Boeing Reports First Quarter Results; Updates
Outlook
-- Results reflect strong operating performance at Integrated
Defense Systems and Commercial Airplanes, partially offsetting severe
commercial markets downturn
-- Reported earnings include previously disclosed non-cash
charges to revalue goodwill balances and customer financing assets
- Reported first quarter loss of $0.60 per share includes non-cash
charges totaling $1.02 per share to revalue goodwill balances, and
$0.20 per share to strengthen reserves and revalue certain customer
financing portfolio investments and assets, primarily at Boeing
Capital Corporation
- Adjusted earnings per share* totals $0.42, reflecting solid
core aerospace performance in challenging commercial and strong
defense markets
- Revenues remain solid at $12.3 billion for the first quarter;
2003 revenue guidance unchanged
- Negative operating cash flow of $428 million and free cash
flow* of $558 million primarily reflects receipts timing at Integrated
Defense Systems, and lower period orders at Commercial Airplanes;
2003 cash flow guidance unchanged
- Revising 2003 adjusted earnings per share* guidance from $1.90
- $2.10 to $1.70 - $1.90; reflects first quarter non-cash charges
related to the customer financing portfolio totaling $0.20 per share
- GAAP 2003 earnings per share outlook $0.68 - $0.88 per share;
reflects first quarter non-cash charges related to the customer
finance portfolio ($0.20) and goodwill impairment ($1.02) totaling
$1.22 per share
Selected Operating Highlights – First Quarter 2003:
- Delivered strong Integrated Defense Systems operating results,
excluding goodwill charges, on an 18 percent increase in revenue;
completed first Delta IV EELV mission for the United States Air
Force
- Maintained strong Commercial Airplanes operating performance,
excluding goodwill charges, on lower planned deliveries of 71 airplanes;
completed first flight of the extended-range 777 airplane and resumed
development of longer-range 777 airplane; won significant order
from Ryanair
- Conducted well-received consumer trials of Connexion by BoeingSM
high-speed internet service with Lufthansa and British Airways
CHICAGO, April 23, 2003 – The Boeing Company
[NYSE: BA] reported a net loss of $478 million, or $0.60 per share,
for the first quarter of 2003 on revenues of $12.3 billion. The loss
included previously announced non-cash, after-tax charges totaling
$818 million, or $1.02 per share, related to the company’s analysis
of goodwill impairment, and $159 million, or $0.20 per share, to strengthen
reserves and revalue assets in Boeing’s customer finance portfolio.
However, the underlying performance of the company’s aerospace
businesses was strong. Excluding the $1.02 impact of goodwill impairment
charges, adjusted earnings per share* totaled $0.42.
“During the first quarter we continued to run healthy businesses
in dynamic market conditions. Integrated Defense Systems delivered
strong results in its growing markets, and aggressive management at
Boeing Commercial Airplanes again resulted in solid performance,”
said Boeing Chairman and Chief Executive Officer Phil Condit. Condit
added, “Boeing Capital is managing conservatively, and Boeing’s
balanced portfolio of aerospace businesses underpins our continued
strength and profitability.”
As shown in Table 2 below, the company reported a first quarter 2003
loss from operations of $373 million compared with earnings from operations
of $902 million in the first quarter of 2002. This included pre-tax
non-cash charges of $1.2 billion consisting of $913 million for goodwill
impairment and $251 million related to Boeing’s finance portfolio.
Excluding these charges, the decrease was primarily the result of
lower planned commercial airplane deliveries and lower pension income,
as expected. Performance and growth at Integrated Defense Systems
and production efficiencies at Commercial Airplanes partially offset
this reduction.
Deferred stock compensation pre-tax expense decreased $49 million
during the quarter due to the decline in the company’s stock
price from December 31 through March 31. This resulted in a $0.04
benefit to earnings per share. Pre-tax expense for share-based plans
totaled $114 million and reduced earnings per share by $0.09. Netted
together, consolidated stock compensation expenses lowered first quarter
earnings per share by a total of $0.05.
As shown in Table 3 below, the company reported negative operating
cash flow and negative free cash flow* for the quarter. This reflects
receipts timing and inventory growth at Integrated Defense Systems,
lower period orders at Boeing Commercial Airplanes, and higher tax
payments. As noted in the Outlook section, free cash flow* guidance
for 2003 remains unchanged. The company did not contribute cash to
its pension plans in either period.
Cash and short-term investment balances at the end of the first quarter
totaled $2.0 billion, down slightly from the end of 2002. Consolidated
debt increased to $15.0 billion, reflecting the successful $1.0 billion
long-term bond issue of The Boeing Company completed in February.
Segment Results
Boeing Commercial Airplanes
Commercial Airplanes continues to aggressively manage for profitability
through the unprecedented downturn in its markets. During the quarter
they remained focused on resizing operations, improving efficiency,
and pursuing a disciplined product development strategy, including
a new 7E7 airplane. Commercial Airplanes results are summarized in
Table 5 below.
During the first quarter, deliveries of commercial airplanes decreased
35 percent to 71 airplanes, and revenues fell 31 percent to $5.7 billion
when compared with the first quarter of 2002. Reported period losses
of $112 million included non-cash charges for goodwill impairment
totaling $341 million, as previously announced. Commercial Airplanes
adjusted earnings from operations* totaled $229 million as continued
strong operating performance partially offset the impact of significantly
lower deliveries and revenues. Adjusted operating margins* were 4.0
percent in the period compared to 7.7 percent for the first quarter
last year.
Commercial Airplanes received 32 gross orders during the quarter.
Contractual backlog totaled $65.8 billion compared with $68.2 billion
at the end of 2002.
Integrated Defense Systems
Integrated Defense Systems delivered strong revenue growth and excellent
operating performance in the quarter. Revenues increased 18 percent
to $6.3 billion, up from $5.3 billion in the first quarter of 2002.
Reported operating earnings of $31 million include the charge for
goodwill impairment of $572 million. Excluding this charge, adjusted
earnings from operations* rose 49 percent to $603 million compared
with the first quarter of 2002. Higher deliveries at Aircraft and
Weapon Systems, revenue and margin growth at Network Systems and Support
Systems, and improved performance at Launch and Orbital Systems all
contributed to an outstanding quarter.
Integrated Defense Systems results are summarized below and reflect
the new segment reporting structure effective January 1, 2003, as
previously disclosed. A description of each of the segments and pro-forma
financial results encompassing the prior four quarters are attached
as supplemental information to this release.
Aircraft and Weapon Systems again delivered strong financial results.
Revenues for the quarter rose 22 percent to almost $2.7 billion on
higher C-17, F/A-18, and JDAM deliveries. Performance remained excellent
with operating margins at 14.2 percent, up from 13.3 percent in 2002,
and included continuing investment in the 767 tanker program.
Network Systems results for the first quarter reflect continuing
strong growth in homeland security, intelligence, and DOD network-centric
programs as revenues rose 23 percent to $2.0 billion. Operating margins
totaled 6.9 percent, similar to the first quarter of 2002.
Support Systems delivered strong growth with revenues up 26 percent
to nearly $1.0 billion on significant increases in tactical and transport
aircraft spares and modernization. The revenue growth and excellent
operating performance drove operating margins up sharply to 11.3 percent
from 6.7 percent in the first quarter of 2002. Unfavorable performance
on a modernization and upgrade contract affected 2002 results.
Excluding the charge for goodwill impairment, Launch and Orbital
Systems adjusted operating losses* narrowed significantly to $21 million
in the first quarter when compared with the first quarter of 2002.
Revenues fell 12 percent on fewer satellite deliveries partially offset
by one Delta IV delivery. Launch and Orbital Systems had four successful
launches during the quarter. Boeing continues to resize the business
to its markets and announced plans to consolidate launch vehicle manufacturing
and assembly in Alabama.
Contractual backlog at the end of the quarter increased slightly
to $36.5 billion compared with $36.0 billion at the end of 2002.
Boeing Capital Corporation
Boeing Capital Corporation (BCC) results are summarized in Table
7 below.
Revenues increased 24 percent to $283 million as a result of portfolio
growth during 2002. Including the previously announced charges totaling
$193 million for strengthening reserves and revaluing certain assets,
BCC recorded a pre-tax loss, including interest expense, of $113 million
compared with pre-tax income of $66 million in the first quarter of
2002. Additional charges related to the customer financing portfolio
totaling $58 million were recorded in Boeing’s “Other”
segment during the quarter as a result of corporate guarantees to
Boeing Capital.
BCC increased its allowance for losses on finance leases and notes
receivable to 5.3 percent of receivables, up from 3.5 percent at the
end of 2002. In addition, the customer financing portfolio declined
slightly during the quarter to $11.7 billion, compared to $11.8 billion
at the end of 2002 and $10.3 billion at the end of the first quarter
of 2002. This decrease reflects lower new business volume and transaction
timing. New business volume totaling just under $0.4 billion was offset
by slightly higher asset run-off and depreciation.
At quarter-end, approximately 76 percent of Boeing Capital Corporation's
portfolio was related to Boeing products and services (primarily commercial
aircraft) compared with 76 percent at the end of 2002, and 70 percent
at the end of 2001. Leverage, as measured by the ratio of debt-to-equity,
was a conservative 5.6-to-1.
“Other” Segment
The “Other” segment consists chiefly of the Connexion
by BoeingSM, Air Traffic Management, and Boeing technology units,
as well as certain results related to the consolidation of all business
units. Losses from operations for the quarter totaled $121 million
driven in part by the charges noted above related to customer financing
activities; these totaled $58 million.
During the first quarter, Connexion by Boeing achieved a key milestone
as it conducted initial commercial service demonstrations on transatlantic
Lufthansa and British Airways flights. Boeing’s Air Traffic
Management unit continued to build support for a modernized global
air traffic management system.
Outlook
The outlook below in Table 8 reflects the company’s current
assessment of the markets for its products and services during the
guidance period.
The company continues to monitor conditions in its key markets. In
the commercial aviation market, the war in Iraq, increased security
costs, the emergence of severe acute respiratory syndrome (SARS) and
airline industry restructuring together create a dynamic environment;
it is too early to reach conclusions regarding the ultimate impact.
However, the downturn remains severe, with trends varying between
carriers and regions, and has reduced demand across all airplane models.
In the company’s commercial space markets, demand for launch
services and satellites also remains soft. The company is aggressively
managing its commercial businesses to address market realities.
At the same time, the company’s defense and non-commercial
space markets are expected to remain quite strong. Boeing is well
positioned to support customer requirements, including the transformation
of the military. Integrated Defense Systems’ missile defense,
homeland security, intelligence, and DOD network-centric businesses
are expected to grow. Aircraft, weapons, and aerospace support programs
are expected to deliver results similar to the strong levels achieved
in 2002. Thus, strength in defense and non-commercial space markets
will continue to somewhat offset the downturn in the company’s
commercial aviation and space markets.
At Boeing Capital Corporation, revenues are expected to increase
due to prior-year portfolio growth and current-year financing requirements.
BCC will focus on minimizing risk and preserving value through careful
transaction structuring and portfolio management.
Boeing Commercial Airplanes’ forecast deliveries for 2003 and
2004 are unchanged. The delivery forecast for 2003 is approximately
280 airplanes and is virtually sold out. The delivery forecast for
2004 remains between 275 and 300 airplanes, with a gradual market
recovery beginning in 2005. The 2004 delivery forecast is approximately
85 percent sold for 2004 at the lower end of the range.
Boeing revenue guidance for 2003 and 2004 is unchanged. Revenue guidance
remains at +/- $49 billion for 2003, and $52 billion to $54 billion
for 2004.
As a result of the non-cash charges this quarter, the company is
revising its earnings per share guidance. On a GAAP basis, the company’s
2003 earnings per share outlook ranges from $0.68 - $0.88 per share.
The GAAP earnings per share outlook reflects non-cash charges totaling
$1.22 per share recognized in the first quarter. This includes the
charges for goodwill impairment ($1.02 per share) and the customer
financing portfolio ($0.20 per share).
The company’s 2003 adjusted earnings per share* guidance, which
adds back the charges for goodwill to better reflect the results of
current period operating activities, has been revised from $1.90 -
$2.10 per share to $1.70 - $1.90 per share. The downward revision
reflects the first quarter non-cash charges totaling $0.20 per share
related to the customer financing portfolio. Earnings per share guidance
for 2004 remains unchanged at $2.10 - $2.30.
Earnings per share guidance for 2004 includes an estimated unfavorable
impact of $0.15 - $0.25 per share from pension expense. This compares
to an estimated favorable impact of approximately $0.05 per share
from pension income in 2003. These amounts are unchanged from prior
guidance. As noted, the actual impact of pensions on 2004 earnings
per share could differ and depends on market conditions and plan performance.
As noted in Table 8, operating cash flows are expected to be $3.0
to $3.5 billion in 2003 and greater than $3.5 billion in 2004. Free
cash flow* guidance remains unchanged for 2003 at $2.0 to $2.5 billion,
and for 2004 at greater than $2.5 billion. Following historical patterns,
Boeing expects 2003 cash flows to be significantly greater in the
second half of 2003 than in the first half. The pension funding outlook
included in these totals remains unchanged from the prior quarter.
The company expects to make discretionary funding contributions in
2003. Free cash flow* guidance for 2004 includes pre-tax pension contributions
totaling approximately $1.0 billion.
Boeing expects research and development to remain between 3.0 and
3.5 percent of sales including the investment to develop a new mid-size
commercial airplane.
| Non-GAAP Measure Disclosure |
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The following definitions are provided for non-GAAP
(Generally Accepted Accounting Principles) measures (indicated
by an asterisk *) used by the company within this disclosure.
Boeing does not intend for the information to be considered
in isolation or as a substitute for the related GAAP measures.
Other companies may define the measures differently.
Adjusted Financial Results
Boeing reports adjusted earnings per share, earnings from operations,
and operating margins excluding SFAS 142 goodwill charges. Management
believes that these adjusted financial results provide investors
with an important perspective on the current underlying operating
performance of the business by identifying the impact of non-cash
adjustments related to past acquisitions. |
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Adjusted Earnings per Share
Boeing defines adjusted earnings per share as GAAP earnings
per share (EPS) less SFAS 142 goodwill charges. Table 1 provides
a reconciliation between GAAP EPS and adjusted EPS.
Adjusted Earnings from Operations (or Adjusted Operating
Losses)
Boeing defines adjusted earnings from operations as GAAP earnings
from operations less SFAS 142 goodwill charges. Tables 2, 5,
6, and 8 provide reconciliations between GAAP earnings from
operations and adjusted earnings from operations.
Adjusted Operating Margin
Boeing defines adjusted operating margin as the adjusted earnings
from operations (defined above) divided by revenues. Tables
2, 5, and 6 provide reconciliations between GAAP operating margins
and adjusted operating margins. |
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Free Cash Flow
Free cash flow is defined as GAAP operating cash flow less
capital expenditures for property, plant, and equipment. 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.
Table 3 provides a reconciliation between GAAP operating cash
flow and free cash flow. |
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Forward-Looking Information
Is Subject to Risk and Uncertainty
Certain statements in this
release may constitute "forward-looking" statements
within the meaning of the Private Litigation Reform Act of 1995.
Words such as "expects," "intends," "plans," "projects," "believes,"
"estimates," and similar expressions are used to identify these
forward-looking statements. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions
that are difficult to predict. Forward-looking statements are
based upon assumptions as to future events that may not prove
to be accurate. Actual outcomes and results may differ materially
from what is expressed or forecasted in these forward-looking
statements. As a result, these statements speak only as of the
date they were made and we undertake no obligation to publicly
update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise. Our
actual results and future trends may differ materially depending
on a variety of factors, including the continued operation,
viability and growth of major airline customers and non-airline
customers (such as the U.S. Government); adverse developments
in the value of collateral securing customer and other financings;
the occurrence of any significant collective bargaining labor
dispute; the Company's successful execution of internal performance
plans, price escalation, production rate increases and decreases
(including any reduction in or termination of an aircraft product),
acquisition and divestiture plans, and other cost-reduction
and productivity efforts; charges from any future SFAS 142 review;
an adverse development in rating agency credit ratings or assessments;
the actual outcomes of certain pending sales campaigns and U.S.
and foreign government procurement activities, including the
timing of procurement of tankers by the U.S. Department of Defense;
the cyclical nature of some of the Company's businesses; unanticipated
financial market changes which may impact pension plan assumptions;
domestic and international competition in the defense, space
and commercial areas; continued integration of acquired businesses;
performance issues with key suppliers, subcontractors and customers;
factors that could result in significant and prolonged disruption
to air travel worldwide (including future terrorist attacks);
any additional impacts from the attacks of September 11, 2001;
global trade policies; worldwide political stability; domestic
and international economic conditions; price escalation; the
outcome of political and legal processes, including uncertainty
regarding government funding of certain programs; changing priorities
or reductions in the U.S. Government or foreign government defense
and space budgets; termination of government or commercial contracts
due to unilateral government or customer action or failure to
perform; legal, financial and governmental risks related to
international transactions; legal proceedings; and other economic,
political and technological risks and uncertainties. Additional
information regarding these factors is contained in the Company's
SEC filings, including, without limitation, the Company's Annual
Report on Form 10-K for the year ended December 31, 2002. |
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C1968
Contact:
Paul Kinscherff or Bob Kurtz, (312) 544-2140 (Investor Relations)
John Dern or Anne Eisele, (312) 544-2002 (Communications)
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