BOE.L Regulatory News (BOE)

27 Jul 2005 11:33

Boeing Reports Second-Quarter 2005 Results; Updates Outlook -- Integrated Defense Systems delivers strong revenue growth and double-digit margins driven by excellent operating performance -- Commercial Airplanes reports double-digit revenue growth and strong margins; outstanding sales success and productivity gains drive higher financial outlook -- EPS guidance for 2005 increased CHICAGO, July 27 Financial Highlights: -- Earnings - Q2: $0.70 per share, after $0.09 charge for sale of Wichita and Tulsa operations -- Revenue - Q2: $15.0 billion -- Operating Cash Flow - Q2: $2.7 billion Selected Second-Quarter 2005 Operating Highlights: -- Integrated Defense Systems generated strong revenue growth and outstanding margins through excellent program execution; successfully completed major program milestones on FCS, P-8A (MMA), and the J-UCAS programs; delivered first AH-64 Apache Longbow to Israel; announced joint venture with Lockheed Martin for government launch business. -- Boeing Commercial Airplanes delivered strong performance on deliveries of 85 airplanes; captured 376 gross orders including key wins from customers around the world; concluded sale of Commercial Airplanes' operations in Wichita, KS and Tulsa, OK to Onex; finalized 787 aerodynamic configuration - working toward firm configuration. -- Other Boeing businesses performed well as Boeing Capital continued to improve returns and reduce portfolio risk and Connexion by Boeing(SM) grew availability to more than 100 daily flights. Table 1. Summary Financial Results (Millions, except per 2nd Quarter % Six Months % share data) 2005 2004 Change 2005 2004 Change Revenues $15,028 $13,088 15% $28,015 $25,991 8% Reported Net Income (Loss) $566 $607 (7%) $1,101 $1,230 (10%) Reported Earnings (Loss) per Share(1) $0.70 $0.75 (7%) $1.36 $1.52 (11%) Average Diluted Shares for EPS 807.4 812.3 807.7 811.2 (1) Second-quarter 2005 EPS includes a $0.09 per share charge for the sale of Commercial Airplanes' Wichita and Tulsa operations. Second-quarter 2004 EPS includes a $0.23 per share gain related to interest on a federal tax refund and $0.02 per share gain from the sale of Boeing Capital's commercial finance operations, which is reported as discontinued operations. Six-month 2004 EPS also includes $0.12 related to interest on federal tax refunds in the first quarter of 2004. The Boeing Company (NYSE: BA) today reported second-quarter 2005 net income of $566 million, or $0.70 per share, on revenues of $15.0 billion. Strong operating results offset primarily non-cash charges totaling $0.09 per share related to the sale of the Commercial Airplanes' operations in Wichita and Tulsa to Onex. Second-quarter 2004 earnings of $0.75 per share included a $0.23 per share benefit from interest on a tax refund. "Second-quarter results reflect Boeing's focus on strong execution and improved operational efficiency," said Jim McNerney, Boeing Chairman and CEO. "Integrated Defense Systems delivered solid revenue growth and excellent margins driven by strong performance across its broad portfolio of defense, space and intelligence programs. Commercial Airplanes grew revenues by twenty percent and generated solid operating margins while finalizing 376 orders and achieving key milestones on the 787 program. Our cash flow was outstanding and we continued our balanced strategy for cash deployment, including the authorization of a new share repurchase plan and repayment of maturing debt. Due to improving commercial markets and strong operating performance from the Boeing team, we are raising our financial outlook." The Company's second-quarter earnings from operations increased 26 percent to $0.8 billion (see Table 2) as strong operating performance offset higher non-cash expenses for pensions and share-based plans. Table 2. Earnings from Operations & Margins (Millions, except 2nd Quarter % Six Months % margin percent) 2005 2004 Change 2005 2004 Change Earnings (Loss) from Operations $810 $644 26% $1,497 $1,468 2% Operating Margin 5.4% 4.9% 0.5 Pts 5.3% 5.6% (0.3 Pts) Pre-tax (non-cash) pension expense was $155 million, up $77 million or $0.06 per share, from the second quarter of 2004. Share-based-plans expense was $201 million, up $37 million or $0.03 per share, over the same period. Deferred stock compensation expense was $76 million, or $0.06 per share, as the Company's stock price rose 13 percent during the period. The Company generated $2.7 billion of operating cash flow during the second quarter driven by strong performance in its core businesses. Free cash flow* was $2.2 billion for the quarter (see Table 3). Table 3. Cash Flow 2nd Quarter Six Months (Millions) 2005 2004 2005 2004 Operating Cash Flow (1, 2) $2,657 $1,254 $4,050 $1,190 Less Property, Plant & Equipment, Additions ($480) ($147) ($787) ($342) Free Cash Flow* $2,177 $1,107 $3,263 $848 (1) After pension contributions totaling $1.0 billion in the second quarter of 2004. The corresponding year-to-date pension contributions for 2005 and 2004 are $0.5 billion and $2.0 billion, respectively. (2) The presentation of operating cash flow for 2004 has been adjusted to include customer financing transactions, which were previously included in investing cash flow. As a result, 2004 second quarter and 2004 six month cash flows have been adjusted downward from previously reported numbers by $0.1 billion and $0.2 billion, respectively. * A complete definition and discussion of Boeing's use of non-GAAP measures, identified by an asterisk (*), is attached at the end of the release. The Company's cash balance at quarter-end totaled $4.9 billion, up from $3.3 billion at the end of the first quarter (see Table 4). The cash balance reflected strong operating cash flows and cash received from the sale of the Commercial Airplanes operations in Wichita and Tulsa, which offset cash used for the Company's on-going share repurchase program, to repay maturing debt and to support planned increases in investment in Boeing's core businesses. The combination of cash and marketable securities totaled $7.9 billion at the end of the second quarter, up from $6.3 billion at the end of the first quarter. The Company repurchased 10.3 million shares during the quarter for $646 million and announced a new share repurchase program for up to 40 million shares. Boeing Company debt fell to $3.9 billion as $0.5 billion of debt matured during the quarter. Boeing Capital debt dropped to $6.5 billion as strong operating cash flow eliminated the need for new financing. Table 4. Cash, Marketable Securities and Debt Balances Quarter-End (Billions) 2Q05 1Q05 Cash $4.9 $3.3 Marketable Securities(1) $3.0 $3.0 Total $7.9 $6.3 Debt Balances: The Boeing Company $3.9 $4.4 Boeing Capital Corporation $6.5 $6.8 Non-Recourse Customer Financing $0.6 $0.6 Total Consolidated Debt $11.0 $11.8 (1) Marketable securities consists primarily of investments in high-quality fixed-income and asset-backed securities classified as "short-term investments" and "investments." Segment Results Integrated Defense Systems Integrated Defense Systems (IDS) delivered strong growth and outstanding profitability as its defense, space and intelligence businesses continued to perform well in healthy markets. IDS results are summarized in Table 5. During the second quarter, IDS revenues increased 8 percent to $7.7 billion as all four segments generated growth. IDS produced second-quarter operating margins of 10.5 percent, up from 9.7 percent in the second quarter of 2004 driven by double-digit margins in the Aircraft and Weapon Systems and Support Systems segments. Table 5. Integrated Defense Systems Operating Results (Millions, except 2nd Quarter % Six Months % margin percent) 2005 2004 Change 2005 2004 Change Revenues Network Systems $2,759 $2,668 3% $5,637 $5,100 11% Aircraft and Weapon Systems $3,078 $2,672 15% $5,771 $5,693 1% Support Systems $1,183 $1,150 3% $2,353 $2,306 2% Launch and Orbital Systems $722 $672 7% $1,524 $1,480 3% Total IDS Revenues $7,742 $7,162 8% $15,285 $14,579 5% Earnings (Loss) from Operations Network Systems $167 $218 (23%) $380 $395 (4%) Aircraft and Weapon Systems $441 $386 14% $811 $862 (6%) Support Systems $179 $142 26% $348 $290 20% Launch and Orbital Systems $29 ($50) N.M. $124 ($113) N.M. Total IDS Earnings (Loss) from Operations $816 $696 17% $1,663 $1,434 16% Operating Margins 10.5% 9.7% 0.8 Pts 10.9% 9.8% 1.1 Pts Network Systems revenues rose 3 percent to $2.8 billion on increased activity in Future Combat Systems, 737 Airborne Early Warning and Control, and Multi-mission Maritime Aircraft, which offset lower volume in proprietary, homeland security and missile defense programs. Operating margins declined to 6.1 percent, as revised cost and fee estimates in the proprietary area and on the 737 AEW&C program offset earnings from higher revenues. Aircraft and Weapon Systems delivered excellent profitability in the second quarter. Revenues rose 15 percent to $3.1 billion primarily driven by the timing of C-17, F-15, C-40, T-45 and JDAM deliveries. Operating margins were 14.3 percent driven by strong performance across key programs including C-17, F/A-18 and Rotorcraft. Support Systems generated very strong profitability on its broad business base during the second quarter. Revenues rose 3 percent to $1.2 billion driven by increased volume in support services. Operating margins grew to 15.1 percent on strong program performance across the segment. Launch and Orbital Systems continued to improve its performance during the second quarter. Revenues rose 7 percent to $0.7 billion driven by increased satellite activity. Operating margins rose to 4.0 percent reflecting the higher revenues and better commercial satellite program performance. At the end of the second quarter, IDS contractual backlog totaled $41.0 billion, down from $43.8 billion at the end of the first quarter. Unobligated backlog was $41.1 billion at the end of the second quarter. Total IDS backlog, comprised of contractual and unobligated, was $82.1 billion compared with $85.7 billion at the end of the first quarter. Boeing Commercial Airplanes During the second quarter, Boeing Commercial Airplanes (BCA) captured key customer orders while aggressively managing for profitability and investing to support long-term growth. Commercial Airplanes signed 376 firm orders from a broad range of domestic and international airlines and leasing companies. The 787 program also made excellent progress toward firm configuration and finalized the 787 aerodynamic configuration. At the end of the quarter, the 787 program had captured orders and commitments from 20 customers for 252 airplanes since the launch of the program, including 143 firm orders and additional commitments for 109. BCA results are summarized in Table 6. Table 6. Commercial Airplanes Operating Results (Millions, except deliveries 2nd Quarter % Six Months % & margin percent) 2005 2004 Change 2005 2004 Change Commercial Airplanes Deliveries 85 75 13% 155 151 3% Revenues $6,806 $5,671 20% $11,882 $11,001 8% Earnings (Loss) from Operations (1) $475 $382 24% $864 $734 18% Operating Margins (1) 7.0% 6.7% 0.3 Pts 7.3% 6.7% 0.6 Pts (1) Second-quarter 2005 operating earnings and margins include a $110 million charge for the sale of Commercial Airplanes' Wichita and Tulsa operations. $75 million of the charge was recorded in Commercial Airplanes and an additional $35 million was recorded at World Headquarters. Commercial Airplanes delivered 85 airplanes in the second quarter and generated $6.8 billion of revenue, up 20 percent from the second quarter of 2004 due to higher deliveries and a more favorable mix. Operating margins were 7.0 percent, up from the second quarter of 2004 reflecting higher revenues as well as strong operating performance that offset the planned increase in 787 development spending and a charge from the sale of the Wichita and Tulsa operations. Operating margins also reflected the improving market environment as Commercial Airplanes extended the accounting quantities on the 767 program by eight airplanes and the 777 program by 50 airplanes. During the quarter, Commercial Airplanes completed the sale of its Wichita and Tulsa operations to Onex for approximately $900 million cash, the transfer of approximately $100 million in liabilities to Onex, and the establishment of long-term supply agreements that provide Commercial Airplanes with ongoing cost savings. The sale resulted in a pre-tax, primarily non-cash, charge of $110 million, of which $75 million was recognized in Commercial Airplanes and $35 million was recorded at World Headquarters. The sale will also produce an additional pre-tax, primarily non-cash, charge of $238 million for The Boeing Company in the third quarter of 2005 related to the curtailment and settlement of pension plans and the transfer of pension liabilities. Commercial Airplanes captured 376 gross and 371 net orders during the quarter bringing net orders for the first half of 2005 to 417 airplanes. Contractual backlog increased 26 percent totaling $86.7 billion at the end of the second quarter, compared with $68.7 billion at the end of the first quarter. Boeing Capital Corporation Boeing Capital Corporation (BCC) continued to create value by supporting the operations of Boeing's business units and reducing portfolio risk. Revenues for the second quarter increased 15 percent to $264 million, and pre-tax income rose significantly to $112 million driven by asset sales, lower asset impairments and a reduction of reserves associated with Hawaiian Airlines' emergence from bankruptcy. BCC results are summarized in Table 7. Table 7. Boeing Capital Corporation Operating Results 2nd Quarter % Six Months % (Millions) 2005 2004 Change 2005 2004 Change Revenues (1) $264 $229 15% $501 $480 4% Pre-Tax Income (Loss) (1) $112 $15 647% $156 $88 77% Discontinued Operations (After-Tax) $0 $21 N.M. $0 $30 N.M. (1) 2004 excludes discontinued operations from the sale of BCC's commercial finance unit. The quarter-end portfolio balance was $9.4 billion, unchanged from the end of the first quarter as normal portfolio run-off and depreciation offset new business volume. The strong performance enabled BCC to contribute $105 million in cash dividends to the Company during the quarter, while lowering leverage slightly from the end of the first quarter to 4.9-to-1, as measured by the ratio of debt-to-equity. "Other" Segment The "Other" segment consists primarily of Boeing Technology and Connexion by Boeing(SM), as well as certain results related to the consolidation of all business units. For the second quarter, losses from operations were $105 million, slightly improved from the second quarter of 2004. Connexion by Boeing(SM) continued to expand its global reach during the quarter and is now operational on more than 70 commercial aircraft which provide service on more than 100 daily flights. Outlook The Company is updating its overall outlook to reflect continued strong performance across its core businesses in 2005 followed in 2006 by higher BCA deliveries, revenues and earnings, lower revenue growth at Integrated Defense Systems and higher pension expense due to lower interest rates (see Table 8). The updated outlook also includes the impact of the sale of Wichita and Tulsa as well as the expected sale of the Rocketdyne operations, which together reduce revenues and increase earnings in 2005 and 2006. The financial guidance does not include the impact of the proposed United Launch Alliance (ULA) transaction, which is expected to reduce 2006 revenues due to a shift to equity method accounting once the joint venture is completed. Defense and intelligence markets are expected to remain solid in 2005 and 2006 with U.S. Defense budgets expected to grow modestly. The airline industry environment remains mixed with trends varying between carriers and regions. The global economy and air traffic trends are strengthening and interest from airlines in adding capacity to handle higher traffic volume is increasing. Many low-cost carriers and international airlines are profitable and are ordering new airplanes. However, higher fuel prices continue to dampen airline profits, particularly in the United States. Commercial Airplanes is experiencing increased demand for aircraft, especially 737s, 777s and the new 787 Dreamliner, as airline passengers continue to value frequent, direct routes and airlines focus on reducing costs. Demand for 747s and 767s has also strengthened, which has allowed the Company to defer any program completion decisions into 2006 at the earliest. The Company expects airplane deliveries to increase in 2005 and 2006, followed by a further increase in 2007. Commercial Airplanes' delivery forecast for 2005 is unchanged at approximately 320 airplanes. The delivery forecast for 2006 is increased to approximately 395 airplanes, up from 375 to 385 airplanes. The delivery forecast is sold out for 2005 and 87 percent sold out for 2006. The Company expects its defense and non-commercial space businesses to continue performing well in stable markets. IDS anticipates modest growth and strong performance in its Network Systems, Aircraft and Weapon Systems and Support Systems segments. Launch and Orbital Systems is expected to remain stable (excluding the impact of the planned ULA joint venture) with improving profitability in markets that remain soft. The Company's 2005 revenue outlook remains at approximately $58 billion reflecting higher Commercial Airplane revenues offset by lower IDS revenue growth and the expected sale of Rocketdyne. Revenue guidance for 2006 is now approximately $62 billion reflecting higher commercial airplane deliveries and revenues offset by the sale of Rocketdyne and lower revenue growth at IDS. Earnings-per-share guidance for 2005 has been raised to between $2.75 and $2.85 per share, up from between $2.40 and $2.60 per share, reflecting stronger operating margins across Boeing's core businesses. The Company continues to expect higher earnings in 2006 ranging between $3.00 and $3.20 as growing BCA and IDS margins offset higher non-cash pension expenses and a lower revenue growth rate at IDS. The company annually updates its estimate of future pension expenses based on plan actuarial factors, including its pension discount rate, as of its September 30 measurement date. Because long-term interest rates (specifically, the Moody's Aa Corporate Bond Index) remain volatile and have fallen significantly over the last several months, the discount rate for 2006 may be lower than the 5.75 percent rate established for 2005, thereby increasing 2006 pension expense. The Company currently estimates pre-tax non-cash pension expenses in 2006 could be approximately $400 million higher than previously forecast if the discount rate for 2006 were to fall to 5.25 percent. The Company will update its pension assessment after the third quarter. The Company now expects operating cash flow for 2005 to be greater than $6.0 billion, up from greater than $5.0 billion. The increase reflects stronger-than-expected commercial airplane orders and is after anticipated pension contributions totaling $1.6 billion. Operating cash flow in 2006 is expected to be greater than $5.5 billion, after $500 million of expected pension contributions. The Company will continue to evaluate making additional discretionary payments to its pension plans. The Company expects capital expenditures in 2005 to be approximately $1.5 billion and expenditures in 2006 to be approximately $1.7 billion. The Company expects research and development investment between $2.3 billion and $2.5 billion in 2005 and between $2.5 billion and $2.7 billion in 2006 as investment increases on the 787 program as planned. Table 8. Financial Outlook (Billions, except per share data) 2005 2006 The Boeing Company Revenues ~ $58 ~ $62 Earnings Per Share (GAAP) $2.75 - $2.85 $3.00 - $3.20 Operating Cash Flow (1) > $6.0 > $5.5 Boeing Commercial Airplanes Deliveries ~ 320 ~ 395 Revenues ~ $24.5 $28 - $29 Operating Margin ~ 7.0% 7.5% - 8.0% Integrated Defense Systems Revenues Network Systems ~ $12.0 Stable Aircraft and Weapon Systems ~ $11.5 Slight Growth Support Systems ~ $5.5 Strong Growth Launch and Orbital Systems ~ $2.5 Stable Total IDS Revenues ~ $31.5 2% - 4% Growth Operating Margin Network Systems ~ 7.5% High Single Digit Aircraft and Weapon Systems ~ 13.5% Low Double Digit Support Systems ~ 13.5% Low Double Digit Launch and Orbital Systems (2) ~ 23.0% Low Single Digit Total IDS Operating Margin ~ 12% > 10% Boeing Capital Corporation Portfolio Growth, Net ~ $(0.5) Flat Revenue ~ $0.9 ~ $0.9 Return on Assets > 1% > 1% (1) After forecast pension contributions of $1.6 billion in 2005 and $0.5 billion in 2006. (2) Launch and Orbital Systems' 2005 margin reflects the sale of Rocketdyne, which is expected to close in the third quarter and to generate a pre-tax gain of approximately $575 million in the segment in the third quarter. Offsetting pre-tax charges totaling approximately $215 million are expected to be recorded in the fourth quarter, primarily in Accounting Differences and Eliminations, bringing the total expected pre-tax gain for the Rocketdyne sale to approximately $360 million. Non-GAAP Measure Disclosure The following definitions are provided for non-GAAP (Generally Accepted Accounting Principles) measures (indicated by an asterisk *) used by the Company within this disclosure. 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. 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 3 provides a reconciliation between GAAP operating cash flow and free cash flow. Forward-Looking Information Is Subject to Risk and Uncertainty Certain statements in this report may constitute "forward-looking" statements within the meaning of the Private Litigation Reform Act of 1995. Words such as "expects," "intends," "plans," "projects," "believes," "estimates," and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our actual results and future trends may differ materially depending on a variety of factors, including the continued operation, viability and growth of major airline customers and non-airline customers (such as the U.S. Government); adverse developments in the value of collateral securing customer and other financings; the occurrence of any significant collective bargaining labor dispute; our successful execution of internal performance plans, production rate increases and decreases (including any reduction in or termination of an aircraft product), acquisition and divestiture plans, and other cost-reduction and productivity efforts; charges from any future SFAS No. 142 review; an adverse development in rating agency credit ratings or assessments; the actual outcomes of certain pending sales campaigns and the launch of the 787 program and U.S. and foreign government procurement activities, including the uncertainty associated with the procurement of tankers by the U.S. Department of Defense (DoD); the cyclical nature of some of our businesses; unanticipated financial market changes which may impact pension plan assumptions; domestic and international competition in the defense, space and commercial areas; continued integration of acquired businesses; performance issues with key suppliers, subcontractors and customers; significant disruption to air travel worldwide (including future terrorist attacks); global trade policies; worldwide political stability; domestic and international economic conditions; price escalation; the outcome of political and legal processes, changing priorities or reductions in the U.S. Government or foreign government defense and space budgets; termination of government or commercial contracts due to unilateral government or customer action or failure to perform; legal, financial and governmental risks related to international transactions; legal and investigatory proceedings; tax settlements with the IRS and various states; U.S. Air Force review of previously awarded contracts; and other economic, political and technological risks and uncertainties. Additional information regarding these factors is contained in our SEC filings, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2004 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. The Boeing Company and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (Dollars in millions except Six months ended Three months ended per share data) June 30 June 30 2005 2004 2005 2004 Sales of products $23,185 $21,678 $12,394 $10,844 Sales of services 4,830 4,313 2,634 2,244 Total revenues 28,015 25,991 15,028 13,088 Cost of products (19,017) (17,955) (10,187) (9,033) Cost of services (4,063) (3,631) (2,204) (1,842) Boeing Capital Corporation interest expense (179) (173) (90) (89) Total costs and expenses (23,259) (21,759) (12,481) (10,964) 4,756 4,232 2,547 2,124 Income from operating investments, net 44 40 28 27 General and administrative expense (2,128) (1,811) (1,057) (988) Research and development expense (1,083) (996) (591) (522) Gain/(loss) on dispositions, net (92) 6 (117) 6 Goodwill impairment (3) (3) Earnings from continuing operations 1,497 1,468 810 644 Other income, net 65 225 81 66 Interest and debt expense (171) (169) (84) (85) Earnings before income taxes 1,391 1,524 807 625 Income tax expense (311) (324) (241) (39) Net earnings from continuing operations 1,080 1,200 566 586 Cumulative effect of accounting change, net of taxes 21 Income from discontinued operations, net of taxes 16 7 Net gain on disposal of discontinued operations, net of taxes 14 14 Net earnings $1,101 $1,230 $566 $607 Basic earnings per share from continuing operations $1.36 $1.49 $0.72 $0.72 Cumulative effect of accounting change, net of taxes 0.03 Income from discontinued operations, net of taxes 0.02 0.01 Net gain on disposal of discontinued operations, net of taxes 0.02 0.02 Basic earnings per share $1.39 $1.53 $0.72 $0.75 Diluted earnings per share from continuing operations $1.33 $1.48 $0.70 $0.72 Cumulative effect of accounting change, net of taxes 0.03 Income from discontinued operations, net of taxes 0.02 0.01 Net gain on disposal of discontinued operations, net of taxes 0.02 0.02 Diluted earnings per share $1.36 $1.52 $0.70 $0.75 Cash dividends paid per share $0.50 $0.37 $0.25 $0.20 Weighted average diluted shares (millions) 807.7 811.2 807.4 812.3 See notes to consolidated financial statements. The Boeing Company and Subsidiaries Condensed Consolidated Statements of Financial Position (Unaudited) (Dollars in millions except per June 30 December 31 share data) 2005 2004 Assets Cash and cash equivalents $4,961 $3,204 Short-term investments 207 319 Accounts receivable, net 5,066 4,653 Current portion of customer financing, net 464 616 Deferred income taxes 2,037 1,991 Inventories, net of advances and progress billings 5,508 6,508 Assets of discontinued operations 70 Total current assets 18,243 17,361 Customer financing, net 9,894 10,385 Property, plant and equipment (net of accumulated depreciation of $11,417 and $12,962) 8,121 8,443 Goodwill 1,906 1,948 Other acquired intangibles, net 919 955 Prepaid pension expense 12,705 12,588 Deferred income taxes 247 154 Investments 3,158 3,050 Other assets 1,301 1,340 $56,494 $56,224 Liabilities and Shareholders' Equity Accounts payable and other liabilities $15,939 $14,869 Advances and billings in excess of related costs 6,875 6,384 Income taxes payable 801 522 Short-term debt and current portion of long-term debt 809 1,321 Total current liabilities 24,424 23,096 Deferred income taxes 1,222 1,090 Accrued retiree health care 6,005 5,959 Accrued pension plan liability 3,169 3,169 Deferred lease income 319 745 Long-term debt 10,223 10,879 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 4,009 3,420 Treasury shares, at cost - 192,234,458 and 179,686,231 (9,637) (8,810) Retained earnings 16,251 15,565 Accumulated other comprehensive loss (1,973) (1,925) ShareValue Trust Shares - 39,301,252 and 38,982,205 (2,577) (2,023) Total shareholders' equity 11,132 11,286 $56,494 $56,224 The Boeing Company and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended Six months ended June 30 June 30 (Dollars in millions) 2005 2004 Cash flows - operating activities: Net earnings/(loss) $1,101 $1,230 Adjustments to reconcile net earnings/(loss) to net cash (used)/provided by operating activities: Non-cash items: Impairment of Goodwill 3 Share-based plans expense 446 283 Depreciation 711 634 Amortization of other acquired intangibles 47 46 Amortization of debt discount/premium and issuance costs 13 8 Pension expense/(income) 378 150 Investment/asset impairment charges, net 44 60 Customer financing valuation provision 14 39 Net gain on disposal of discontinued operations (21) Gain on dispositions, net 92 (6) Other charges and credits, net 124 (5) Non cash adjustments related to discontinued operations 26 Excess tax benefits from share-based payment arrangements (46) (25) Changes in assets and liabilities - Accounts receivable (510) (119) Inventories, net of advances, progress billings and reserves 454 1,065 Accounts payable and other liabilities 782 351 Advances in excess of related costs 505 (131) Income taxes receivable, payable and deferred 298 483 Deferred lease income (426) 28 Prepaid pension expense (460) (2,013) Goodwill 20 (2) Other acquired intangibles, net (11) (1) Accrued retiree health care 46 102 Customer financing, net 501 (894) Other (73) (101) Net cash provided by operating activities 4,050 1,190 Cash flows - investing activities: Discontinued operations customer financing, reductions 106 Property, plant and equipment additions (787) (342) Property, plant and equipment retirements 19 48 Acquisitions, net of cash acquired (36) Proceeds from dispositions of discontinued operations 1,581 Proceeds from dispositions 1,028 90 Contributions to investments (1,430) (38) Proceeds from investments 1,377 119 Net cash (used)/provided by investing activities 207 1,528 Cash flows - financing activities: Debt repayments (1,160) (728) Stock options exercised, other 169 52 Excess tax benefits from share-based payment arrangements 46 25 Common shares repurchased (1,140) (204) Dividends paid (415) (312) Net cash (used)/provided by financing activities (2,500) (1,167) Net increase/(decrease) in cash and cash equivalents 1,757 1,551 Cash and cash equivalents at beginning of year 3,204 4,633 Cash and cash equivalents at end of period $4,961 $6,184 The Boeing Company and Subsidiaries Business Segment Data (Unaudited) Six months ended Three months ended (Dollars in millions) June 30 June 30 2005 2004 2005 2004 Sales and other operating revenues: Commercial Airplanes $11,882 $11,001 $6,806 $5,671 Integrated Defense Systems: Network Systems 5,637 5,100 2,759 2,668 Aircraft and Weapon Systems 5,771 5,693 3,078 2,672 Support Systems 2,353 2,306 1,183 1,150 Launch and Orbital Systems 1,524 1,480 722 672 Total Integrated Defense Systems 15,285 14,579 7,742 7,162 Boeing Capital Corporation 501 480 264 229 Other 657 265 528 131 Accounting differences/eliminations (310) (334) (312) (105) Sales and other operating revenues $28,015 $25,991 $15,028 $13,088 Earnings (loss) from continuing operations: Commercial Airplanes $864 $734 $475 $382 Integrated Defense Systems: Network Systems 380 395 167 218 Aircraft and Weapon Systems 811 862 441 386 Support Systems 348 290 179 142 Launch and Orbital Systems 124 (113) 29 (50) Total Integrated Defense Systems 1,663 1,434 816 696 Boeing Capital Corporation 156 88 112 15 Other (177) (228) (105) (124) Accounting differences/eliminations (336) (106) (154) (36) Share-based plans expense (446) (283) (201) (164) Unallocated (expense)/income (227) (171) (133) (125) Earnings (loss) from continuing operations 1,497 1,468 810 644 Other income/(expense), net 65 225 81 66 Interest and debt expense (171) (169) (84) (85) Earnings (loss) before income taxes 1,391 1,524 807 625 Income tax (expense)/benefit (311) (324) (241) (39) Net earnings (loss) from continuing operations $1,080 $1,200 $566 $586 Cumulative effect of accounting change, net of tax 21 Income from discontinued operations, net of taxes 16 7 Net gain on disposal of discontinued operations, net of taxes 14 14 Net earnings (loss) $1,101 $1,230 $566 $607 Effective income tax rate 22.4% 21.3% 29.9% 6.2% Research and development expense: Commercial Airplanes $634 $476 $343 $251 Integrated Defense Systems: Network Systems 141 131 80 71 Aircraft and Weapon Systems 182 202 96 95 Support Systems 39 30 22 14 Launch and Orbital Systems 62 94 37 57 Total Integrated Defense Systems 424 457 235 237 Other 25 63 13 34 Total research and development expense $1,083 $996 $591 $522 The Boeing Company and Subsidiaries Operating and Financial Data (Unaudited) Deliveries Six Months 2nd Quarter Commercial Airplanes 2005 2004 2005 2004 717 6 (2) 6 (4) 3 (1) 3 (1) 737 Next-Generation 113 - 105 - 59 - 50 - 747 7 - 9 - 4 - 4 - 757 2 - 8 - 1 - 4 - 767 5 - 4 (1) 4 - 3 - 777 22 - 19 - 14 - 11 - Total 155 151 85 75 Note: Commercial Airplanes deliveries by model include deliveries under operating lease, which are identified by parentheses. Integrated Defense Systems Aircraft and Weapon Systems: Apache (New Builds) 5 - 0 - F/A-18E/F 21 25 11 12 T-45TS 5 4 3 2 F-15 2 2 2 1 C-17 9 8 5 3 C-40 2 - 1 - Network Systems Satellites: 0 - 0 Launch and Orbital Systems: Delta II 2 1 1 1 Delta IV 0 - 0 - Satellites 3 2 2 1 Contractual backlog (Dollars in June 30 March 31 December 31 billions) 2005 2005 2004 Commercial Airplanes $86.7 $68.7 $70.4 Integrated Defense Systems: Aircraft and Weapon Systems 20.6 22.2 18.3 Network Systems 9.5 10.6 10.2 Support Systems 6.8 6.7 6.5 Launch and Orbital Systems 4.1 4.3 4.2 Total Integrated Defense Systems 41.0 43.8 39.2 Total contractual backlog $127.7 $112.5 $109.6 Total unobligated backlog $41.7 $42.5 $47.9 Workforce 154,000 160,750 159,000SOURCE The Boeing Company 07/27/2005 /CONTACT: Investor Relations, Dave Dohnalek or Bob Kurtz, +1-312-544-2140, or Communications, John Dern, Anne Eisele or Todd Blecher, +1-312-544-2002, all of The Boeing Company/ /Web site: http://www.boeing.com / (BA)ENDBOEING COMPANY