Boeing 2006 Annual Report Download - page 26

Consolidated Results of Operations
and Financial Condition
Overview
We are a global market leader in design, development, manu-
facturing, sale and support of commercial jetliners, military air-
craft, satellites, missile defense, human space flight and launch
systems and services. We are one of the two major manufac-
turers of 100+ seat airplanes for the worldwide commercial air-
line industry and the second-largest defense contractor in the
U.S. While our principal operations are in the U.S., we rely
extensively on a network of partners, key suppliers and subcon-
tractors located around the world.
Our business strategy is centered on successful execution in
healthy core businesses — Commercial Airplanes and
Integrated Defense Systems (IDS) — supplemented and sup-
ported by Boeing Capital Corporation (BCC). Taken together,
these core businesses generate substantial earnings and cash
flow that permit us to invest in new products and services that
open new frontiers in aerospace. We focus on producing the
airplanes the market demands and we price our products to
provide a fair return for our shareholders while continuing to find
new ways to improve efficiency and quality. IDS is a defense
systems business that integrates its resources in defense, intel-
ligence, communications and space to deliver capability-driven
solutions to its customers at reduced costs. Our strategy is to
leverage our core businesses with a simultaneously intense
focus on growth and productivity. Our strategy also benefits as
commercial and defense markets often offset each others’
cyclicality. BCC delivers value through supporting our business
units and managing overall financial exposures.
In 2006, our revenues grew by 15 percent. Earnings from oper-
ations increased 7%. We continued to invest in key growth pro-
grams as Research and Development expense grew by 48% to
$3.3 billion, reflecting increased spending on the 787 and 747-8
programs and lower cost sharing payments from suppliers.
We generated operating cash flow of $7.5 billion driven by
operating and working capital performance. We reduced debt
by $1.2 billion and repurchased 25 million common shares. Our
contractual backlog grew 35% to $217 billion, driven by 40%
growth at Commercial Airplanes while our total backlog grew
22% to $250 billion. At the end of 2006, we implemented new
accounting rules for pensions and other postretirement benefits,
which together with the annual remeasurement of our pension
plans reduced our shareholders’ equity by $6.5 billion. This
decrease did not affect cash flows or the funded status of our
benefit plans.
We expect continued growth in Commercial Airplane revenues
and deliveries as we execute our record backlog and respond to
global demand by ramping up commercial aircraft production.
We expect IDS revenue to be slightly lower in 2007 and antici-
pate that the U.S. Department of Defense (U.S. DoD) budget
growth will moderate over the next several years. We are
focused on improving financial performance through a combi-
nation of productivity and customer-focused growth.
Consolidated Results of Operations
Revenues
(Dollars in millions)
Year ended December 31, 2006 2005 2004
Commercial Airplanes $28,465 $21,365 $19,925
Integrated Defense Systems 32,439 31,106 30,739
Boeing Capital Corporation 1,025 966 959
Other 299 657 275
Accounting differences/eliminations (698)(473)(498)
Total revenues $61,530 $53,621 $51,400
Higher consolidated revenues in 2006 were primarily due to
higher new commercial aircraft deliveries. IDS revenues were up
moderately in 2006 as growth in Precision Engagement and
Mobility Systems and Support Systems was partially offset by
lower volume in Network and Space Systems. BCC revenues
increased in 2006 primarily due to higher investment income and
higher net gain on disposal of assets. Other segment revenues
decreased in 2006 as a result of the buyout of several operating
lease aircraft in the amount of $369 million in 2005. In addition,
revenues decreased in Accounting differences/eliminations due
to higher Commercial Airplanes intercompany deliveries in 2006.
Consolidated revenues also increased in 2005 as compared to
2004. The increase was due to the growth at Commercial
Airplanes driven by higher new aircraft deliveries, increased spares
and aircraft modifications, and higher used aircraft sales. IDS
revenues remained stable in 2005 after strong growth in 2004.
BCC revenues for 2005 were essentially unchanged from 2004.
Earnings from Operations
The following table summarizes our earnings from operations:
(Dollars in millions)
Year ended December 31, 2006 2005 2004
Commercial Airplanes $«2,733 $«1,431 $÷÷745
Integrated Defense Systems 3,032 3,919 2,936
Boeing Capital Corporation 291 232 183
Other (738)(363)(546)
Unallocated expense (1,733)(2,407)(1,311)
Global Settlement with
U.S. Department of Justice (571)
Earnings from operations $«3,014 $«2,812 $«2,007
Our earnings from operations increased in 2006 compared to
2005 primarily driven by improved earnings at Commercial
Airplanes and lower unallocated expense. This was partially
offset by a $571 million charge for global settlement with
U.S. Department of Justice (see Note 22), lower IDS earnings
reflecting a $569 million net gain on the sale of our Rocketdyne
business in 2005 and $770 million of charges on the Airborne
Early Warning & Control (AEW&C) development program in
2006 partially offset by improved margins on other programs
and a $320 million charge related to the exit of the Connexion
by Boeing business recorded in Other segment. (See Note 9).
An increase in earnings from operations in 2005 compared to
2004 was primarily due to strong operating performance by our
business segments partially offset by higher unallocated
expense. Included in 2004 results is a charge of $555 million
related to the United States Air Force (USAF) 767 tanker program
and expenses incurred to end production of the 717 aircraft.
24 The Boeing Company and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations