— Updates Outlook To Reflect Continuing Downturn in Commercial
Aviation and Space Markets, Defense Outlook Remains Strong
Third Quarter Highlights:
- Net earnings of $375 million, or $0.46 per diluted share,
excluding non-recurring items, but including previously announced
$0.20 per share charge to strengthen finance portfolio reserves
and revalue certain investments - Operating earnings and margins of $654 million and 5.2 percent,
excluding non-recurring items - Strong free cash flow of $1.2 billion; year-to-date free cash
exceeds $2.0 billion - Solid Commercial Airplanes operating results on lower volume;
delivered 73 commercial jet airplanes - Realigned defense, communications, space and intelligence businesses
into Boeing Integrated Defense Systems - Ratified new labor contracts with the IAM in Puget Sound and
Wichita, and the UAW in Philadelphia - Won key U.S. Air Force satellite communications contract for
Family of Advanced Beyond-Line-Of-Sight Terminals (FAB-T) - Awarded $9.7 billion follow-on contract for 60 C-17 transports
and orders to increase Joint Direct Attack Munition (JDAM) production
- Signed letter of intent with Japan Airlines for Connexion by
BoeingSM service
CHICAGO, Oct. 16, 2002 – The Boeing Company [NYSE: BA]
reported third quarter net earnings of $375 million, or $0.46 per
share, on $12.7 billion of revenues, excluding non-recurring items.
During the same period last year, the company reported net earnings
of $713 million, or $0.88 per share, on $13.7 billion of revenue,
before a non-recurring item.
During the quarter, lower revenues at Commercial Airplanes were partially
offset by higher revenues at both Military Aircraft and Missile Systems
and Space and Communications – together now comprising Integrated
Defense Systems. Commercial Airplanes again turned in solid results
despite a sharp drop in deliveries, and the majority of the company’s
defense and space programs continued to perform well.
Third quarter results were impacted by previously announced pre-tax,
non-cash charges totaling $250 million to strengthen Boeing Capital
Corporation reserves and revalue certain investments. Also during
the quarter, the company increased its estimate of the investment
required to launch its 737 Airborne Early Warning and Control (AEW&C)
program. In addition, cost growth impacted commercial satellite unit
results amid efforts to improve processes and resize for lower market
demand.
“During the quarter our Military Aircraft and Missile Systems
and Commercial Airplanes businesses again delivered strong performance,”
said Phil Condit, Boeing chairman and chief executive officer. “Space
and Communications results reflect higher investment to develop an
emerging 737 AEW&C business and commercial satellite cost growth
that is being vigorously addressed. Boeing Capital took appropriate
action given the severity of the commercial aviation downturn. We
remain focused on performance and growing value across our balanced
portfolio of businesses.”
Non-recurring after-tax charges for the period were all non-cash
and totaled $70 million to write-down the company’s investment
in Teledesic, LLC ($63 million), as well as a separate, unrelated
long-held equity investment ($7 million). Non-recurring after-tax
gains totaled $67 million. These included a $12 million gain on the
divestiture of an equity investment held by Military Aircraft and
Missile Systems and a $55 million benefit from a favorable tax settlement.
Together, these four items reduced third quarter net income by $3
million. This compares to a non-recurring after-tax charge of $63
million in the third quarter of 2001 related to Sept. 11, 2001. A
summary of all after-tax non-recurring items recognized in the first
three quarters of 2002 and 2001 can be found at the end of this release.
Deferred stock compensation expense decreased $70 million due to
the decline in the company’s stock price during the quarter.
This resulted in a $0.05 benefit to earnings per share. Pre-tax expense
for share-based plans totaled $113 million and reduced earnings per
share by $0.09. When these results are netted together, consolidated
stock compensation expenses lowered third quarter earnings per share
by a total of $0.04.
Earnings per share for the quarter, excluding stock compensation
expenses and non-recurring items, totaled $0.50 per share compared
with $0.84 in 2001.
Free cash flow (operating cash flow less capital expenditures) totaled
$1.2 billion for the third quarter. Ending cash and short-term investment
balances totaled $1.7 billion.
Consolidated quarter-end debt totaled $13.6 billion, essentially
unchanged from the end of the second quarter. Boeing Capital Corporation
debt increased $0.7 billion to $9.1 billion, while Boeing Company
debt declined about $0.3 billion to $3.9 billion. Non-recourse customer
financing obligations remained about $0.6 billion.
Total backlog at the end of the quarter increased to $136.7 billion
compared with $134.1 at the end of 2001. Contractually committed backlog
totaled $103.0 billion compared with $106.6 billion at year-end.
Boeing Commercial Airplanes: Commercial Airplanes’
third quarter results reflect solid operating performance with significantly
fewer airplane deliveries. Segment revenues totaled $6.1 billion compared
with $8.0 billion in the third quarter of 2001, as Commercial Airplanes
delivered 73 new jet airplanes during the quarter, compared with 120
a year ago and 112 in the prior quarter. Segment operating earnings
and margins totaled $518 million and 8.5 percent, respectively, compared
with $835 million and 10.5 percent in the prior year, excluding a
non-recurring item in 2001. These results are in line with previously
reported expectations that margins would moderate as deliveries declined.
Third quarter 2001 Commercial Airplanes operating earnings and margins,
including a $100 million pre-tax, non-recurring charge for the events
of Sept. 11, 2001, were $735 million and 9.2 percent, respectively.
Commercial Airplanes continues to aggressively improve operating
efficiency and is making continued progress in implementing moving
production lines and related supply chain management efficiencies.
In addition, a new labor contract was ratified with the International
Association of Machinists.
Commercial Airplanes received 18 gross orders during the quarter
and 184 for the first nine months of the year. Contractual backlog
at quarter-end totaled $68.9 billion compared with $75.9 billion at
the end of 2001.
Integrated Defense Systems: On July 10, 2002, Boeing
announced the formation of Integrated Defense Systems, merging the
company’s Military Aircraft and Missile Systems and Space and
Communications businesses into a single unit. The realignment is progressing
well and, as previously stated, the company will continue to report
Military Aircraft and Missile Systems and Space and Communications
results separately through the remainder of 2002.
Military Aircraft and Missile Systems: Military
Aircraft and Missile Systems revenues for the third quarter increased
14 percent to $3.8 billion compared with $3.3 billion a year ago.
The year-over-year revenue increase was driven by additional C-17,
F-15 and JDAM deliveries, as well as higher Military Aerospace Support
sales. Operating performance continued to be strong.
Segment earnings and operating margins, excluding a non-recurring
item, totaled $423 million and 11.3 percent. This compares to segment
earnings and operating margins of $412 million and 12.5 percent during
the third quarter of 2001, which included the impact of a favorable
contract settlement.
During the quarter, Military Aircraft and Missile Systems recognized
a non-recurring gain related to the divestiture of an equity investment.
Segment earnings and margins for the quarter including this adjustment
totaled $442 million and 11.8 percent, respectively.
Military Aircraft and Missile Systems continued to capture growth
opportunities during the quarter. Additional orders were received
for Joint Direct Attack Munitions and the unit is expanding its production
facility to meet increasing U.S. Air Force and Navy requirements.
Kuwait became the seventh international customer for the Apache Longbow
helicopter with its agreement to purchase 16 AH-64Ds for approximately
$900 million. The U.S. Air Force awarded Boeing a follow-on $9.7 billion
contract for 60 C-17 transports, and the U.S. Navy awarded Boeing
an advanced development contract for the Multi-mission Maritime Aircraft
program. The Italian government also approved its 767 tanker program
contract.
Contractual backlog at the end of the quarter totaled $19.6 billion
compared with $17.6 billion at the end of 2001.
Space and Communications: Space and Communications’
segment revenues were $2.7 billion for the third quarter of 2002 compared
to $2.7 billion in the third quarter of 2001. Higher missile defense
revenues were offset by lower commercial satellite revenues. Operating
earnings and margins were $64 million and 2.3 percent, respectively,
excluding a non-recurring item. This compares with $181 million and
6.7 percent during the third quarter of 2001.
During the quarter, Space and Communications recognized a non-cash,
non-recurring $100 million pre-tax charge to write-down an equity
investment in Teledesic, LLC, which stopped work on its satellite
constellation and announced its intent to reduce staff. Including
this non-recurring item, Space and Communications reported a third
quarter operating loss of $36 million.
During the quarter Space and Communications solidified its position
as a leading industry partner in the U.S. military’s transformation
with its selection by the U.S. Air Force for the key Family of Advanced
Beyond-Line-of-Sight Terminals (FAB-T) contract. The unit also successfully
completed an interim program review for the U.S. Army’s Future
Combat System. This follows the company’s award by the U.S.
Army last quarter of the Joint Tactical Radio System contract. Missile
defense performance has also been strong as the company established
innovative international partnerships to create systems solutions
for global missile defense and successfully completed the first flight
of a specially modified 747 aircraft for the Airborne Laser program.
Although most Space and Communications businesses continue to perform
well, its commercial satellite unit was impacted by cost growth partially
offset by favorable contract settlements. The net impact to the quarter
was a reduction in operating earnings of approximately $35 million.
Space and Communications continues to develop a 737 Airborne Early
Warning & Control (AEW&C) system. There is a healthy market
for cost-effective AEW&C systems, and Boeing has captured the
first two opportunities. The entire development effort is being accounted
for as cost on the first production aircraft contract. As a result
of increased cost estimates to complete development related to system
design, Space and Communications recognized a pre-tax charge of approximately
$100 million. The program remains on schedule to reach a critical
design milestone near year-end. Successful completion of the design
effort will benefit future 737 AEW&C customers, and the company
expects that investment in this business will create long-term value.
Contractual backlog at the end of the quarter totaled $14.5 billion
compared with $13.1 billion at the end of 2001.
Boeing Capital Corporation: Boeing Capital Corporation
revenues increased 43 percent to $242 million from $169 million in
the third quarter of 2001. Boeing Capital reported a pre-tax loss
(after financing-related interest expense) for the quarter totaling
$92 million compared with pre-tax earnings of $40 million last year.
Boeing Capital’s results were impacted by previously announced
charges to strengthen reserves and revalue certain investments. The
unit recognized pre-tax, non-cash charges totaling $149 million during
the quarter. The Boeing Company recognized additional pre-tax non-cash
charges totaling $101 million in its “Other” segment associated
with parent guarantees on certain financings that mitigate Boeing
Capital’s exposure. These charges reflect the deterioration
of aircraft collateral values, particularly for older and/or out of
production aircraft types in the finance portfolio, as well as continued
pressure on airline credit ratings.
Boeing Capital’s portfolio at quarter-end totaled $11.5 billion
compared to $11.1 billion at the end of the second quarter and $8.0
billion at the end of September 2001. The unit expects to provide
prudent financing that reflects current market conditions and applies
appropriate credit, equipment, return and loan-to-value standards.
Quarter-end Boeing Capital leverage (debt-to equity) remained a conservative
5.7-to-1, down from 5.9-to-1 at the end of the third quarter of 2001.
Other Segments: During the quarter, Japan Airlines
signed a letter of intent for the Connexion by BoeingSM service. Lufthansa
consumer trials of Connexion by Boeing service are scheduled for early
2003, and British Airways is on schedule for a system demonstration
in 2003.
Boeing Air Traffic Management continues to generate domestic and
international support for a new global system. The unit was awarded
a contract from the Federal Aviation Administration during the quarter
to evaluate integrating security enhancements into the current National
Airspace System.
Outlook: The company has revised its outlook for
2002 and 2003. For 2002, the revised outlook reflects third quarter
margin results; the revenue and cash outlook is unchanged. For 2003,
the revised outlook reflects the severe and continuing downturn in
the company’s commercial markets, principally commercial aviation,
partially offset by continuing strength in the company’s defense
and non-commercial space businesses.
The commercial aviation market downturn remains severe, with trends
varying between carriers and regions. Low-cost airlines are experiencing
comparatively stronger passenger demand. For the major carriers, markets
within and between Asia and Europe are seeing some recovery. However,
the downturn remains most significant in key U.S. domestic, transatlantic
and transpacific markets. In addition, recent airline announcements
in the United States confirm that the domestic recovery of traffic
and airline profitability has slowed. Consequently, demand for new
aircraft and related support will remain diminished for longer than
previously anticipated.
Boeing Commercial Airplanes continues to resize to operate efficiently
at lower airplane production and delivery levels. Planned employment
reductions for 2002 are on schedule. The deliveries outlook for 2002
remains unchanged at approximately 380 airplanes. For 2003, the delivery
outlook has been revised from between 275 and 300 airplanes to between
275 and 285 airplanes. The delivery forecast is essentially sold out
for 2002 and is approximately 95 percent sold for 2003 at the lower
end of the range.
Boeing Commercial Airplanes currently estimates its 2004 deliveries
to be in a similar range to 2003. Commercial Airplanes continuously
monitors market conditions and expects to provide its initial 2004
delivery forecast when the company announces full year results in
January 2003.
The commercial space market also remains soft largely due to lower
demand by telecommunications companies for satellite and launch capabilities.
Consequently, launch and satellite demand is likely to be driven by
government requirements over the next few years, and the market will
remain highly competitive.
Conversely, the company’s defense, intelligence and non-commercial
space and communications markets remain strong, and will partially
offset the cyclical downturn in the company’s commercial markets.
In 2003, Integrated Defense Systems revenues will exceed 50 percent
of total company revenues. Missile defense, integrated battlespace
and proprietary programs remain key growth areas for Integrated Defense
Systems during the outlook period. Revenue growth is also planned
from aerospace support programs; increased deliveries of tactical
fighters, rotorcraft and transport aircraft under multi-year procurements;
and higher JDAM deliveries. Contract signing for the U.S. Air Force
767 tanker program, margin improvement in commercial satellite manufacturing,
a successful Delta IV inaugural launch and successful AEW&C development
are key Integrated Defense System management focus areas.
Revenue guidance for 2002 remains unchanged at +/- $54 billion. For
2003, revenue guidance is changed from +/- $52 billion to +/- $50
billion. The operating margin outlook for 2002 is being adjusted from
+/- 8.25 percent to +/- 7.25 percent. For 2003, operating margin guidance
is being revised from +/- 8.25 percent to +/- 6.50 percent. The 2002
free cash flow outlook remains unchanged at between $2.5 – $3.0 billion.
Free cash flow guidance for 2003 is revised from greater than $3 billion
to between $2.0 billion and $2.5 billion.
Research and development during the guidance period is expected to
remain between 3.0 and 3.5 percent of sales, but near the lower end
of the range.
Pension Update: The company measures its pension
plan using a September 30 year end for financial accounting purposes.
The significant declines experienced in the financial markets have
unfavorably impacted plan asset performance. This, coupled with historically
low interest rates (a key factor when estimating plan liabilities),
is likely to cause the company to recognize a significant non-cash
charge to equity in the fourth quarter of 2002. This charge would
not impact reported earnings, and would be reversible if either interest
rates increased or market performance and plan returns improved.
For the plan year ending September 2002, the company contributed
$325 million to its pension plan. Future funding requirements will
primarily be driven by market and plan performance.
Non-Recurring Items: A summary of non-recurring
impacts to the company’s financial results is provided below:
Forward-Looking Information Is Subject to
Risk and Uncertainty
Certain statements in this release contain “forward-looking”
information that involves risk and uncertainty. This forward-looking
information is based upon a number of assumptions including assumptions
regarding the continued operation and viability of major airline
customers; global economic, passenger and freight growth; successful
negotiation of contracts with the Company’s labor unions;
current and future markets for the Company’s products and
services; the Company’s successful execution of internal
performance plans; including, without limitation, plans for productivity
gains; favorable outcomes of certain pending sales campaigns and
U. S. and foreign government procurement actions; including the
timing of procurement of tankers; price escalation; regulatory
approvals; and successful execution of acquisition and divestiture
plans; and the assessment of the impact of the attacks of September
11, 2001. Actual results and future trends may differ materially
depending on a variety of factors; including the continued operation
and viability of major customers; collective bargaining labor
disputes; the Company’s successful execution of internal
performance plans, production rate increases and decreases, acquisition
and divestiture plans, credit rating agency assessments, and other
cost-reduction and productivity efforts; the actual outcomes of
certain pending sales campaigns and U. S. and foreign government
procurement activities; including the timing of procurement of
tankers; the cyclical nature of some of the Company’s businesses;
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 result in significant and prolonged disruption to
air travel worldwide; any additional impacts from the attacks
of September 11, 2001; global trade policies; worldwide political
stability; domestic and international economic conditions; price
escalation trends; 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 contracts due to unilateral government 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 2001 and the
10-Q for the quarter ended March 31, 2002 and June 30, 2002.
