BOE.L Regulatory News (BOE)

26 Jul 2006 13:21

Boeing Reports Second-Quarter Results Including Previously Disclosed Charges; Raises 2007 Guidance on Strong Commercial Airplanes Performance - Revenue grew 2 percent to $15.0 billion, 7 percent year to date - Net loss of $160 million, or $0.21 per share, includes previously disclosed charges totaling $1.15 per share - Generated $2.4 billion of operating cash flow - Backlog climbed to a record $220 billion - 2007 EPS and revenue guidance increased Table 1. Summary Financial Results (Millions, except 2nd Quarter Six Months per share data) 2006 2005 Change 2006 2005 Change Revenues $14,986 $14,684 2% $29,250 $27,365 7% Earnings (Loss) From Operations(#) ($48) $818 N.M. $911 $1,505 (39%) Operating Margin(#) -0.3% 5.6% (5.9)Pts 3.1% 5.5% (2.4)Pts Reported Net Income (Loss)(#) ($160) $566 N.M. $532 $1,101 (52%) Reported Earnings (Loss) per Share(#) ($0.21) $0.70 N.M. $0.69 $1.36 (49%) Operating Cash Flow (after pension contributions) $2,443 $2,686 (9%) $4,498 $4,091 10% (#) Includes previously disclosed Global Settlement charge of $0.75 per share and AEW&C charge of $0.40 per share in second quarter of 2006. CHICAGO, July 26 The Boeing Company (NYSE: BA) today reported a second-quarter net loss of $160 million, or $0.21 per share, which includes $1.15 pershare of previously disclosed charges for a legal settlement and aninternational airborne surveillance program. The company also increased its2007 earnings per share and revenue guidance to reflect the continuing strengthof its commercial airplanes business. Revenue for the second quarter rose 2 percent to $15.0 billion. In theyear-ago quarter Boeing posted net earnings of $566 million, or $0.70 pershare, on revenues of $14.7 billion. The year-ago revenue total included a$0.4 billion benefit from a customer's buyout of several operating leases. The charges disclosed on June 29 included $615 million for the globalsettlement with the U.S. Department of Justice, which yielded a net charge of$571 million after reserves, or $0.75 per share. Boeing will not claim a taxdeduction for this payment. The company also disclosed it would record acharge for a reach-forward loss provision on an international Airborne EarlyWarning & Control (AEW&C) program; the charge recognized in the quarter was$496 million or $0.40 per share. Because of the charges, which were partially offset by improvements in thecommercial airplanes business and by lower pension expense, Boeing reduced its2006 earnings per share guidance (provided on a GAAP basis) to between $2.40and $2.55. Based on the strength of the commercial airplane business andcompanywide productivity improvements, the company's 2007 earnings per shareguidance was raised 15 cents per share to between $4.25 and $4.45 per shareand its revenue guidance was increased $1 billion to between $64.5 billion and$65.5 billion. Additional details on financial guidance are provided below. "Boeing's outlook is strengthening due to sustained demand for ourcommercial airplanes, our steady but modestly growing defense business, andour companywide focus on growth and productivity," said Boeing Chairman,President and Chief Executive Officer Jim McNerney. "This quarter's chargesovershadowed solid fundamentals that reflect our commitment to providingexceptional value for all our stakeholders." Operating cash flow remains very strong, totaling $2.4 billion in thesecond quarter. Free cash flow* was $2.1 billion after an investment of $0.3 billion in property, plant & equipment during the quarter (Table 2). Forthe first six months of 2006, operating cash flow increased 10 percent to $4.5 billion. Free cash flow* increased to $3.8 billion, 14 percent higherthan last year due to strong operating and working capital performance. Table 2. Cash Flow 2nd Quarter Six Months (Millions) 2006 2005 2006 2005 Operating Cash Flow (1) $2,443 $2,686 $4,498 $4,091 Less Additions to Property, Plant & Equipment ($333) ($480) ($745) ($787) Free Cash Flow* $2,110 $2,206 $3,753 $3,304 (1) There were no pension contributions in the second quarter of 2006 or 2005. Includes six-months pension contributions of $0.5 billion in each of 2006 and 2005. * Non-GAAP measure. A complete definition and reconciliation of Boeing's use of non-GAAP measures, identified by an asterisk (*), is found on page 10 "Non-GAAP Measure Disclosure." Boeing's backlog at quarter-end grew to a record $220 billion, up 3 percent from the end of the first quarter and 7 percent for the first sixmonths of 2006. That growth primarily reflects strong demand for Boeing'scommercial airplane products. Boeing's cash and investments in marketable securities totaled $10.6 billion at the end of the second quarter, up from $9.8 billion at theend of the first quarter and $8.4 billion at year-end 2005 (Table 3). Thiscash position reflects strong operating cash flow partially offset by sharerepurchases and planned investment increases in Boeing's core businesses. Thecompany repurchased 6.3 million shares for $525 million during the quarter and11.8 million shares for $929 million during the first six months of the year,leaving 12.6 million shares available under the existing repurchaseauthorization. The company made no contributions to its pension plans duringthe quarter; contributions for the first half of 2006 totaled $500 million. Total consolidated debt was reduced by over $500 million during thequarter as Boeing Capital repaid maturing debt with available cash. TheBoeing Company debt increased slightly to $4.3 billion due to consolidation ofan equity investment with $56 million of debt. Table 3. Cash, Marketable Securities and Debt Balances Quarter-End (Billions) 2Q06 1Q06 Cash $7.6 $6.8 Marketable Securities(1) $3.0 $3.0 Total $10.6 $9.8 Debt Balances: The Boeing Company $4.3 $4.2 Boeing Capital Corporation $5.6 $6.2 Non-Recourse Customer Financing $0.6 $0.6 Total Consolidated Debt $10.5 $11.0 (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 Commercial Airplanes Boeing Commercial Airplanes (BCA) second-quarter revenues increased 10 percent to $7.1 billion. Airplane deliveries rose 14 percent to 97, as BCAhas successfully increased production rates to support the 395 deliveriesforecast for the full year (Table 4). Operating earnings grew 51 percent andmargins expanded to 10.1 percent, reflecting higher deliveries and continuedproductivity improvements. For the first half of the year, BCA revenues rose 26 percent to $14.2 billion on a 26 percent increase in deliveries. Operating earnings grew65 percent to $1.4 billion and margins expanded to 10.0 percent. Contractual backlog rose to a record $142 billion, as BCA booked 311 grossorders during the quarter and 487 for the first half of 2006 on strongcustomer demand. The 787 Dreamliner program continues preparing for the start of flighttesting next year and has begun manufacturing and major assembly. While ontrack to meet performance commitments and entry into service, the company ismaking additional investments in R&D primarily to reduce risk on achievinggoals relating to weight and schedule. From program launch to date, 25 customers have booked 364 firm orders for the new airplane. Table 4. Commercial Airplanes Operating Results (Millions, except deliveries & 2nd Quarter % Six Months % margin percent) 2006 2005 Change 2006 2005 Change Commercial Airplanes Deliveries 97 85 14% 195 155 26% Revenues $7,113 $6,448 10% $14,166 $11,208 26% Earnings from Operations $719 $475 51% $1,422 $863 65% Operating Margins 10.1% 7.4% 2.7 Pts 10.0% 7.7% 2.3 Pts Integrated Defense Systems Boeing Integrated Defense Systems (IDS) revenues were steady in thequarter at $7.8 billion (Table 5). Operating margins were 4.0 percent, adecrease from 10.5 percent primarily driven by the previously announced AEW&Cprogram charge totaling $496 million. Without that charge, adjusted IDSoperating margins* for the quarter would have been 10.4 percent. For the first half of the year, IDS revenues were $15.0 billion andoperating margins decreased to 7.5 percent from 10.8 percent in 2005 due tothe AEW&C charge. Without the charge, adjusted IDS operating margins* wouldhave been 10.8 percent. In Precision Engagement & Mobility Systems, IDS remains focused on systemdevelopment and deliveries. Revenues were $3.4 billion for the quarter ashigher volume on the P-8A program was offset by timing of deliveries of C-17sand F-15s and lower milestone completions on AEW&C. The operating loss of $5 million was driven by the AEW&C charge for cost growth due to technical andflight test issues. In Network & Space Systems, IDS achieved significant milestones on severalkey programs and executed six successful launches. Second quarter revenuesdeclined to $2.9 billion due to lower volume in Proprietary programs and thesale of Rocketdyne, which was partially offset by increased activity in FutureCombat Systems. Operating margins of 3.7 percent were driven by charges of$74 million on the Delta IV program due to a settlement on EELV launchcapability services and mission manifest changes. Table 5. Integrated Defense Systems Operating Results (Millions, except 2nd Quarter % Six Months % margin percent) 2006 2005 Change 2006 2005 Change Revenues Precision Engagement & Mobility Systems $3,411 $3,511 (3%) $6,558 $6,725 (2%) Network & Space Systems $2,947 $3,110 (5%) $5,699 $6,332 (10%) Support Systems $1,416 $1,183 20% $2,703 $2,353 15% Total IDS Revenues $7,774 $7,804 (0%) $14,960 $15,410 (3%) Earnings (Loss) from Operations Precision Engagement & Mobility Systems ($5) $443 N.M. $470 $827 (43%) Network & Space Systems $109 $200 (46%) $261 $496 (47%) Support Systems $205 $178 15% $395 $348 14% Total IDS Earnings from Operations $309 $821 (62%) $1,126 $1,671 (33%) Operating Margins 4.0% 10.5% (6.5)Pts 7.5% 10.8% (3.3)Pts Support Systems generated very strong profitability on its broad portfolioof services and logistics programs. Revenues climbed 20 percent to $1.4 billion while operating earnings grew 15 percent to $205 million. Highervolume in Maintenance, Modification & Upgrade programs and IntegratedLogistics programs increased revenues, while contract mix affected operatingmargins. IDS's industry-leading backlog at quarter-end was $77.8 billion, down 3 percent from the end of the first quarter as IDS continued progress on largemulti-year contracts. Contractual backlog at the end of the second quarterwas $38.8 billion, and unobligated backlog was $39.0 billion. Boeing Capital Corporation Boeing Capital Corporation (BCC) continued to support the operations ofBoeing's business units and reduce portfolio risk. Revenues for the secondquarter declined 7 percent to $243 million, and pre-tax income declined to $62 million on lower portfolio size and favorable dispositions andrestructurings that occurred in the same quarter of 2005 (Table 6). BCC's portfolio balance at the end of the second quarter was $8.5 billion,down from $9.0 billion at the end of the first quarter as normal portfoliorun-off, asset sales and depreciation more than offset new business volume. BCC contributed $182 million in cash dividends (including return of capital)to the company during the quarter and $232 million for the first half of theyear. BCC reduced its debt balance by $0.6 billion during the quarter andrecorded leverage of 5.0-to-1, as measured by the ratio of debt-to-equity. Table 6. Boeing Capital Corporation Operating Results 2nd Quarter % Six Months % (Millions) 2006 2005 Change 2006 2005 Change Revenues $243 $261 (7%) $480 $498 (4%) Pre-Tax Income $62 $120 (48%) $132 $164 (20%) Additional Information The "Other" segment consists primarily of Boeing Technology and Connexionby Boeing(R), as well as certain results related to the consolidation of allbusiness units. For the second quarter, losses from operations improved to$90 million from $110 million last year. Pre-tax (non-cash) pension expense for the quarter was $127 million, down$28 million or $0.02 per share from the same period of 2005. Share-based-plans expense was $250 million, unchanged from the same period of 2005. Deferred stock compensation expense was $38 million, or $0.03 per share, asBoeing's stock price rose during the period. As previously disclosed, the company is evaluating strategic alternativesrelated to Connexion by Boeing(R). Outlook The company's financial guidance for 2006 has been adjusted to reflect thepreviously announced charges, partially offset by improvements in BCA'soutlook and lower pension expense. The company is forecasting continuedgrowth during the remainder of 2006 and 2007 that reflects strong performancefrom its core businesses, higher commercial airplane deliveries, andcompanywide productivity gains (Table 7). Boeing's 2006 revenue guidance has been increased to between $60 billionand $60.5 billion. Revenue guidance for 2007 is raised $1 billion to between$64.5 billion and $65.5 billion due to higher BCA revenue from improvedairplane mix and features. Earnings per share guidance (given on a GAAPbasis) for 2006 is reduced to between $2.40 and $2.55 due to the charges andpartially offsetting improvements in BCA outlook and pension expense. Boeingis raising its 2007 EPS guidance 15 cents per share to between $4.25 and $4.45 per share driven by higher BCA revenues and earnings. The $615 million settlement amount paid to the US Government will reduceoperating cash flow in 2006. However, Boeing is maintaining its operatingcash flow guidance for 2006 as well as 2007 at greater than $5.5 billion eachyear. Commercial Airplanes' revenue guidance for 2006 is being raised toapproximately $28.0 billion, with operating margins greater than 9 percent,while revenue for 2007 is now expected to be between $30.5 billion to $31.5 billion, with operating margins improving to greater than 10 percent. The 2006 commercial airplane delivery forecast remains at approximately 395 airplanes, 36 percent higher than in 2005, while deliveries in 2007 areexpected to be between 440 and 445 airplanes. The 2006 forecast is sold outand the 2007 forecast is now more than 99% sold out. IDS revenue guidance is being reaffirmed at approximately $31.5 billion,with operating margins reduced to approximately 9 percent for 2006 due to theAEW&C charge. For 2007, IDS expects 2 to 5 percent revenue growth andoperating margins above 10.5 percent. Precision Engagement & Mobility Systems expects revenues of approximately$14 billion and operating margins of approximately 10 percent in 2006 due tothe AEW&C charge, with a moderate growth outlook for 2007 and operatingmargins increasing to the low double-digits. Network & Space Systems expectsrevenues of approximately $11.5 billion and margins of approximately 5.5 percent, with a moderate growth outlook for 2007 and operating margins inthe high single digits. Support Systems expects revenue to be approximately$6 billion in 2006 with operating margins of about 14 percent, followed bymoderate revenue growth in 2007 and operating margins continuing in the lowdouble-digit range. The current guidance doesn't reflect the impact of the pending Aviallacquisition or the United Launch Alliance (ULA) transaction. Network & SpaceSystems revenue guidance for 2006 includes approximately $1 billion forbusiness planned to be part of ULA. Upon completion of the ULA transaction,Boeing will use the equity method of accounting for the joint venture,recognizing Boeing's proportionate share of the venture's earnings in theNetwork & Space Systems segment. The company previously disclosed that it is evaluating strategicalternatives for Connexion by Boeing(R). It is possible that a decision couldtrigger a charge to earnings this year of up to $350 million. Were this tohappen, the company would expect to realize lower annual operating expensesand higher earnings beginning in 2007 without its continued investment in thisbusiness. Boeing's research and development outlays are now forecast to beapproximately $3 billion in 2006 and in 2007, reflecting higher investment inplanned product development programs such as the 787, 747-8 and internationaltanker. Annual capital expenditures should be approximately $1.6 billion in2006 and $1.5 billion in 2007. The company's non-cash pension expense is now expected to be approximately$800 million for 2006 and about $1 billion for 2007. Pension cash funding isexpected to be approximately $500 million in each of those years, and theplanned funding for 2006 was completed in the first quarter. The company willcontinue to evaluate making additional discretionary contributions to itspension plans. Table 7. Financial Outlook (Billions, except per share data) 2006 2007 The Boeing Company Revenues $60 - $60.5 $64.5 - $65.5 Earnings Per Share (GAAP) $2.40 - $2.55 $4.25 - $4.45 Operating Cash Flow(1) > $5.5 > $5.5 Boeing Commercial Airplanes Deliveries ~ 395 440 - 445 Revenues ~ $28 $30.5 - $31.5 Operating Margin > 9% > 10% Integrated Defense Systems Revenues Precision Engagement & Mobility Systems ~ $14 Moderate Growth Network & Space Systems ~ $11.5 Moderate Growth Support Systems ~ $6 Moderate Growth Total IDS Revenues ~ $31.5 2% - 5% Growth Operating Margin Precision Engagement & Mobility Systems ~ 10% Low Double Digit Network & Space Systems ~ 5.5% High Single Digit Support Systems ~ 14% Low Double Digit Total IDS Operating Margin ~ 9% > 10.5% Boeing Capital Corporation Portfolio Size Lower Flat Revenue ~ $0.9 ~ $0.9 Return on Assets > 1% > 1% Research & Development ~ $3 ~ $3 Capital Expenditures ~ $1.6 ~ $1.5 (1) After forecast pension contributions of $0.5 billion in 2006 and $0.5 billion in 2007. Non-GAAP Measure Disclosure Management believes that the non-GAAP (Generally Accepted AccountingPrinciples) measures (indicated by an asterisk *) used in this report provideinvestors with important perspectives into the company's ongoing businessperformance. The company does not intend for the information to be consideredin isolation or as a substitute for the related GAAP measure. Other companiesmay define the measure differently. The following definitions are providedfor free cash flow and adjusted IDS operating margins. Free Cash Flow Free cash flow is defined as GAAP operating cash flow less capitalexpenditures for property, plant and equipment, additions. Managementbelieves free cash flow provides investors with an important perspective onthe cash available for shareholders, debt repayment, and acquisitions aftermaking the capital investments required to support ongoing business operationsand long term value creation. Free cash flow does not represent the residualcash flow available for discretionary expenditures as it excludes certainmandatory expenditures such as repayment of maturing debt. Management usesfree cash flow internally to assess both business performance and overallliquidity. Table 2 provides a reconciliation between GAAP operating cash flowand free cash flow. Adjusted IDS Operating Margins Adjusted IDS Operating Margins is defined as IDS operating marginscomputed in accordance with generally accepted accounting principles excludingthe charge for AEW&C performance. Management believes adjusted IDS operatingmargins are important to understanding the company's on-going operations andprovide additional insights into underlying business performance. Managementderived the adjusted IDS operating margins by dividing GAAP IDS revenues intoGAAP IDS operating margin adjusted for the $496 million charge. Thecalculation is (309 + 496) ƒ· 7,774 = 10.4% for the quarter, and (1,126 + 496)ƒ· 14,960 = 10.8% for the first half of the year. 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 performanceand involve risks, uncertainties and assumptions that are difficult topredict. Forward-looking statements in this press release include, amongothers, statements regarding future results as a result of the company'sgrowth and productivity initiatives, its 2006 and 2007 financial outlook andthe benefits of the new IDS structure. Forward-looking statements are basedupon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed orforecasted in these forward-looking statements. As a result, these statementsspeak only as of the date they were made and the company undertakes noobligation to publicly update or revise any forward-looking statements,whether as a result of new information, future events or otherwise. Thecompany's actual results and future trends may differ materially depending ona variety of factors, including the continued operation, viability and growthof major airline customers and non-airline customers (such as the U.S.Government); adverse developments in the value of collateral securing customerand other financings; the occurrence of any significant collective bargaininglabor dispute; its successful execution of internal performance plansincluding its company-wide growth and productivity initiatives, productionrate increases and decreases (including any reduction in or termination of anaircraft product), availability of raw materials, acquisition and divestitureplans, and other cost-reduction and productivity efforts; charges from anyfuture SFAS No. 142 review; ability to meet development, production andcertification schedules for the 787 program; technical or quality issues indevelopment programs or in the commercial satellite industry; an adversedevelopment in rating agency credit ratings or assessments; the actualoutcomes of certain pending sales campaigns and the launch of the 787 programand U.S. and foreign government procurement activities, including theuncertainty associated with the procurement of tankers by the U.S. Departmentof Defense (DoD) and funding of the C-17 program; the cyclical nature of someof its businesses; unanticipated financial market changes which may impactpension plan assumptions; domestic and international competition in thedefense, space and commercial areas; continued integration of acquiredbusinesses; performance issues with key suppliers, subcontractors andcustomers; significant disruption to air travel worldwide (including futureterrorist attacks); global trade policies; worldwide political stability;domestic and international economic conditions; price escalation; the outcomeof political and legal processes, changing priorities or reductions in theU.S. Government or foreign government defense and space budgets; terminationof government or commercial contracts due to unilateral government or customeraction or failure to perform; legal, financial and governmental risks relatedto international transactions; legal and investigatory proceedings; taxsettlements with the IRS and various states; U.S. Air Force review ofpreviously awarded contracts; and other economic, political and technologicalrisks and uncertainties. Additional information regarding these factors iscontained in the company's SEC filings, including, without limitation, itsAnnual Report on Form 10-K for the year ended December 31, 2005 and itsQuarterly Report on Form 10-Q for the quarter ended March 31, 2006. The Boeing Company and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (Dollars in millions except per share data) Six months ended Three months ended June 30 June 30 2006 2005 2006 2005 Sales of products $25,050 $22,538 $12,848 $12,053 Sales of services 4,200 4,827 2,138 2,631 Total revenues 29,250 27,365 14,986 14,684 Cost of products (20,439) (18,370) (10,821) (9,846) Cost of services (3,477) (4,063) (1,691) (2,204) Boeing Capital Corporation interest expense (179) (179) (89) (90) Total costs and expenses (24,095) (22,612) (12,601) (12,140) 5,155 4,753 2,385 2,544 Income from operating investments, net 53 44 33 28 General and administrative expense (2,243) (2,117) (1,162) (1,046) Research and development expense (1,487) (1,083) (739) (591) Gain/(loss) on dispositions, net 4 (92) 6 (117) Settlement with U.S. Department of Justice, net of reserves (571) (571) Earnings/(loss) from operations 911 1,505 (48) 818 Other income, net 192 65 106 81 Interest and debt expense (136) (171) (67) (84) Earnings/(loss) before income taxes 967 1,399 (9) 815 Income tax expense (435) (314) (151) (244) Net earnings/(loss) from continuing operations 532 1,085 (160) 571 Cumulative effect of accounting change, net of taxes $12 21 Net loss on disposal of discontinued operations, net of tax $(3) (5) (5) Net earnings/(loss) $532 $1,101 $(160) $566 Basic earnings/(loss) per share from continuing operations $0.70 $1.36 $(0.21) $0.72 Cumulative effect of accounting change, net of taxes 0.03 Net loss on disposal of discontinued operations, net of taxes Basic earnings/(loss) per share $0.70 $1.39 $(0.21) $0.72 Diluted earnings/(loss) per share from continuing operations $0.69 $1.33 $(0.21) $0.70 Cumulative effect of accounting change, net of taxes 0.03 Net loss on disposal of discontinued operations, net of taxes Diluted earnings/(loss) per share $0.69 $1.36 $(0.21) $0.70 Cash dividends paid per share $0.60 $0.50 $0.30 $0.25 Weighted average diluted shares (millions) 792.4 807.7 761.3 807.4 The Boeing Company and Subsidiaries Condensed Consolidated Statements of Financial Position (Unaudited) June 30 December 31 (Dollars in millions except per share data) 2006 2005 Assets Cash and cash equivalents $7,567 $5,412 Short-term investments 567 554 Accounts receivable, net 4,577 5,246 Current portion of customer financing, net 353 367 Deferred income taxes 2,545 2,449 Inventories, net of advances and progress billings 7,562 7,878 Total current assets 23,171 21,906 Customer financing, net 9,055 9,639 Property, plant and equipment, net of accumulated depreciation of $11,805 and $11,272 9,042 8,420 Goodwill 2,037 1,924 Prepaid pension expense 13,253 13,251 Other acquired intangibles, net 841 875 Deferred income taxes 161 140 Investments 2,743 2,852 Other assets, net of accumulated amortization of $240 and $204 966 989 $61,269 $59,996 Liabilities and Shareholders' Equity Accounts payable and other liabilities $17,847 $16,513 Advances and billings in excess of related costs 10,268 9,868 Income taxes payable 743 556 Short-term debt and current portion of long-term debt 1,499 1,189 Total current liabilities 30,357 28,126 Deferred income taxes 2,315 2,067 Accrued retiree health care 6,058 5,989 Accrued pension plan liability 2,954 2,948 Other long-term liabilities 254 269 Long-term debt 8,962 9,538 Shareholders' equity: Common shares, par value $5.00 - 1,200,000,000 shares authorized; Shares issued - 1,012,261,159 and 1,012,261,159 5,061 5,061 Additional paid-in capital 4,564 4,371 Treasury shares, at cost - 213,455,054 and 212,090,978 (11,537) (11,075) Retained earnings 17,293 17,276 Accumulated other comprehensive loss (1,729) (1,778) ShareValue Trust Shares - 39,894,840 and 39,593,463 (3,283) (2,796) Total shareholders' equity 10,369 11,059 $61,269 $59,996 The Boeing Company and Subsidiaries Business Segment Data (Unaudited) Six months ended Three months ended (Dollars in Millions) June 30 June 30 2006 2005 2006 2005 Sales and other operating revenues: Commercial Airplanes $14,166 $11,208 $7,113 $6,448 Integrated Defense Systems: Precision Engagement and Mobility Systems 6,558 6,725 3,411 3,511 Network and Space Systems 5,699 6,332 2,947 3,110 Support Systems 2,703 2,353 1,416 1,183 Total Integrated Defense Systems 14,960 15,410 7,774 7,804 Boeing Capital Corporation 480 498 243 261 Other 158 532 71 466 Accounting differences/ eliminations (514) (283) (215) (295) Sales and other operating revenues: $29,250 $27,365 $14,986 $14,684 Earnings from operations: . Commercial Airplanes $1,422 $863 $719 $475 Integrated Defense Systems: Precision Engagement and Mobility Systems 470 827 (5) 443 Network and Space Systems 261 496 109 200 Support Systems 395 348 205 178 Total Integrated Defense Systems 1,126 1,671 309 821 Boeing Capital Corporation 132 164 62 120 Other (151) (185) (90) (110) Unallocated expense (1,047) (1,008) (477) (488) Settlement with U.S. Department of Justice, net of reserves (571) (571) Earnings/(loss) from operations: 911 1,505 (48) 818 Other income, net 192 65 106 81 Interest and debt expense (136) (171) (67) (84) Earnings/(loss) before income taxes 967 1,399 (9) 815 Income tax expense (435) (314) (151) (244) Net earnings/(loss) from continuing operations 532 1,085 (160) 571 Cumulative effect of accounting change, net of taxes $12 21 Net loss on disposal of discontinued operations, net of tax $(3) (5) (5) Net earnings/(loss) $532 $1,101 $(160) $566 Research and development expense: Commercial Airplanes $1,056 $634 $526 $343 Integrated Defense Systems: Precision Engagement and Mobility Systems 207 210 101 116 Network and Space Systems 157 174 80 96 Support Systems 42 39 19 21 Total Integrated Defense Systems 406 423 200 233 Other 25 26 13 15 Total research and development expense $1,487 $1,083 $739 $591 Six months ended Three months ended June 30 June 30 Unallocated expense 2006 2005 2006 2005 Share-based plans expense (452) (529) (250) (250) Deferred compensation expense (147) (104) (38) (47) Pension (180) (196) (78) (64) Post-retirement (29) (61) (13) (30) Capitalized interest (23) (30) (4) (15) Other (216) (88) (94) (82) Total $(1,047) $(1,008) $(477) $(488) The Boeing Company and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six months ended Six months ended June 30 June 30 (Dollars in millions) 2006 2005 Cash flows - operating activities: Net earnings $532 $1,101 Adjustments to reconcile net earnings to net cash provided by operating activities: Non-cash items: Share-based plans expense 452 529 Depreciation 714 711 Amortization of other acquired intangibles 40 47 Amortization of debt discount/premium and issuance costs 10 13 Pension expense 317 378 Investment/asset impairment charges, net 19 44 Customer financing valuation provision 2 14 Loss/(gain) on disposal of discontinued operations, net (3) Loss/(gain) on dispositions, net (4) 92 Other charges and credits, net 76 124 Excess tax benefits from share-based payment arrangements (118) (46) Changes in assets and liabilities - Accounts receivable 621 (510) Inventories, net of advances and progress billings 678 454 Accounts payable and other liabilities 549 699 Advances in excess of related costs 338 505 Income taxes receivable, payable and deferred 396 318 Deferred lease income (16) (426) Prepaid pension expense (506) (460) Goodwill Other acquired intangibles, net (16) (11) Accrued retiree health care 69 46 Customer financing, net 398 504 Other (53) (32) Net cash provided by operating activities 4,498 4,091 Cash flows - investing activities: Discontinued operations customer financing, reductions 1 Property, plant and equipment, additions (745) (787) Property, plant and equipment, reductions 23 19 Acquisitions, net of cash acquired (111) Proceeds from dispositions of discontinued operations 13 Proceeds from dispositions 108 1,014 Contributions to investments (1,047) (1,430) Proceeds from investments 1,126 1,336 Net cash (used)/provided by investing activities (646) 166 Cash flows - financing activities: New borrowings 1 Debt repayments (627) (1,160) Stock options exercised 203 169 Excess tax benefits from share-based payment arrangements 118 46 Common shares repurchased (929) (1,140) Dividends paid (481) (415) Net cash used by financing activities (1,715) (2,500) Effect of exchange rate changes on cash and cash equivalents 18 Net increase in cash and cash equivalents 2,155 1,757 Cash and cash equivalents at beginning of year 5,412 $3,204 Cash and cash equivalents at end of period $7,567 $4,961 Non-cash investing and financing activities: Capital lease obligations incurred $356 The Boeing Company and Subsidiaries Operating and Financial Data (Unaudited) Six months ended Three months ended Deliveries June 30 June 30 Commercial Airplanes 2006 2005 2006 2005 717 5(3) 6(2) 3(1) 3(1) 737 Next-Generation 142 113 70 59 747 8 7 4 4 757 2 1 767 6 5 3 4 777 34 22 17 14 Total 195 155 97 85 Note: Commercial Airplanes deliveries by model include deliveries under operating lease, which are identified by parentheses. Integrated Defense Systems Precision Engagement and Mobility Systems Chinook International New Builds Apache (New Builds) 14 5 5 F/A-18E/F 21 21 11 11 T-45TS 7 5 3 3 F-15 2 2 C-17 8 9 4 5 C-40 1 2 1 1 Network and Space Systems Delta II 1 2 1 1 Delta IV 2 2 Commercial and Civil Satellites 1 3 1 2 Military Satellites June 30 March 31 December 31 Contractual backlog (Dollars in billions) 2006 2006 2005 Commercial Airplanes $141.7 $131.5 $124.1 Integrated Defense Systems: Precision Engagement and Mobility Systems 22.7 25.2 21.8 Network and Space Systems 7.8 8.8 6.3 Support Systems 8.3 8.3 8.4 Total Integrated Defense Systems 38.8 42.3 36.5 Total contractual backlog $180.5 $173.8 $160.6 Unobligated backlog $39.5 $38.8 $44.6 Total backlog $220.0 $212.6 $205.2 Workforce 154,300 154,000 153,000 SOURCE The Boeing Company 07/26/2006 CONTACT: Investor Relations, David Dohnalek or Rob Young, +1-312-544-2140, or Communications, John Dern or Todd Blecher, +1-312-544-2002, both of The Boeing Company Web site: http://www.boeing.com (BA)ENDBOEING COMPANY