30March 31December 31Contractual backlog (Dollars in billions)2012201220122011   Commercial Airplanes$305.4$300.4$305.3$293.3   Defense, Space & Security:     Boeing Military Aircraft28.529.729.024.1     Network & Space Systems9.79.910.19.0     Global Services & Support14.114.614.213.3   Total Defense, Space & Security52.354.253.346.4Total contractual backlog$357.7$354.6$358.6$339.7Unobligated backlog$19.9$19.2$21.2$15.8Total backlog$377.6$373.8$379.8$355.5Workforce175,400174,200172,200171,700 SOURCE Boeing