Boeing 2007 Annual Report Download - page 26

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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Results of Operations
and Financial Condition
Overview
We are a global market leader in design, development, manu-
facture, 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
airline 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
subcontractors 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 integrates
its resources in defense, intelligence, communications and
space to deliver capability-driven solutions to its customers at
reduced costs. Our strategy is to leverage our core businesses
to capture key next-generation programs while expanding our
presence in adjacent and international markets, underscored
by an 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 financing exposure.
In 2007, our revenues grew by 8%. Earnings from operations
increased 93%. We continued to invest in key growth pro-
grams 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 suppli-
ers. We generated operating cash flow of $9.6 billion driven by
operating and working capital performance. We reduced debt
by $1.3 billion and repurchased 29 million common shares.
Our contractual backlog grew 37% to $297 billion, driven by
46% growth at Commercial Airplanes while our total backlog
grew 31% to $327 billion.
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 produc-
tion. We expect IDS revenue to remain relatively flat in 2008
compared with 2007 and anticipate that the U.S. Department
of Defense (U.S. DoD) budget growth will begin to moderate
over the next several years. We are focused on improving
financial performance through a combination of productivity
and customer-focused growth.
Consolidated Results of Operations
Revenues
(Dollars in millions)
Years ended December 31, 2007 2006 2005
Commercial Airplanes $33,386 $28,465 $21,365
Integrated Defense Systems 32,080 32,439 31,106
Boeing Capital Corporation 815 1,025 966
Other 280 299 657
Accounting differences/eliminations (174) (698) (473)
Revenues $66,387 $61,530 $53,621
Revenues in 2007 grew by $4,857 million, primarily due to the
growth at Commercial Airplanes. Commercial Airplanes rev-
enues increased by $4,921 million, primarily due to higher new
airplane deliveries and increased commercial aviation support
activities. IDS revenues decreased by $359 million, primarily
due to lower revenues in Network and Space Systems (N&SS)
resulting from the formation of the United Launch Alliance
(ULA) joint venture in 2006 and lower revenues in Precision
Engagement and Mobility Systems (PE&MS), offset by growth
in Support Systems. BCC revenues decreased by $210 million
primarily due to a decrease in the customer financing portfolio.
Accounting differences/eliminations changed by $524 million
primarily due to fewer Commercial Airplanes intercompany
deliveries when compared with 2006.
Higher consolidated revenues in 2006 were primarily due to
higher new commercial aircraft deliveries. IDS revenues were up
moderately in 2006 as growth in PE&MS and Support Systems
was partially offset by lower volume in N&SS. BCC revenues
increased in 2006 primarily due to higher investment income
and higher net gain on disposal of assets. Other segment rev-
enues decreased in 2006 as a result of the buyout of several
operating lease aircraft in the amount of $369 million in 2005.
Accounting differences/eliminations decreased revenues due to
higher Commercial Airplanes intercompany deliveries in 2006.
Earnings from Operations
The following table summarizes our earnings from operations:
(Dollars in millions)
Years ended December 31, 2007 2006 2005
Commercial Airplanes $«3,584 $«2,733 $«1,431
Integrated Defense Systems 3,440 3,032 3,919
Boeing Capital Corporation 234 291 232
Other (243) (738) (363)
Unallocated Expense (1,185) (1,733) (2,407)
Settlement with U.S. Department
of Justice, net of accruals (571)
Earnings from operations $«5,830 $«3,014 $«2,812
Operating earnings in 2007 improved by $2,816 million com-
pared with 2006. The increase is partly due to the $571 million
global settlement with U.S. Department of Justice (U.S. DoJ)
that occurred in the second quarter of 2006. Commercial
Airplanes earnings increased by $851 million compared with
the same period in 2006, primarily due to higher new airplane
deliveries, commercial aviation support activities and improved
cost performance offset by increased research and development
The Boeing Company and Subsidiaries