10-QPeriod: Q2 FY2012

BOEING CO Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 25, 2012For Securities:BABA-PA

Summary

Boeing Company (BA) reported strong revenue growth in its second quarter and first half of 2012, driven primarily by a significant increase in Commercial Airplanes segment sales due to higher new airplane deliveries. Total revenues rose by 25% year-over-year for the first six months. Earnings from operations also saw a substantial increase, largely benefiting from the Commercial Airplanes segment and a favorable litigation resolution. However, operating margins slightly declined compared to the prior year, partly due to increased pension costs and higher expenses associated with new aircraft programs like the 787 and 747-8. The company continues to manage significant long-term commitments and potential contingencies, including various legal proceedings and environmental remediation liabilities. Cash flow from operations improved significantly year-over-year, though the company utilized more cash for investing activities, primarily related to investments in time deposits. Boeing maintains substantial borrowing capacity and believes its liquidity and access to capital are sufficient to meet its obligations and strategic opportunities.

Financial Statements
Beta

Key Highlights

  • 1Total revenues increased by 25% to $39.4 billion for the six months ended June 30, 2012, compared to $31.5 billion in the prior year period.
  • 2Commercial Airplanes segment revenue surged by 43% to $22.8 billion for the six months, driven by higher new airplane deliveries.
  • 3Earnings from operations increased by $584 million to $3.1 billion for the first six months, aided by strong performance in Commercial Airplanes and a favorable litigation resolution.
  • 4The company made a significant discretionary pension contribution of $763 million in the second quarter of 2012.
  • 5Net cash provided by operating activities improved significantly to $1.7 billion for the six months ended June 30, 2012, up from $0.6 billion in the prior year.
  • 6Total contractual backlog stood at $354.6 billion as of June 30, 2012, an increase from $339.7 billion at the end of 2011.
  • 7The company continues to face potential financial risks and contingencies related to legal proceedings, particularly the A-12 litigation, and program execution risks on new aircraft like the 787 and 747-8.

Frequently Asked Questions

The primary driver of Boeing's revenue growth was a significant increase in deliveries from its Commercial Airplanes segment. This segment saw a 43% revenue increase for the six-month period due to higher new airplane sales.

The 787 program continues to face challenges related to production rate increases, change incorporation, and global supply chain management. While the company is working to mitigate these risks and improve profitability, the program has recorded low margins through June 30, 2012, and carries a risk of future customer claims, supplier assertions, or reach-forward losses if risks are not mitigated.

Pension costs are a significant factor. The company made a discretionary pension contribution of $763 million in the second quarter of 2012. Unallocated pension costs, driven by higher amortization of actuarial losses and lower discount rates, increased significantly, impacting earnings from operations.

Boeing is involved in several significant legal proceedings, most notably the ongoing A-12 litigation which could result in substantial additional losses. Other contingencies include environmental remediation liabilities, potential issues related to ULA indemnifications, and product warranty obligations.