Boeing 2007 Annual Report Download

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Table of contents

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    The Boeing Company 2007 Annual Report Leading the Way

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    ... Executive Council Boeing Commercial Airplanes Boeing Integrated Defense Systems Serving Our Customers Global Presence Technology 20 80 87 88 89 18 Pioneering Environmental Performance Financials Selected Programs, Products and Services Board of Directors Company Officers Shareholder Information

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    ...repurchase plan for up to $7 billion; and repurchased 29 million shares during the year. â- Further strengthened our balance competitions entered by Integrated Defense Systems, including key orders for Tracking and Data Relay Satellites, Joint Cargo Aircraft, the Airborne Early Warning and Control...

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    2 Message From Our Chairman Driving long-term growth and value creation

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    ... financial performance, which reflects the potent combination of good top-line growth and strong gains in productivity. Total revenues rose to an all-time high of $66.4 billion. For the first time ever, both of our core businesses - Boeing Commercial Airplanes and Boeing Integrated Defense Systems...

  • Page 7
    ... growth for our industry. At research-and-development facilities and with partners around the world, Boeing is working on a future that could include sustainable biofuels, fuel cells (which may one day replace the auxiliary power units on today's airplanes), more efficient air traffic management...

  • Page 8
    ...fact, my leadership team has received - and is acting on - good ideas from several 2007 classes on how we might expand our services businesses, strengthen our program management, more deeply embed our four growth-and-productivity initiatives into our operations, and more quickly share best practices...

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    ...company. Sources of Incremental Growth New programs and full production lines at Commercial Airplanes are the biggest drivers of our growth, and international sales - always vital to BCA - provide strong growth potential at IDS. Sharpening our culture of learning and sharing is as key to our growth...

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    ... Airplanes James A. Bell Executive Vice President, Finance, Chief Financial Officer James F. Albaugh Executive Vice President, President and Chief Executive Officer, Integrated Defense Systems John J. Tracy Senior Vice President, Engineering, Operations and Technology, Chief Technology Officer

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    Boeing Commercial Airplanes Focused on customers, productivity and growth

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    ...market response to our airplane programs, along with continuing improvements in performance and efficiency, drove our solid financial performance this year. Boeing Commercial Airplanes received record orders for the third year in a row, while revenues rose 17 percent to $33.4 billion, with operating...

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    ... best of Boeing Commercial Airplanes and Integrated Defense Systems is allowing us to deliver commercial-derivative aircraft to customers in the United States, Australia, Italy, Japan, Turkey, India and Korea. We are also leveraging our unique global partnerships to compete on international tactical...

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    Boeing Integrated Defense Systems Delivering best-of-industry solutions

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    Serving Our Customers Delivering value wherever they operate

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    ..., space and defense customers. Our support to customers does not end when a product is delivered. We continue to bring value to customers by providing training and service wherever they operate. The Boeing Commercial Airplanes Operations Center and rapid spares availability keep our airline...

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    ... research and development and enlist their expertise to offer the best technology solutions available. Boeing technology and R&D centers around the world strengthen the perception - and reality - of Boeing as a company that operates globally but works to the benefit of the local communities. Boeing...

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    Global Presence Collaborating and growing our business

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    Technology Working with our customers to define the future of aerospace

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    ... manufacturing processes. Our focused and integrated technology investment strategy, global partnerships and keen understanding of customers' needs provide a unique competitive advantage for Boeing. We are applying state-of-the-art technologies to improve our current product lines on programs...

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    ... grown biofuels. Fuel-cell technology holds promise in providing cleaner, quieter operation of secondary airplane power systems. Boeing is also actively supporting and developing solutions to improve the global air transportation system, which offers critical near-term potential for environmental...

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    Pioneering Environmental Performance Strengthening our commitment to the environment

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    ... Statements 74 Segment Information 76 Quarterly Financial Data (Unaudited) 77 Report of Independent Registered Public Accounting Firm 78 Report of Management 78 Regulatory Certifications 79 Index to Financials 80 Selected Programs, Products and Services 87 Board of Directors 88 Company Officers...

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    ...Systems Network and Space Systems Support Systems Total Integrated Defense Systems Boeing Capital Corporation (d) Other Accounting differences/eliminations Total revenues General and administrative expense (d) Research and development expense Other income, net Net earnings from continuing operations...

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    ...term trends in passenger revenue with the exit of the Connexion by Boeing business. This report includes important information as to these factors in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Notes to our consolidated financial statements...

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    ..., our revenues grew by 8%. Earnings from operations increased 93%. We continued to invest in key growth programs as Research and Development expense grew by 18% to $3.9 billion, reflecting increased spending on the 787 and 747-8 programs and lower cost sharing payments from suppliers. We generated...

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    ...-based plans expense is primarily due to the increase in our stock price during 2005 which resulted in additional compensation expense due to an increase in the number of performance shares meeting the price growth targets and being converted to common stock. The year over year changes in deferred...

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    ... production rates. Fuel prices are also playing a key role in increasing the current demand for new aircraft. Strong economic growth has also led to sustained high oil and fuel prices. Between 2003 and 2007, jet fuel expense grew from 15 percent to more than 30 percent of airline operating costs...

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    ... deliveries, including model mix changes, of $6,820 million, increased commercial aviation support business of $873 million offset by $593 million primarily attributable to lower revenue from aircraft trading. In 2005 we delivered 29 fewer than expected airplanes due to the International Association...

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    ... efficient and safe aircraft operation. Collectively known as commercial aviation support, these activities and services begin prior to aircraft delivery and continue throughout the operational life of the aircraft. They include flight and maintenance training, field service The Boeing Company...

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    ... support are expensed as incurred and have been historically less than 1.5% of total consolidated costs of products and services. This level of expenditures is anticipated to continue in the upcoming years. These costs do not vary significantly with current production rates. Research and Development...

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    ... $36,505 $44,008 Since our operating cycle is long-term and involves many different types of development and production contracts with varying delivery and milestone schedules, the operating results of a particular year, or year-to-year comparisons of revenues and earnings, may not be indicative of...

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    ... Research and development investments in the Global Tanker Aircraft program represent a significant opportunity to provide state-of-the-art refueling capabilities to domestic and non-U.S. customers. Investments were also made to support various intelligence, surveillance, and reconnaissance business...

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    ... the sale of our Rocketdyne business to United Technologies Corporation. See Note 7 Exit Activity and Divestitures. Research and Development The N&SS research and development funding remains focused on the development of intelligence and surveillance systems; communications and command and control...

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    ... of Boeing Satellite Systems International, Inc. (BSSI) litigation/arbitration with ICO Global Communications (Operations), Ltd., Thuraya Satellite Telecommunications, Telesat Canada, and Space Communications Corporation in Note 21. Support Systems Operating Results (Dollars in millions) Years ended...

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    ...by the revenue increases mentioned above in addition to a different contract mix. Research and Development Support Systems continues to focus investment strategies on its core businesses including IL, MM&U, TS&S and Advanced Logistics Support Systems, as well as on moving into the innovative Network...

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    ... disposition of our Commercial Airplanes operations in Wichita, Kansas and Tulsa and McAlester, Oklahoma, and the sale of Rocketdyne. Financing Activities Net earnings Non-cash items Changes in working capital Net cash provided by operating activities Net cash used by investing activities Net cash...

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    ... business during the five year period following December 1, 2006. ULA did not request any funds under the line of credit as of December 31, 2007. In accordance with Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans...

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    36 Management's Discussion and Analysis Purchase Obligations Not Recorded on the Consolidated Statement of Financial Position Production related purchase obligations not recorded on the Consolidated Statement of Financial Position include agreements for production goods, tooling costs, electricity ...

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    ... reliably estimate the relationship of sales to costs for the defined program accounting quantity. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts...

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    ... between actual and expected returns on assets, changes in assumptions, and changes in plan provisions could significantly increase or decrease Shareholders' Equity (net of taxes) at future measurement dates. We use a discount rate that is based on a point-in-time estimate as of our September...

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    ...) Change in discount rate Increase 25 bps Decrease 25 bps return on plan assets and the expected long term rate of return are reflected in Shareholders' Equity (net of taxes) as of our annual measurement date. The assumed medical trend rates have a significant effect on the following year's expense...

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    ...2007 2006 2005 Sales of products Sales of services Total revenues Cost of products Cost of services Boeing Capital Corporation interest expense Total costs and expenses Income from operating investments, net General and administrative expense Research and development expense, net of credits of $130...

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    ... taxes Accrued retiree health care Accrued pension plan liability, net Non-current income taxes payable Other long-term liabilities Long-term debt Shareholders' equity: Common shares issued, par value $5.00 - 1,012,261,159 and 1,012,261,159 shares Additional paid-in capital Treasury shares, at cost...

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    ...and billings in excess of related costs Income taxes receivable, payable and deferred Other long-term liabilities Pension contributions Accrued retiree health care Customer financing, net Other Net cash provided by operating activities Cash flows - investing activities: Property, plant and equipment...

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    ... of deferred compensation Share-based compensation ShareValue Trust market value adjustment Tax benefit related to share-based plans Excess tax pools Treasury shares issued for share-based plans, net Changes in capital stock 2 Treasury shares repurchased Cash dividends declared ($1.05 per share...

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    ... Total revenues Earnings from operations: Commercial Airplanes Integrated Defense Systems: Precision Engagement and Mobility Systems Network and Space Systems Support Systems Total Integrated Defense Systems Boeing Capital Corporation Other Unallocated expense Settlement with U.S. Department of...

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    ...uses program accounting to account for cost of sales related to commercial airplane programs. Program accounting is a method of accounting applicable to products manufactured for delivery under production-type contracts where profitability is realized over multiple contracts and years. Under program...

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    ...and Space Shuttle, support agreements associated with military aircraft and helicopter contracts, and technical and flight operation services for commercial aircraft. Lease and financing revenue arrangements are also included in Sales of services on the Consolidated Statements of Operations. Service...

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    ...the discount rate, the long-term rate of asset return, and medical trend (rate of growth for medical costs). A portion of net periodic pension and other postretirement income or expense is not recognized in net earnings in the year incurred because it is allocated to production as product costs, and...

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    48 Notes to Consolidated Financial Statements Inventories Inventoried costs on commercial aircraft programs and longterm contracts include direct engineering, production and tooling costs, and applicable overhead, which includes fringe benefits, production related indirect and plant management ...

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    ...term to maturity, and credit rating. For investments that are deemed other-than-temporarily impaired, losses are recorded in Cost of products or Cost of services and payments received on these investments are recorded using the cost recovery method. The equity method of accounting is used to account...

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    ... to cost of products for adverse changes in the fair value of trade-in aircraft that occur subsequent to signing of a definitive agreement for Sale Aircraft but prior to the purchase of the used trade-in aircraft. Estimates based on current aircraft values would be included in Accounts payable and...

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    ...how long we will hold an asset subject to operating lease before it is sold, the expected future lease rates, lease terms, residual value of the asset, periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the remaining economic life of...

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    ... Financial Statements Note 2 - Goodwill and Acquired Intangibles Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2007, 2006 and 2005 were as follows: Commercial Airplanes Precision Engagement and Mobility Systems Network and Space Systems Support...

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    ... Stock options Stock units Performance Shares Performance Awards ShareValue Trust 0.2 0.7 3.0 25.8 0.1 4.0 1.4 24.6 24.9 33.9 Retiree health care accruals Inventory and long-term contract methods of income recognition Other employee benefits accruals In-process research and development related...

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    ... affect the effective tax rate, if recognized. These amounts are primarily associated with U.S. federal tax issues such as the tax benefits from the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) tax rules, the amount of research and development tax credits claimed, U.S. taxation of...

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    ... an asset purchase agreement. This divestiture includes assets and sites in California, Alabama, Mississippi, and Florida. The Rocketdyne business primarily develops and builds rocket engines and provides booster engines for the space shuttle and the Delta family as well as propulsion systems for...

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    56 Notes to Consolidated Financial Statements Note 8 - Customer Financing Customer financing at December 31 consisted of the following: 2007 2006 Aircraft financing Notes receivable Investment in sales-type/finance leases Operating lease equipment, at cost, less accumulated depreciation of $1,024 ...

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    57 Notes to Consolidated Financial Statements Scheduled payments on customer financing are as follows: Sales-Type/ Finance Principal Lease Payments on Payments Notes Receivable Receivable Operating Lease Equipment Payments Receivable December 31, 2007. Payments due during the next five years are ...

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    58 Notes to Consolidated Financial Statements The contractual maturities of available-for-sale debt securities at December 31, 2007, were as follows: Cost Estimated Fair Value Due Due Due Due in 1 year or less from 1 to 5 years from 5 to 10 years after 10 years $÷«578 1,575 99 1,278 $3,530 ...

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    ... issues are considered changes to the initial liability estimate. The following table summarizes product warranty activity recorded during 2007 and 2006. Product Warranty Liabilities* Accounts payable Accrued compensation and employee benefit costs Product warranties (a) Environmental (b) Forward...

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    ...the purchase and/or construction of real and personal property at our Wichita site. Tax benefits associated with IRBs include a ten-year property tax abatement and a sales tax exemption from the Kansas Department of Revenue. We record the property on our Consolidated Statements of Financial Position...

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    ... support, including the House Armed Services Committee addition of $2.4 billion for 10 C-17s in their mark of the 2008 budget, and U.S. Air Force testimony to Congress reflecting interest in additional C-17 aircraft, we directed key suppliers to begin work on 10 aircraft beyond the 190 currently...

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    ... any recovery that would be available from the government. Such recovery from the government would not include the costs incurred by us resulting from the second quarter direction to key suppliers to begin working on the additional 10 aircraft. Department of Defense Office of the Inspector General...

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    ... all employees. We fund all our major pension plans through trusts. Pension assets are placed in trust solely for the benefit of the plans' participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long term with the growth...

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    64 Notes to Consolidated Financial Statements The components of net periodic benefit cost are as follows: Pensions Years ended December 31, 2007 2006 2005 Other Postretirement Benefits 2007 2006 2005 Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets ...

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    ...investment strategy. While the study gives appropriate consideration to recent trust performance and historical returns, the assumption represents a long-term prospective return. The expected return on plan assets determined on each measurement date is used to calculate the net periodic benefit cost...

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    ... funds include event driven, relative value, long-short and market neutral strategies. Global strategies seek to identify inefficiencies across various asset classes and markets, using long-short positions in physical securities and derivatives. We held $96 and $89 in trust fund assets for OPB plans...

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    ...%) of the Performance Shares awarded are vested and convertible to common stock. Cumulative stock price growth targets and vesting percentages for 2003, 2004 and 2005 awards follow: Performance Shares Stock options, other ShareValue Trust Share-based plans expense Income tax benefit $÷94 115 78...

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    68 Notes to Consolidated Financial Statements Performance Shares not converted to common stock expire five years after the date of the award. Awards may vest based on total shareholder return as follows: â- For 2003 and 2004 awards, up to 125% of the award may vest based on an award formula using...

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    ... holds our common stock, receives dividends, and distributes to employees the appreciation in value above a 3% per annum threshold rate of return at the end of each period. The total compensation expense to be recognized over the life of the trust was determined using a binomial option-pricing model...

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    ..., the deferred compensation liability which is being marked to market was $1,415 and $1,505. Note 17 - Shareholders' Equity On August 28, 2006, our Board of Directors approved the repurchase of $3,000 of common stock (the 2006 Program). On October 29, 2007, the Board approved a new repurchase plan...

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    ...unfavorable price changes for items used in production. These include commitments to purchase electricity at fixed prices through 2011. For the years ended December 31, 2007, 2006, and 2005, gains of $24, $24, and $3, respectively, (net of tax) were reclassified to cost of products and services from...

  • Page 75
    ..., but plaintiffs appealed the pre-trial dismissal of compensation claims in November 2005. In the Calender class action, which was filed January 25, 2005 in the The fair values of the Accounts receivable and Accounts payable is based on current market rates for loans of the same risk and maturities...

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    ... this time to determine whether an adverse outcome would have a material adverse effect on our financial position. BSSI/ICO Litigation On August 16, 2004, Boeing Satellite Systems International, Inc. (BSSI) filed a complaint for declaratory relief against ICO Global Communications (Operations), Ltd...

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    ...for Summary of Business Segment Data, which is an integral part of this note. Our Commercial Airplanes operation principally involves development, production and marketing of commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide. Our...

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    ... assets are located outside the United States. The information in the following tables is derived directly from the segments' internal financial reporting used for corporate management purposes. Research and Development Expense Years ended December 31, 2007 2006 2005 Commercial Airplanes Boeing...

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    ...Notes to Consolidated Financial Statements Segment assets, liabilities, capital expenditures and backlog are summarized in the tables below. Assets As of December 31, 2007 2006 2005 Capital Expenditures Years ended December 31, 2007 2006 2005 $12,317 Commercial Airplanes Integrated Defense Systems...

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    ... accepted in the United States of America. As discussed in Note 15 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an Amendment of FASB Statements...

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    ... accepted in the United States of America and include amounts based on management's best estimates and judgments. Financial information elsewhere in this Annual Report is consistent with that in the financial statements. Management has established and maintains a system of internal control designed...

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    ... Research and development, Support Systems Risk, significant group concentrations of Segment information Segment results of operations and financial condition Service revenue Share-based compensation Shareholders' equity Spare parts revenue Summary financial information, Boeing Capital Corporation...

  • Page 83
    ... airlines to lower fuel costs and fly into more airports at more times of the day. Production of the 747-400, primarily the freighter version, will continue until the 747-8 family enters service in 2009. The 747-8 family also includes a VIP version, which provides 4,786 square feet of cabin space...

  • Page 84
    ...'s AEW&C program received U.S. government approval. Planning and scheduling are underway to provide four AEW&C aircraft. The Boeing solution also includes ground-support segments for flight and mission crew training, mission support and aircraft and system modification support. and compensated for...

  • Page 85
    ... systems. The Air National Guard operates three C-40Cs, all delivered by Boeing between 2002 and 2004, and the Air Force Reserve Command took delivery of three aircraft during 2007. in U.S. Army service through 2035 and will achieve an unprecedented service life in excess of 75 years. Current plans...

  • Page 86
    ...and secure interoperability between two of its software-defined terminals. partner Science Applications International Corporation function as the lead systems integrator for FCS, managing a best-of-industry team of more than 550 suppliers. They are working together to deliver the first fullyequipped...

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    .... 2007 deliveries: 17,843 International Space Station (ISS) Joint Direct Attack Munition (JDAM) Joint Tactical Radio System (JTRS) Production started on engineering development models that are scheduled for formal testing and delivery to the FCS program in early 2009. Boeing submitted its...

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    ... NASA's space program operations contractor, United Space Alliance. As the original developer and manufacturer of the Space Shuttle Orbiter, Support Systems provides best-value mission readiness to the warfighter through total support solutions for Boeing and non-Boeing military aircraft across the...

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    ... control systems and terminals. WGS Space Vehicle 2 is scheduled for launch in the second quarter of 2008. V-22 Osprey Wideband Global SATCOM (WGS) Boeing Capital Corporation Walter E. Skowronski, President, Renton, Washington, U.S.A. Boeing Capital is a global provider of financial solutions...

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    ... of the Public Company Accounting Oversight Board Trustee, Washington University, St. Louis, Missouri Director, National Bureau of Economic Research John E. Bryson, 64 Chairman of the Board, President and Chief Executive Officer, Edison International (electric power generator and distributor) Boeing...

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    ... Executive Officer, Integrated Defense Systems James A. Bell Executive Vice President, Finance, Chief Financial Officer Scott E. Carson Executive Vice President, President and Chief Executive Officer, Commercial Airplanes Michael J. Cave Senior Vice President, Business Development and Strategy Wanda...

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    ... Internet access to their own accounts through Computershare's home page (see above web site address). They can view their account history, change their address, certify their tax identification number, replace checks, request duplicate statements, consent to receive their proxy voting materials and...

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    The Boeing Company 100 North Riverside Plaza Chicago, IL 60606-1596 U.S.A. 002CS-61130

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