The Boeing Company (Chicago) reported fourth-quarter revenue of $23.8 billion and core earnings per share (non-GAAP) that increased 29 percent* to $1.88, driven by strong performance across the company’s businesses and higher deliveries (Table 1). Fourth-quarter core operating earnings (non-GAAP) of $1.8 billion includes a $406 million non-cash charge to settle A-12 litigation dating back to 1991, retiring a longstanding risk to the company. Excluding the A-12 charge, fourth-quarter 2013 core operating earnings increased 22 percent* to $2.2 billion and core operating margin increased to 9.4 percent*. Core and GAAP earnings per share includes a charge of $0.34 per share related to A-12 partially offset by a benefit of $0.28 per share for a tax regulation change.
Revenue rose 6 percent in the full year to a record $86.6 billion and core earnings per share increased 20 percent* to a record $7.07. Full-year 2013 GAAP earnings per share was $5.96.
Core earnings per share guidance for 2014 is set at between $7.00 and $7.20, while GAAP earnings per share guidance is established at between $6.10 and $6.30. Revenue guidance is between $87.5 and $90.5 billion, including commercial deliveries of between 715 and 725. Operating cash flow before pension contributions* is expected to be approximately $7 billion, while operating cash flow guidance is set at approximately $6.25 billion.
“Strong fourth-quarter results underscored an outstanding full year of core operating performance that drove record revenue and earnings and increased returns to shareholders,” said Boeing Chairman and Chief Executive Officer Jim McNerney.
“Our Commercial Airplanes business accelerated delivery of its record backlog by successfully increasing production rates while also achieving important development milestones on the 737 MAX and 787-9 and launching the new 787-10 and 777X models with an unprecedented customer response. Our Defense, Space & Security unit overcame a tough operating environment to record expanded revenue, earnings and margins while executing to our commitments on the KC-46A tanker and developing and delivering important new capabilities to customers, such as the P-8 maritime aircraft and the Inmarsat-5 satellite,” said McNerney.
“For 2014, we remain focused on maintaining our commercial airplanes market leadership, strengthening and repositioning our defense, space and security business and continuing to meet the needs of our customers by improving productivity, executing to development plans and delivering our unmatched portfolio of innovative aerospace products and services.”
|Table 2. Cash Flow||Fourth Quarter||Full Year|
|Operating Cash Flow Before Pension Contributions*||$1,409||$4,204||$9,721||$9,058|
|Operating Cash Flow||$1,380||$4,167||$8,179||$7,508|
|Less Additions to Property, Plant & Equipment||($638)||($495)||($2,098)||($1,703)|
|Free Cash Flow*||$742||$3,672||$6,081||$5,805|
Operating cash flow in the quarter was $1.4 billion, reflecting commercial airplane production rates, strong core operating performance and timing of receipts and expenditures (Table 2). During the quarter, the company repurchased 7.6 million shares for $1.0 billion and paid $0.4 billion in dividends, reflecting a 10 percent increase in dividends paid compared to the same period of the prior year. Based on the strong cash generation and outlook, in December, the board of directors authorized an additional $10 billionshare repurchase program and raised the quarterly dividend 50 percent.
|Table 3. Cash, Marketable Securities and Debt Balances||Quarter-End|
|(Billions)||Q4 13||Q3 13|
|Marketable Securities 1||$6.2||$5.9|
|The Boeing Company, net of intercompany loans to BCC||$7.0||$7.0|
|Boeing Capital Corporation, including intercompany loans||$2.6||$2.6|
|Total Consolidated Debt||$9.6||$9.6|
|1||Marketable securities consists primarily of time deposits due within one year classified as “short-term investments.”|
Cash and investments in marketable securities totaled $15.3 billion at year-end (Table 3), down from$15.9 billion at the beginning of the quarter. Debt was $9.6 billion, unchanged from the beginning of the quarter.
Total company backlog at year-end was a record $441 billion, up from $415 billion at the beginning of the quarter, and included net orders for the quarter of $48 billion. Backlog is up $51 billion from prior year-end, reflecting $135 billion of net orders in 2013.
Boeing Commercial Airplanes
|Table 4.||Fourth Quarter||Full Year|
|($ in Millions)||2013||2012||Chg||2013||2012||Chg|
|Opg Margin||10.3%||8.9%||1.4 Pts||10.9%||9.6%||1.3 Pts|
Boeing Commercial Airplanes fourth-quarter revenue increased to $14.7 billion and full-year revenue increased to a record $53 billion on higher delivery volume. Fourth-quarter operating margin improved to 10.3 percent and full-year operating margin grew to 10.9 percent on the higher volume, favorable delivery mix and continued strong operating performance (Table 4).
During the quarter, the company launched the 777X with 259 orders and commitments. During the year, the 787 program completed first flight of the 787-9, successfully launched the 787-10 and began operating at a 10 per month production rate in final assembly. The 737 program delivered at a record production rate of 38 per month and has won nearly 1,800 firm orders for the 737 MAX since launch. In 2013, a record 648 commercial aircraft were delivered. In January 2014, the company reached an eight-year contract extension through 2024 with the International Association of Machinists & Aerospace Workers District 751 (IAM).
Commercial Airplanes booked 465 net orders during the quarter and 1,355 during the year. Backlog remains strong with 5,080 airplanes valued at a record $374 billion.
Boeing Defense, Space & Security
|Table 5.||Fourth Quarter||Full Year|
|(Dollars in Millions)||2013||2012||Chg||2013||2012||Chg|
|Boeing Military Aircraft||$4,395||$4,037||9%||$15,936||$16,019||(1)%|
|Network & Space Systems||$2,272||$2,024||12%||$8,512||$7,911||8%|
|Global Services & Support||$2,188||$2,282||(4)%||$8,749||$8,677||1%|
|Total BDS Revenues||$8,855||$8,343||6%||$33,197||$32,607||2%|
|Earnings from Operations|
|Boeing Military Aircraft||$441||$313||41%||$1,465||$1,489||(2)%|
|Network & Space Systems||$233||$138||69%||$719||$562||28%|
|Global Services & Support||$280||$300||(7)%||$1,051||$1,017||3%|
|Total BDS Earnings from Ops||$954||$751||27%||$3,235||$3,068||5%|
|Operating Margin||10.8%||9.0%||1.8 Pts||9.7%||9.4%||0.3 Pts|
Boeing Defense, Space & Security’s fourth-quarter revenue increased 6 percent to $8.9 billion, while operating margin increased to 10.8 percent (Table 5). For the full year, revenue increased 2 percent to$33.2 billion, while operating margin increased to 9.7 percent.
Boeing Military Aircraft (BMA) fourth-quarter revenue increased to $4.4 billion, reflecting higher deliveries. Operating margin increased to 10.0 percent, reflecting the higher deliveries and strong performance. During the quarter, BMA achieved Initial Operating Capability (IOC) on the P-8A Poseidon aircraft.
Network & Space Systems (N&SS) fourth-quarter revenue increased to $2.3 billion, reflecting higher delivery volume and mix, and operating margin increased to 10.3 percent on strong performance. During the quarter, N&SS was awarded a contract for a fourth Inmarsat-5 satellite.
Global Services & Support (GS&S) fourth-quarter revenue was $2.2 billion, reflecting lower volume in integrated logistics. Operating margin was 12.8 percent. During the quarter, GS&S was awarded contracts for the B-52 and B-1 bomber modifications and upgrades.
Backlog at Defense, Space & Security was $67 billion, of which 37 percent represents orders with international customers.
Additional Financial Information
|Table 6. Additional Financial Information||Fourth Quarter||Full Year|
|(Dollars in Millions)||2013||2012||2013||2012|
|Boeing Capital Corporation||$105||$129||$408||$468|
|Unallocated items and eliminations||$123||($358)||($65)||($610)|
|Earnings from Operations|
|Boeing Capital Corporation||$9||($12)||$107||$88|
|Other segment income/(expense)||($99)||$31||($156)||($186)|
|Unallocated items and eliminations excluding unallocated pension/postretirement expense||($532)||($200)||($1,105)||($492)|
|Unallocated pension/postretirement expense||($323)||($212)||($1,314)||($899)|
|Other income, net||$15||$23||$56||$62|
|Interest and debt expense||($96)||($112)||($386)||($442)|
|Effective tax rate||14.0%||36.3%||26.4%||34.0%|
At quarter-end, Boeing Capital Corporation’s (BCC) net portfolio balance was $3.9 billion down from $4.1 billion at the beginning of the quarter. BCC’s debt-to-equity ratio was 5.0-to-1. Other segment earnings decreased $130 million in the quarter partly due to higher asset impairment expense.
Unallocated items and eliminations excluding unallocated pension/postretirement expense increased in the fourth quarter of 2013 primarily due to a $406 million charge associated with the A-12 settlement. Total pension expense for the fourth quarter was $717 million, up from $576 million in the same period last year. The company’s income tax expense was $201 million in the quarter, compared to $557 million in the same period of the prior year, due to a $212 million benefit recorded in fourth-quarter 2013 for a tax regulation change.
The company’s 2014 financial guidance (Table 7) reflects continued strong performance in both businesses.
|Table 7. Financial Outlook|
|(Dollars in Billions, except per share data)||2014|
|The Boeing Company|
|Revenue||$87.5 – 90.5|
|Core Earnings Per Share*||$7.00 – 7.20|
|Earnings Per Share||$6.10 – 6.30|
|Operating Cash Flow Before Pension Contributions*||~ $7|
|Operating Cash Flow 1||~ $6.25|
|Boeing Commercial Airplanes|
|Deliveries 2||715 – 725|
|Revenue||$57.5 – 59.5|
|Operating Margin||~ 10%|
|Boeing Defense, Space & Security|
|Boeing Military Aircraft||~ $15|
|Network & Space Systems||~ $7.7|
|Global Services & Support||~ $7.8|
|Total BDS Revenue||$30 – 31|
|Boeing Military Aircraft||~ 9.5%|
|Network & Space Systems||~ 8.5%|
|Global Services & Support||~ 10.5%|
|Total BDS Operating Margin||~ 9.5%|
|Boeing Capital Corporation|
|Pre-Tax Earnings||~ $0.05|
|Research & Development||~ $3.2|
|Capital Expenditures||~ $2.5|
|Pension Expense 3||~ $3.1|
|Effective Tax Rate 4||~ 31%|
|1||After discretionary cash pension contributions of $0.75 billion and assuming new aircraft financings under $0.5 billion|
|2||Assumes approximately 110 787 deliveries|
|3||Approximately $1.1 billion is expected to be recorded in unallocated items and eliminations|
|4||Assumes the extension of the research and development tax credit|
|*||Non-GAAP measures. Complete definitions of Boeing’s non-GAAP measures are on page 7, “Non-GAAP Measures Disclosures.”|
Boeing’s 2014 revenue guidance is established at between $87.5 and $90.5 billion. Core earnings per share guidance is set at between $7.00 and $7.20, and earnings per share guidance is expected to be between $6.10 and $6.30. Total company 2014 operating cash flow before pension contributions is expected to be approximately $7 billion, while operating cash flow is expected to be approximately $6.25 billion in 2014, including $0.75 billion of discretionary pension contributions. Total company pension expense in 2014 is expected to be approximately $3.1 billion (of which approximately $2.0 billion is expected to be recorded in core operating earnings and $1.1 billion recorded in unallocated items and eliminations).
Commercial Airplanes’ 2014 deliveries are expected to be between 715 and 725, which includes approximately 110 787 deliveries. Revenue at Commercial Airplanes is expected to be between $57.5 and $59.5 billion with operating margins of approximately 10 percent. Defense, Space & Security’s revenue for 2014 is expected to be between $30 and $31 billion with operating margins of approximately 9.5 percent.
Boeing Capital Corporation expects that its aircraft finance portfolio will continue to decline in 2014, 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 2014 R&D forecast is approximately $3.2 billion, and capital expenditures for 2014 are expected to be approximately $2.5 billion. Boeing’s effective tax rate is expected to be approximately 31 percent in 2014, which assumes the extension of the research and development tax credit.
Non-GAAP Measures 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 diluted 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. 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. A reconciliation between the GAAP and non-GAAP measures is provided on page 14.
Core Operating Margin and the Increase in Core Operating Earnings Excluding A-12 Settlement Charge
The company is disclosing the core operating margin and the increase in core operating earnings in the fourth quarter of 2013 over the fourth quarter of 2012 excluding the A-12 settlement charge in the fourth quarter of 2013. Management believes it is useful to occasionally exclude certain items that are not reflective of underlying performance and that can distort period to period performance comparisons. Management uses similar measures for purposes of evaluating and forecasting underlying business performance. A reconciliation between the GAAP and non-GAAP measures is provided on page 14.
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. Management uses operating cash flow before pension contributions as a measure to assess both business performance and overall liquidity. 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 as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.
Copyright Photo: Nick Dean/AirlinersGallery.com. Boeing 747-8KZF N50217 (msn 36137) became JA12KZ on delivery.