OREANDA-NEWS. October 24, 2012. Earnings per share of USD 1.35 reported on revenue of USD 20.0 billion
Operating earnings rose at Commercial Airplanes and Defense, Space & Security
Backlog grew to USD 378 billion driven by USD 24 billion of new orders
Operating cash flow before pension contributions* totaled USD 2.3 billion
Cash and marketable securities of USD 11.2 billion provide strong liquidity
The Boeing Company (NYSE: BA) reported third-quarter net income of USD 1.0 billion, or USD 1.35 per share, on continued strong core performance and revenue of USD 20.0 billion.  Increased earnings at Commercial Airplanes and Defense, Space & Security were more than offset by higher pension expense of USD 194 million (USD 0.18 per share).  Earnings per share guidance for 2012 was raised to between USD 4.80 and USD 4.95.  The company also raised its revenue guidance to between USD 80.5 and USD 82 billion on higher Defense, Space & Security revenue, and increased its 2012 operating cash flow outlook to greater than USD 5.5 billion.

"Strong core operating performance drove increased earnings in both our major businesses, along with higher overall revenues, improved cash flow, and solid earnings per share even as pension headwinds rose," said Boeing Chairman, President and Chief Executive Officer Jim McNerney.  "Our Defense, Space & Security business maintained double-digit margins in a challenging environment while Commercial Airplanes continued to build momentum with 787 deliveries and 737 MAX orders.  Underpinned by our solid performance to date and positive outlook, we are raising our year-end guidance for revenue, earnings and operating cash flow.  We remain well positioned for long-term growth with a clear focus on quality, productivity and disciplined program execution," McNerney said.
Boeing Defense, Space & Security's (BDS) third-quarter revenue was USD 7.8 billion, while operating margin was 10.5 percent.

Boeing Military Aircraft (BMA) third-quarter revenue decreased to USD 3.8 billion, driven by delivery mix.  Operating margin increased to 11.7 percent, on strong performance across various programs.  During the quarter, BMA was awarded the P-8A low rate initial production contract III with the U.S. Navy, while the first P-8I aircraft for the Indian Navy began its official flight test program.

Network & Space Systems (N&SS) third-quarter revenue decreased to USD 2.0 billion, driven by lower volume on Brigade Combat Team Modernization. Operating margin was 8.1 percent.  During the quarter, N&SS was awarded a contract to build and launch the tenth Wideband Global Communications satellite, while the second Intelsat 702 medium power satellite was launched and is on orbit.

Global Services & Support (GS&S) third-quarter revenue increased to USD 2.1 billion, primarily due to higher volume in training systems.  Operating margin decreased to 10.7 percent, reflecting lower earnings in integrated logistics.  During the quarter, GS&S was awarded a follow-on upgrade contract from the U.S. Air Force for the B-1 bomber.

Backlog at BDS was USD 71 billion, more than two times the unit's projected 2012 revenue.
At quarter-end, Boeing Capital Corporation's (BCC) portfolio balance was USD 4.1 billion, unchanged from the beginning of the quarter.  BCC's debt-to-equity ratio was 5.0-to-1.

The "Other" segment includes unallocated activities of Engineering, Operations and Technology, Shared Services Group as well as certain intercompany guarantees provided to BCC.  Other segment expense was USD 74 million in the quarter compared with Other segment income of USD 92 million in 2011 due to a USD 141 million gain in the third quarter of 2011 from an upgraded credit rating assigned to certain financing receivables.

The loss in unallocated items and eliminations increased due to higher pension expense.  The third quarter of 2011 included a USD 161 million charge for post-retirement medical.  Total pension expense for the third quarter was USD 583 million, as compared to USD 389 million in the same period last year.
Earnings per share guidance for 2012 increased to between USD 4.80 and USD 4.95, up from between USD 4.40 and USD 4.60, reflecting the strong core operating performance.   Total company 2012 revenue increased to between USD 80.5 and USD 82 billion, from between USD 79.5 and USD 81.5 billion, on higher Defense, Space & Security revenues.  Operating cash flow guidance for 2012 is now expected to be greater than USD 5.5 billion, up from greater than USD 5 billion.

BDS's revenue guidance increased to between USD 32.5 and USD 33 billion, from between USD 31.5 and USD 32 billion, reflecting increased volume. BDS's operating margin is now greater than 9.25 percent, up from greater than 9 percent.

BCC's return on assets is now expected to be approximately 1.0 percent, up from approximately 0.5 percent.

Capital expenditures for 2012 have been reduced to approximately USD 1.8 billion, down from approximately USD 2.0 billion.

Based on current interest rates and market conditions, pension expense in 2013 is estimated to be approximately USD 3.5 billion, of which approximately USD 1.8 billion is expected to be recorded in unallocated items and eliminations.  2013 pension expense will be determined at year end based on market conditions at that time.

Non-GAAP Measure Disclosures

Management believes that the non-GAAP (Generally Accepted Accounting Principles) measures (indicated by an asterisk *) used in this report provide investors with important perspectives into the company's ongoing business performance.  The company 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.  The following definitions are provided:

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.

Caution Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions are used to identify these forward-looking statements.  Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact.  Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate.  These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements.  Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) our commercial development programs, planned production rate increases across multiple commercial airline programs and the overall health of our aircraft production system; (4) changing acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials, (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-U.S. operations, including sales to non-U.S. customers; (13) potential adverse developments in new or pending litigation and/or government investigations; (14) customer and aircraft concentration in Boeing Capital's  customer financing portfolio; (15) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates in order to fund our operations and contractual commitments; (16) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (17) the adequacy of our insurance coverage to cover significant risk exposures; (18) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks or natural disasters; (19) work stoppages or other labor disruptions; (20) significant changes in discount rates and actual investment return on pension assets; (21) potential environmental liabilities; and (22) threats to the security of our or our customers' information.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
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