Boeing 2007 Annual Report Download - page 37

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Management’s Discussion and Analysis
Other Segment
Other segment operating losses were $243 million during 2007
as compared to losses of $738 million in 2006. The reduction
of $495 million was primarily due to the absence of losses
related to Connexion by Boeing, which we exited in 2006. As
part of our exit from this business, we recognized a charge of
$320 million in 2006, in addition to losses of $237 million for
the year ended December 31, 2006. We have not reached final
settlements with all customers or suppliers. We do not believe
the final settlements will have a material adverse effect on our
earnings, cash flows and/or financial position.
Other segment operating losses were $738 million during 2006
as compared to losses of $363 million in 2005. The increase of
$375 million was primarily due to the $320 million charge from
the exit of the Connexion by Boeing business and the $68 mil-
lion environmental expense recognized in 2006. The Other
segment recorded $74 million of lower valuation allowances for
customer financing in 2006 compared to 2005. Additionally,
during 2005, the Other segment recognized earnings of $63
million associated with the buyout of several operating lease
aircraft by a customer.
Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Years ended December 31, 2007 2006 2005
Net earnings $«4,074 $«2,215 $«2,572
Non-cash items 2,835 3,097 3,494
Changes in working capital 2,675 2,187 934
Net cash provided by
operating activities 9,584 7,499 7,000
Net cash used by investing activities (3,822) (3,186) (98)
Net cash used by financing activities (4,884) (3,645) (4,657)
Effect of exchange rate changes
on cash and cash equivalents 46 38 (37)
Net increase in cash and
cash equivalents
Cash and cash equivalents
at beginning of year
Cash and cash equivalents
at end of year
924
6,118
$«7,042
706
5,412
$«6,118
2,208
3,204
$«5,412
Operating Activities
Net cash provided by operating activities increased by $2,085
million to $9,584 million in 2007, primarily due to an increase
in Net earnings. In addition, working capital improved in 2007,
reflecting higher advances driven by commercial airplane
orders and decreases in customer financing assets due to
pre-payment of certain notes receivable and normal portfolio
run-off, which were partially offset by an increase in inventories
driven by the continued ramp-up of the 787 program.
Net cash provided by operating activities increased by $499
million to $7,499 million in 2006. The increase was primarily
due to working capital improvements which were partially off-
set by lower Net earnings. The working capital improvements
in 2006 compared with 2005 reflect $1,340 million of lower
pension contributions in 2006. Working capital reductions in
2006 also reflect higher advances driven by commercial air-
plane orders, decreased investment in customer financing, and
lower income tax payments which were partially offset by a
decrease in accounts payable and other liability.
Investing Activities
Cash used for investing activities increased to $3,822 million in
2007 from $3,186 million in 2006, largely due to increases in
short-term investments, primarily time deposits and commer-
cial paper, partially offset by our investment in the acquisition
of Aviall in 2006. At December 31, 2007 the recorded balances
of time deposits and commercial paper classified as short-term
investments were $1,025 million and $799 million.
As of December 31, 2007, our externally managed portfolio of
investment grade fixed income instruments had an average
duration of 1.5 years. The balance, at December 31, 2007 and
2006, was $3,269 million and $3,180 million, of which $306
million and $257 million was classified as short-term. The
investments are held as available for sale.
Cash used for investing activities increased to $3,186 million in
2006 from $98 million in 2005. The increase is primarily due to
our investment of $1,738 million in the 2006 acquisition of
Aviall, net of $42 million of cash acquired, and $458 million of
assumed debt, in an all-cash merger. The assumed debt was
repaid on the acquisition closing date. In 2005, we received
proceeds of $1,676 million, primarily from the disposition of our
Commercial Airplanes operations in Wichita, Kansas and Tulsa
and McAlester, Oklahoma, and the sale of Rocketdyne.
Financing Activities
Cash used by financing activities increased to $4,884 million in
2007 from $3,645 million in 2006 primarily due to increased
common share repurchases. Cash used by financing activities
decreased to $3,645 million in 2006 from $4,657 million in
2005 primarily due to lower common share repurchases.
During 2007, we repurchased 28,995,599 shares at an aver-
age price of $95.68 in our open market share repurchase pro-
gram and 28,432 shares in stock swaps. During 2006, we
repurchased 21,184,202 shares at an average price of $80.18
in our open market share repurchase program, 3,749,377
shares at an average price of $80.28 as part of the ShareValue
Trust distribution, and 49,288 shares in stock swaps. During
2005, we repurchased 45,217,300 shares at an average price
of $63.60 in our open market share repurchase program and
33,660 shares in stock swaps.
In 2007, we repaid $1,406 million of debt, including $1,309 mil-
lion of debt held at BCC. In 2006, we repaid $1,681 million of
debt, including $713 million of debt held at BCC and $458 mil-
lion of debt assumed in the Aviall acquisition. In 2005, we repaid
$1,378 million of debt. There were no debt issuances during
2007, 2006, or 2005. At December 31, 2007 and 2006, the
recorded balance of debt was $8,217 million and $9,538 million,
of which $4,327 million and $5,590 million was recorded at BCC.
The Boeing Company and Subsidiaries