Boeing Co. 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2012. Unaudited interim results; the filing notes that six-month results are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $20.005 billion | $16.543 billion | $39.388 billion | $31.453 billion |
| Earnings from operations | $1.548 billion | $1.534 billion | $3.118 billion | $2.534 billion |
| Operating margin | 7.7% | 9.3% | 7.9% | 8.1% |
| Net earnings from continuing operations | $967 million | $942 million | $1.891 billion | $1.530 billion |
| Diluted EPS | $1.27 | $1.25 | $2.49 | $2.04 |
| Operating cash flow | Not separately stated for the quarter | $1.745 billion | $643 million |
Commercial Airplanes drove much of revenue and earnings growth: six-month segment revenue rose 43% to $22.780 billion and operating earnings increased to $2.292 billion, supported by higher deliveries and lower research and development expense. Defense, Space & Security revenue increased 7% to $16.425 billion, while operating earnings were nearly flat at $1.490 billion. Boeing Capital revenue and operating earnings declined.
Financial position and liquidity
- At June 30, cash and cash equivalents were $6.305 billion, down from $10.049 billion at year-end 2011. Short-term and other investments were $4.002 billion; combined cash and this balance totaled $10.307 billion.
- Debt was $11.201 billion, comprising $2.466 billion short-term/current and $8.735 billion long-term, down from $12.371 billion at December 31, 2011.
- Current assets were $51.608 billion and current liabilities were $42.450 billion. Total shareholders’ equity was $5.804 billion, versus $3.515 billion at year-end.
- Six-month cash flow: operating activities provided $1.745 billion; investing activities used $3.588 billion; financing activities used $1.897 billion. The resulting decrease in cash was $3.744 billion.
- Contractual backlog was $354.562 billion, up from $339.657 billion at year-end; unobligated backlog was $19.178 billion.
Changes versus comparable periods
- Revenue increased 21% in Q2 and 25% for the first six months, primarily from higher commercial airplane deliveries.
- Q2 operating earnings were only modestly higher year over year, and operating margin fell 1.6 percentage points. For the first six months, earnings rose while margin declined 0.2 percentage points.
- Commercial airplane deliveries totaled 150 in Q2 and 287 for the first half, compared with 118 and 222, respectively, in 2011.
- Six-month operating cash flow increased by $1.102 billion, attributed to higher earnings and lower inventory growth, partly offset by a $763 million pension contribution.
Outlook, commentary, and risks
- The filing provides no consolidated full-year revenue or earnings guidance. It describes planned production increases, including 737 rates of 38 per month beginning in 2013 and 42 beginning in 2014; 777 production of 8.3 per month in 2013; and a 787 target of 10 per month by the end of 2013, with deliveries at that rate expected in early 2014.
- Management highlighted continuing 787 and 747-8 production, modification, supplier, cost, and customer-claim risks. The 787 program had low margins through June 30; further cost or schedule issues could pressure profitability or result in a reach-forward loss. Related 787 inventory included $13.184 billion of deferred production costs.
- Defense risks include potential U.S. budget reductions and sequestration, which the filing describes as potentially totaling about $1 trillion over ten years, as well as cost and schedule uncertainty in fixed-price development contracts.
- Six-month results included a $121 million benefit from a favorable satellite-litigation judgment. Favorable cumulative catch-up adjustments on BDS contracts increased operating earnings by $234 million. Higher unallocated pension expense partially offset gains elsewhere.
- Contingencies include $770 million of environmental remediation liabilities; a possible additional A-12 loss of up to $275 million, with substantially greater exposure possible under an adverse judgment; and potential ULA-related losses and indemnification payments. The filing also reports $20.267 billion in aircraft financing commitments and $5.036 billion of contingent standby letters of credit and surety bonds.
- Management said it expected inventory growth to moderate during 2012 as deliveries increased, and expected 2012 capital expenditures to exceed 2011 levels. It stated that available borrowing capacity should be sufficient for commitments and plans, while noting future financing availability and cost are not assured.
Important facts for investors to verify
- Whether planned 787, 747-8, 737, and 777 production increases are achieved and whether aircraft program costs, deferred production balances, and margins improve.
- Whether commercial delivery growth and the large backlog convert into cash and sustainable earnings, particularly amid weak cargo demand and airline-industry uncertainty.
- Potential effects of U.S. defense budget cuts, sequestration, and fixed-price contract estimates on BDS results.
- Developments in the A-12 litigation, ULA claims and indemnities, environmental remediation, and other disclosed contingencies.
- Liquidity and cash generation after pension contributions, investment activity, debt repayments, and aircraft financing commitments.