Boeing Reports Record Revenue and Backlog and Provides 2013 Guidance

Fourth-Quarter 2012

Core EPS (non-GAAP)* of $1.46 on strong operating performance; GAAP EPS of $1.28
Revenue rose to $22.3 billion on increased commercial airplane deliveries
Full Year 2012

Core EPS (non-GAAP)* of $5.88 on record revenue of $81.7 billion; GAAP EPS of $5.11
Operating cash flow rose to $7.5 billion, including $1.6 billion of pension contributions
Backlog grew to a record $390 billion including $114 billion of orders during the year
Outlook for 2013

Core EPS (non-GAAP)* guidance of $6.10 to $6.30; GAAP EPS guidance of $5.00 to $5.20
Operating cash flow guidance of greater than $6.5 billion includes $1.5 billion of pension contributions

The Boeing Company (NYSE: BA) reported record fourth-quarter revenue of $22.3 billion (Table 1) and core operating earnings (non-GAAP) that increased by 9 percent to $1.8 billion, driven by strong performance across the company’s businesses and higher deliveries of commercial airplanes. Fourth-quarter 2012 core earnings per share (non-GAAP) of $1.46 increased 4 percent* from the same period last year when excluding a $0.52 per share impact related to a favorable tax settlement recognized in the fourth-quarter 2011. The company reported fourth-quarter earnings from operations of $1.6 billion and earnings per share of $1.28.

Core operating earnings (non-GAAP) rose 13 percent in the full-year to $7.2 billion, compared to $6.4 billion in 2011. 2012 core earnings per share (non-GAAP) of $5.88 increased 12 percent* from 2011 when excluding the impact of the 2011 favorable tax settlement ($0.53 per share for the year). Full-year 2012 revenue was a record $81.7 billion, with earnings from operations of $6.3 billion and earnings per share of $5.11.

Core earnings per share guidance (non-GAAP) for 2013 is set at between $6.10 and $6.30, while earnings per share guidance is established at between $5.00 and $5.20. Revenue guidance is between $82 and $85 billion and operating cash flow is expected to be greater than $6.5 billion, which includes $1.5 billion of discretionary pension contributions.

“Strong fourth-quarter operating performance capped a year of significant growth and solid execution, driving higher earnings and cash flow for our company,” said Boeing Chairman, President and Chief Executive Officer Jim McNerney. “In a year of considerable achievement, Boeing was the commercial aviation market leader for both orders and deliveries, with more than 600 airplanes delivered, including the first three Charleston–built 787 Dreamliners. Significant new international orders for Defense, Space & Security and more than 900 orders for the 737 MAX also contributed to our record company backlog.”

“Our first order of business for 2013 is to resolve the battery issue on the 787 and return the airplanes safely to service with our customers. At the same time, we remain focused on our ongoing priorities of profitable ramp up in commercial airplane production, successful execution of our development programs, and continued growth in core, adjacent and international defense and space markets.”

Cash and investments in marketable securities totaled $13.5 billion at year-end (Table 3), up from $11.2 billion at the beginning of the quarter. Debt was $10.4 billion, down from $11.2 at the beginning of the quarter.

Total company backlog at year-end was a record $390 billion, up from $378 billion at the beginning of the quarter, and included net orders for the quarter of $35 billion. Backlog is up $35 billion from prior year-end, reflecting $114 billion of net orders in 2012.

Segment Results

Commercial Airplanes

Boeing Commercial Airplanes fourth-quarter revenue increased to $14.2 billion and full-year revenue increased to a record $49.1 billion on higher delivery volume. Fourth-quarter operating margin was 8.9 percent and full-year operating margin was 9.6 percent, both reflecting the dilutive impact of 787 and 747-8 deliveries and higher period costs partially offset by the higher volume and lower R&D (Table 4).

During the quarter, Commercial Airplanes achieved a five-per-month production rate on the 787 program and, as of year-end, had won over 1,000 firm orders for the 737 MAX since launch. The 737 program broke the company’s single-year record for both orders and deliveries in 2012. During the year, Commercial Airplanes delivered the first 747-8 Intercontinental, began major assembly on the 787-9 and successfully executed a total of five production rate increases.

On January 16, 2013, the Federal Aviation Administration (FAA) issued an airworthiness directive that resulted in all in-service 787s temporarily ceasing operations. The company is committed to working with the FAA and other applicable regulatory authorities to return aircraft to service with the full confidence of customers and the traveling public. While production continues on the 787, the company is suspending deliveries until clearance is granted by the FAA.

Commercial Airplanes booked 394 net orders during the quarter. Backlog remains strong with nearly 4,400 airplanes valued at a record $319 billion.

Additional Financial Information

At year-end, Boeing Capital Corporation’s (BCC) portfolio balance was $4.1 billion, unchanged from the beginning of the quarter and down from $4.3 billion at the beginning of the year. BCC’s debt-to-equity ratio was 5.0-to-1.

The loss in unallocated items and eliminations increased due to higher pension expense. Total pension expense for the fourth quarter was $576 million up from $344 million in the same period last year.

The company’s income tax expense was $557 million in the quarter, compared to $57 million in the same period of last year. Fourth-quarter 2011 included a $397 million non-cash gain due to an IRS settlement. The full year effective tax rate was 34 percent compared with 25.6 percent in 2011.

Outlook

The company’s current 2013 financial guidance (Table 7) assumes no significant financial impact from the FAA directive. The guidance reflects continued strong core performance, generating an expected 5 percent increase in core earnings per share (non-GAAP).

Boeing’s 2013 revenue guidance is between $82 and $85 billion. Core earnings per share (non-GAAP) guidance for 2013 is set at between $6.10 and $6.30. Earnings per share guidance is established at between $5.00 and $5.20. Total pension expense in 2013 is expected to be approximately $3.2 billion (of which approximately $1.8 billion is expected to be recorded in core operating earnings with $1.4 billion recorded in unallocated items and eliminations). Operating cash flow before pension contributions (non-GAAP) is expected to be greater than $8 billion. Operating cash flow is expected to be greater than $6.5 billion in 2013, including $1.5 billion of discretionary pension contributions.

Commercial Airplanes’ 2013 deliveries are expected to be between 635 and 645 airplanes, which includes greater than 60 787 deliveries. Commercial Airplanes’ 2013 revenue is expected to be between $51 and $53 billion with operating margins of approximately 9.5 percent.

Defense, Space & Security’s revenue for 2013 is expected to be between $30.5 and $31.5 billion with operating margins greater than 9 percent.

Boeing Capital Corporation expects that its aircraft finance portfolio will continue to decline in 2013, as new aircraft financing of less than $0.5 billion is expected to be lower than normal portfolio runoff through customer payments and depreciation.

Boeing’s 2013 R&D forecast is approximately $3.4 billion. Capital expenditures for 2013 are expected to be between $2.3 and $2.5 billion. Boeing’s effective tax rate is expected to be approximately 30 percent in 2013 reflecting the benefit of research and development credits for 2012 and 2013.

Non-GAAP Measure Disclosures

We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Core operating earnings is defined as GAAP earnings from operations excluding unallocated pension and post-retirement expense. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP earnings per share excluding the net earnings per share impact of unallocated pension and post-retirement expense. Unallocated pension and post-retirement expense represents the portion of pension and other post-retirement costs that are not recognized by business segments for segment reporting purposes. The business segments have traditionally been allocated pension and other post-retirement costs using U.S. government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. Beginning in 2013, pension costs at Commercial Airplanes will be allocated based on GAAP service and prior service costs instead of CAS. Defense Space & Security will continue to be allocated CAS pension costs which are allocable to government contracts. Other post-retirement costs will continue to be allocated to business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude unallocated pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts.

Increase in Core Earnings Per Share Excluding Favorable Tax Settlement

The company is disclosing the increase in core earnings per share in 2012 over 2011 excluding the impact of the favorable federal tax audit settlement in fourth quarter 2011. The company believes it is useful to occasionally exclude certain items that are not reflective of underlying business performance and that can distort period to period performance comparisons. Management uses similar measures for purposes of evaluating and forecasting underlying business performance.

Operating Cash Flow Before Pension Contributions

Operating cash flow before pension contributions is defined as GAAP operating cash flow less pension contributions. Management believes operating cash flow before pension contributions provides additional insights into underlying business performance. Table 2 provides a reconciliation between GAAP operating cash flow and operating cash flow before pension contributions.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow less capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow internally to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.