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Article by DailyStocks_admin    (07-10-08 09:40 AM)

The Daily Magic Formula Stock for 07/10/2008 is Boeing Co (The). According to the Magic Formula Investing Web Site, the ebit yield is 11% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

The Boeing Company, together with its subsidiaries (herein referred to as “Boeing”, the “Company,” “we”, “us”, “our”), is one of the world’s major aerospace firms.



We are organized based on the products and services we offer. We operate in five principal segments:


•

Commercial Airplanes;


•

The three segments that comprise our Integrated Defense Systems (IDS) business:


•

Precision Engagement and Mobility Systems (PE&MS),


•

Network and Space Systems (N&SS) and


•

Support Systems


•

Boeing Capital Corporation (BCC).



Our Other segment classification principally includes the activities of Engineering, Operations and Technology, an advanced research and development organization focused on innovative technologies, improved processes and the creation of new products.



Commercial Airplanes Segment



The Commercial Airplanes segment is involved in developing, producing and marketing commercial jet aircraft and providing related support services, principally to the commercial airline industry worldwide. We are a leading producer of commercial aircraft and offer a family of commercial jetliners designed to meet a broad spectrum of passenger and cargo requirements of domestic and non-U.S. airlines. This family of commercial jet aircraft currently includes the 737 Next-Generation narrow-body model and the 747, 767, 777 and 787 wide-body models. The Commercial Airplanes segment also offers aviation services support, aircraft modifications, spares, training, maintenance documents and technical advice to commercial and government customers worldwide.



Integrated Defense Systems



IDS is principally involved in the research, development, production, modification and support of the following products and related systems and services: military aircraft, including fighters, transports, tankers, intelligence surveillance and reconnaissance aircraft, and helicopters; missiles; space systems; missile defense systems; satellites and satellite launch vehicles; and communications, information and battle management systems. IDS is committed to providing affordable, best-of-industry solutions and brings value to customers through its ability to solve the most complex problems utilizing expertise in large-scale systems integration, knowledge of legacy platforms, and development of common network-enabled solutions across all customers’ domains. IDS’s primary customer is the United States Department of Defense (U.S. DoD) with additional revenues being derived from the National Aeronautics and Space Administration (NASA) and international defense markets, civil markets, and commercial satellite markets. Approximately 84% of IDS 2007 revenues were from our U.S. DoD customer.



PE&MS Segment:



This segment is engaged in the research, development, production, and modification of precision engagement and mobility products and services. Included in this segment are programs such as AH-64 Apache, 737 Airborne Early Warning & Control (AEW&C), C-17 Globemaster, C-40A Clipper, CH-47 Chinook, E-10A Multi-sensor Command and Control Aircraft (MC2A), EA-18G Growler, F/A-18E/F Super Hornet, F-15 Strike Eagle, F-22 Raptor, Harpoon, Joint Direct Attack Munition, International KC-767 Advanced Tanker, P-8A Poseidon, Stand-off Land Attack Missile-Expanded Response (SLAM-ER), Small Diameter Bomb, T-45 Training System, and V-22 Osprey.

N&SS Segment:



This segment is engaged in the research, development, production, and modification of products and services to assist our customers in transforming their operations through network integration, intelligence and surveillance systems, communications, architectures, and space exploration. Included in this segment are programs such as Airborne Laser, Family of Advanced Beyond Line-of-Sight (FAB-T) Terminals, Future Combat Systems (FCS), SBInet, Future Rapid Effects System, Global Positioning System, Ground-based Midcourse Defense (GMD), International Space Station, Joint Tactical Radio System (JTRS) and Airborne, Maritime/Fixed station, Satellite Systems, Space Payloads, and Space Shuttle.



Support Systems Segment:



This segment is engaged in the operations, maintenance, training, upgrades, and logistics support functions for military platforms and operations. Included in this segment are program areas such as Integrated Logistics on platforms including C-17, F/A-18, and AH-64; Maintenance, Modifications and Upgrades on platforms including A-10, AC-130, KC-135, and KC-10; Training Systems and Services on platforms including F-16, C-17, AH-64, and F-15; and International Support.



Boeing Capital Corporation Segment



In the commercial aircraft market, BCC facilitates, arranges, structures and provides selective financing solutions for our Commercial Airplanes segment customers. In the space and defense markets, BCC arranges and structures financing solutions for our IDS segment government customers. BCC’s portfolio consists of equipment under operating leases, finance leases, notes and other receivables, investments and assets held for sale or re-lease.



Financial and Other Business Information



See the Summary of Business Segment Data and Note 22 for financial information, including revenues, net earnings and our backlog of firm contractual orders, for each of the major business segments.



Intellectual Property



While we own numerous patents and have licenses for the use of patents owned by others, which relate to our products and their manufacture. We do not believe that our business would be materially affected by the expiration of any patents or termination of any patent license agreements. We have no trademarks, franchises or concessions that are considered to be of material importance to the conduct of our business.



Non-U.S. Sales



See Note 22 for information regarding non-U.S. sales.



Research and Development



Research and development expenditures involve experimentation, design, development and related test activities for defense systems, new and derivative jet aircraft including both commercial and military, advance space and other company-sponsored product development. These expenditures are expensed as incurred including amounts allocable as reimbursable overhead costs on U.S. government contracts.

Our total research and development expense amounted to $3.9 billion, $3.3 billion and $2.2 billion in 2007, 2006, and 2005, respectively. This is net of research and development cost sharing payments from suppliers of $130 million, $160 million and $611 million in 2007, 2006, and 2005, respectively. These cost sharing payments are related to our 787 program.



Research and development costs also include bid and proposal efforts related to government products and services and costs incurred in excess of amounts estimated to be recoverable under cost-sharing research and development agreements. Bid and proposal costs were $306 million, $227 million and $210 million in 2007, 2006, and 2005, respectively.



Research and development highlights for each of the major business segments are discussed in more detail in Segment Results of Operations and Financial Condition on pages 19-36.



Employees



Our workforce level at December 31, 2007 was approximately 159,300, including approximately 3,846 in Australia and 1,720 in Canada.

Competition



The commercial jet aircraft market and the airline industry remain extremely competitive. We face aggressive international competitors, including Airbus, who are intent on increasing their market share. We are focused on improving our processes and continuing cost reduction efforts. We continue to leverage our extensive customer support services network which includes aviation support, spares, training, maintenance documents and technical advice for airlines throughout the world to provide a higher level of customer satisfaction and productivity.



IDS faces strong competition in all market segments, primarily from Lockheed Martin, Northrop Grumman, Raytheon and General Dynamics. Non-U.S. companies such as BAE Systems and European Aeronautic Defence and Space Company continue to build a strategic presence in the U.S. market by strengthening their North American operations and partnering with U.S. defense companies.

Regulatory Matters



U.S. Government Contracts. Our businesses are heavily regulated in most of our markets. We deal with numerous U.S. government agencies and entities, including but not limited to all of the branches of the U.S. military, NASA, and the Department of Homeland Security. Similar government authorities exist in our international markets.



The U.S. government, and other governments, may terminate any of our government contracts at their convenience as well as for default based on our failure to meet specified performance measurements. If any of our government contracts were to be terminated for convenience, we generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts were to be terminated for default, generally the U.S. government would pay only for the work that has been accepted and can require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The U.S. government can also hold us liable for damages resulting from the default.



Commercial Aircraft. In the United States, our commercial aircraft products are required to comply with Federal Aviation Administration regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. Internationally, similar requirements exist for airworthiness, installation and operational approvals. These requirements are generally administered by the national aviation authorities of each country and, in the case of Europe, coordinated by the European Joint Aviation Authorities.



Environmental. Our operations are subject to and affected by a variety of federal, state, local and non-U.S. environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation and remediation of certain materials, substances and wastes. We continually assess our compliance status and management of environmental matters to ensure our operations are in substantial compliance with all applicable environmental laws and regulations.



Operating and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. It is reasonably possible that continued environmental compliance could have a material impact on our results of operations, financial condition or cash flows if more stringent clean-up standards are imposed, additional contamination is discovered and/or clean-up costs are higher than estimated.



A Potentially Responsible Party (PRP) has joint and several liability under existing U.S. environmental laws. Where we have been designated a PRP by the Environmental Protection Agency or a state environmental agency, we are potentially liable to the government or third parties for the full cost of remediating contamination at our facilities or former facilities or at third-party sites. If we were required to fully fund the remediation of a site, the statutory framework would allow us to pursue rights to contribution from other PRPs. For additional information relating to environmental contingencies, see Note 13.



International. Our international sales are subject to U.S. and non-U.S. governmental regulations and procurement policies and practices, including regulations relating to import-export control, investment, exchange controls and repatriation of earnings. International sales are also subject to varying currency, political and economic risks.

Raw Materials



We are highly dependent on the availability of essential materials, parts and subassemblies from our suppliers and subcontractors. The most important raw materials required for our aerospace products are aluminum (sheet, plate, forgings and extrusions), titanium (sheet, plate, forgings and extrusions) and composites (including carbon and boron). Although alternative sources generally exist for these raw materials, qualification of the sources could take a year or more. Many major components and product equipment items are procured or subcontracted on a sole-source basis with a number of domestic and non-U.S. companies.



Suppliers



We are dependent upon the ability of large numbers of suppliers and subcontractors to meet performance specifications, quality standards and delivery schedules at anticipated costs. While we maintain an extensive qualification and performance surveillance system to control risk associated with such reliance on third parties, failure of suppliers or subcontractors to meet commitments could adversely affect production schedules and program/contract profitability, thereby jeopardizing our ability to fulfill commitments to our customers. We are also dependent on the availability of energy sources, such as electricity, at affordable prices.

CEO BACKGROUND

Former Chairman and Chief Executive Officer, Teachers Insurance and Annuity Association-College Retirement Equities Fund (“TIAA-CREF”). Mr. Biggs served as Chairman and Chief Executive Officer of TIAA-CREF (national teachers’ pension fund) from January 1993 until November 2002. Mr. Biggs is not on the board of any public company in addition to The Boeing Company. He is also a director of the National Bureau of Economic Research, a trustee of Washington University in St. Louis and a member of the Advisory Council of the Public Company Accounting Oversight Board. Mr. Biggs is Chair of the Audit Committee and a member of the Finance Committee.

Chairman of the Board, President and Chief Executive Officer, Edison International. Mr. Bryson has served as Chairman of the Board, President and Chief Executive Officer of Edison International (electric power generator and distributor), the parent company of Southern California Edison, since 1990. Mr. Bryson is on the board of the following public company in addition to The Boeing Company and Edison International: The Walt Disney Company. He is also a trustee of the California Institute of Technology and the W.M. Keck Foundation and a director of the California Endowment. Mr. Bryson is a member of the Compensation Committee and the Governance, Organization and Nominating Committee.

Chairman of the Board, Medtronic, Inc. Mr. Collins has served as Chairman of the Board of Medtronic, Inc. (medical device and technology company) since April 2002. At Medtronic, Mr. Collins was also Chairman and Chief Executive Officer from May 2002 to August 2007, President and Chief Executive Officer from April 2001 to May 2002, President and Chief Operating Officer from August 1996 to April 2001, Chief Operating Officer from January 1994 to August 1996, and Executive Vice President of Medtronic and President of Medtronic International from June 1992 to January 1994. He was Corporate Vice President of Abbott Laboratories (health care products) from October 1989 to May 1992 and Divisional Vice President of that company from May 1984 to October 1989. Mr. Collins is on the board of the following public company in addition to The Boeing Company and Medtronic: U.S. Bancorp. He is also on the board of Cargill, Inc., a private company, and a member of the Board of Overseers of The Wharton School at the University of Pennsylvania. Mr. Collins is a member of the Audit Committee and the Finance Committee.

Executive Director Gas & Power, Royal Dutch Shell plc. Ms. Cook was appointed Executive Director of Royal Dutch Shell plc (oil, gas and petroleum) in 2005. Prior to that, she was Managing Director, Royal Dutch Petroleum Company, since August 2004. Previously, she served as President and Chief Executive Officer and a member of the Board of Directors of Shell Canada Limited from August 2003 until August 2004. She served as Chief Executive Officer for Shell Gas & Power from January 2000 through July 2003. Ms. Cook is a member of the Society of Petroleum Engineers and the China Development Forum. Ms. Cook is not on the board of any public company in addition to The Boeing Company and Royal Dutch Shell plc. Ms. Cook is a member of the Audit Committee and the Finance Committee.

Head of the Office of Corporate Social Responsibility and Chairman of the Midwest Region for JPMorgan Chase & Co. Mr. Daley has served as Head of Corporate Social Responsibility for JPMorgan Chase & Co. (banking and financial services) and on its Operating Committee since June 2007. He has also served as Chairman of the Midwest Region for JPMorgan Chase & Co. and on its Executive Committee and International Committee since May 2004. He served as the U.S. Secretary of Commerce from January 1997 to June 2000. Mr. Daley served as President, SBC Communications, Inc. (diversified telecommunications) from December 2001 to May 2004. He was Vice Chairman of Evercore Capital Partners L.P. from January to November 2001. From June to December 2000, Mr. Daley served as Chairman of Vice President Albert Gore’s 2000 presidential election campaign. Mr. Daley is on the board of the following public company in addition to The Boeing Company: Abbott Laboratories. Mr. Daley is a member of the Finance Committee and the Special Programs Committee.

Chairman and Chief Executive Officer, The Duberstein Group. Mr. Duberstein has served as Chairman and Chief Executive Officer of The Duberstein Group (consulting firm) since 1989. He was White House Chief of Staff in 1988 and 1989. Mr. Duberstein is on the boards of the following public companies in addition to The Boeing Company: ConocoPhillips, Mack-Cali Realty Corporation and The Travelers Companies, Inc. Mr. Duberstein is the Lead Director, Chair of the Compensation Committee and a member of the Governance, Organization and Nominating Committee.

Retired Marine Corps General, former Supreme Allied Commander Europe, and Commander of the United States European Command . General Jones served as the Supreme Allied Commander Europe, and Commander of the United States European Command from January 2003 to February 2007. Previously, Gen. Jones served as the 32nd Commandant of the United States Marine Corps from July 1999 to January 2003. Gen. Jones has served as President and Chief Executive Officer of the Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce, since March 2007 and Special Envoy for Middle East Security since November 2007. Gen. Jones is on the board of the following public company in addition to The Boeing Company: Invacare Corporation. Gen. Jones is a member of the Audit Committee, the Finance Committee and the Special Programs Committee.

Chairman of the Board of The Allstate Corporation. Mr. Liddy has served as Chairman of the Board of The Allstate Corporation (insurance) since January 1999. He served as chief executive officer of Allstate from January 1999 to December 2006, president from January 1995 to May 2005, and chief operating officer from August 1994 to January 1999. Mr. Liddy will retire as Chairman of Allstate on April 30, 2008 and subsequently will become a partner in the private equity investment firm of Clayton, Dubilier & Rice, Inc. Mr. Liddy is on the boards of the following public companies in addition to The Boeing Company and Allstate: 3M Company and The Goldman Sachs Group Inc. He also is chairman emeritus of Northwestern Memorial Hospital and serves on the boards of Northwestern University and the Museum of Science and Industry. Mr. Liddy is a member of the Compensation Committee and the Governance, Organization and Nominating Committee.

Retired Chairman, McDonnell Douglas Corporation. Mr. McDonnell served as Chairman of McDonnell Douglas Corporation (aerospace) from 1988 until its merger with Boeing in 1997, and as its Chief Executive Officer from 1988 to 1994. Mr. McDonnell is not on the board of any public company in addition to The Boeing Company. He is also a director of BJC Healthcare and of Barnes-Jewish Hospital and Vice Chairman of the board of Washington University and of the Donald Danforth Plant Sciences Center. Mr. McDonnell is a member of the Compensation Committee and the Governance, Organization and Nominating Committee.

Chairman, President and Chief Executive Officer, The Boeing Company. Mr. McNerney has served as Chairman and Chief Executive Officer of The Boeing Company since July 1, 2005. Previously, he served four and a half years as Chairman and Chief Executive Officer of 3M Company (diversified technology). Beginning in 1982, he served in management positions at General Electric Company, his most recent being President and Chief Executive Officer of GE Aircraft Engines from 1997 to 2000. Mr. McNerney is on the board of the following public company in addition to The Boeing Company: The Procter & Gamble Company. He is also a member of various business and educational organizations. Mr. McNerney is Chair of the Special Programs Committee.

Director, President and Chief Executive Officer, Nortel Networks Corporation. Mr. Zafirovski has served as Director, President and Chief Executive Officer of Nortel Networks Corporation (telecommunications) since November 2005. Previously, Mr. Zafirovski was Director, President and Chief Operating Officer of Motorola, Inc. (global communications) from July 2002 to January 2005, and remained a consultant to and a director of Motorola until May 2005. He served as Executive Vice President and President of the Personal Communications Sector of Motorola from June 2000 to July 2002. Prior to joining Motorola, Mr. Zafirovski spent 24 years with General Electric Company, where he served in management positions, his most recent being President and CEO of GE Lighting from July 1999 to May 2000. Mr. Zafirovski is not on the board of any public company in addition to The Boeing Company and Nortel Networks Corporation. Mr. Zafirovski is Chair of the Finance Committee and a member of the Audit Committee.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview



We are a global market leader in design, development, manufacture, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services. We are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and the second-largest defense contractor in the U.S. While our principal operations are in the U.S., we rely extensively on a network of partners, key suppliers and subcontractors located around the world.



Our business strategy is centered on successful execution in healthy core businesses – Commercial Airplanes and Integrated Defense Systems (IDS) – supplemented and supported by Boeing Capital Corporation (BCC). Taken together, these core businesses generate substantial earnings and cash flow that permit us to invest in new products and services that open new frontiers in aerospace. We focus on producing the airplanes the market demands and we price our products to provide a fair return for our shareholders while continuing to find new ways to improve efficiency and quality. IDS integrates its resources in defense, intelligence, communications and space to deliver capability-driven solutions to its customers at reduced costs. Our strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets, underscored by an intense focus on growth and productivity. Our strategy also benefits as commercial and defense markets often offset each others’ cyclicality. BCC delivers value through supporting our business units and managing overall financing exposure.



In 2007, our revenues grew by 8%. Earnings from operations increased 93%. We continued to invest in key growth programs as Research and Development expense grew by 18% to $3.9 billion, reflecting increased spending on the 787 and 747-8 programs and lower cost sharing payments from suppliers. We generated operating cash flow of $9.6 billion driven by operating and working capital performance. We reduced debt by $1.3 billion and repurchased 29 million common shares. Our contractual backlog grew 37% to $297 billion, driven by 46% growth at Commercial Airplanes while our total backlog grew 31% to $327 billion.



We expect continued growth in Commercial Airplane revenues and deliveries as we execute our record backlog and respond to global demand by ramping up commercial aircraft production. We expect IDS revenue to remain relatively flat in 2008 compared with 2007 and anticipate that the U.S. Department of Defense (U.S. DoD) budget growth will begin to moderate over the next several years. We are focused on improving financial performance through a combination of productivity and customer-focused growth.



Consolidated Results of Operations

Revenues in 2007 grew by $4,857 million, primarily due to the growth at Commercial Airplanes. Commercial Airplanes revenues increased by $4,921 million, primarily due to higher new airplane deliveries and increased commercial aviation support activities. IDS revenues decreased by $359 million, primarily due to lower revenues in Network and Space Systems (N&SS) resulting from the formation of the United Launch Alliance (ULA) joint venture in 2006 and lower revenues in Precision Engagement and Mobility Systems (PE&MS), offset by growth in Support Systems. BCC revenues decreased by $210 million primarily due to a decrease in the customer financing portfolio. Accounting differences/eliminations changed by $524 million primarily due to fewer Commercial Airplanes intercompany deliveries when compared with 2006.



Higher consolidated revenues in 2006 were primarily due to higher new commercial aircraft deliveries. IDS revenues were up moderately in 2006 as growth in PE&MS and Support Systems was partially offset by lower volume in N&SS. BCC revenues increased in 2006 primarily due to higher investment income and higher net gain on disposal of assets. Other segment revenues decreased in 2006 as a result of the buyout of several operating lease aircraft in the amount of $369 million in 2005. Accounting differences/eliminations decreased revenues due to higher Commercial Airplanes intercompany deliveries in 2006.



Earnings from Operations

Operating earnings in 2007 improved by $2,816 million compared with 2006. The increase is partly due to the $571 million global settlement with U.S. Department of Justice (U.S. DoJ) that occurred in the second quarter of 2006. Commercial Airplanes earnings increased by $851 million compared with the same period in 2006, primarily due to higher new airplane deliveries, commercial aviation support activities and improved cost performance offset by increased research and development expense. Commercial Airplanes’ research and development expense increased by $572 million to $2,962 million compared with the same period 2006, primarily due to spending on the 787 and 747-8 programs. IDS earnings increased by $408 million compared with 2006. The increase is primarily due to 2006 charges of $770 million in the PE&MS segment related to Airborne Early Warning & Control (AEW&C), partially offset by lower 2007 earnings on several programs in the PE&MS and N&SS segments. BCC operating earnings decreased $57 million reflecting lower revenues partially offset by a recovery of losses and lower expenses. Other segment earnings improved by $495 million primarily due to the absence of losses related to Connexion by Boeing, which included a charge of $320 million to exit this business in 2006. Lower unallocated expense in 2007 contributed $548 million to the 2007 earnings improvement.



Operating earnings increased in 2006 compared with 2005 primarily driven by improved earnings at Commercial Airplanes resulting from higher revenue from new aircraft deliveries, increased earnings from commercial aviation support business and improved cost performance. Lower unallocated expense in 2006 also contributed to the 2006 earnings increase. This was partially offset by a $571 million charge for global settlement with U.S. DoJ, lower IDS earnings reflecting a $569 million net gain on the sale of our Rocketdyne business in 2005 and $770 million of charges on the AEW&C development program in 2006 partially offset by improved margins on other programs and a $320 million charge related to the exit of the Connexion by Boeing business recorded in Other segment.

We recorded net periodic benefit cost related to pensions and other postretirement benefits of $1,773 million, $1,663 million and $1,852 million in 2007, 2006 and 2005, respectively. Not all net periodic benefit cost is recognized in earnings in the period incurred because it is allocated to production as product costs and a portion remains in inventory at the end of the reporting period. Accordingly, earnings from operations included $1,730 million, $1,227 million and $1,893 million in 2007, 2006, and 2005, respectively. A portion of pension and other postretirement expense is recorded in the business segments and the remainder is included in unallocated pension and other postretirement expense.



Unallocated pension and other postretirement expense represents the difference between costs recognized under GAAP in the consolidated financial statements and federal cost accounting standards required to be utilized by our business segments for U.S. government contracting purposes.



Pension and other postretirement expense increased during 2007 when compared with 2006 primarily due to increased overall pension costs recognized in inventory as of December 31, 2006, which are subsequently expensed in cost of sales in 2007. Pension and other postretirement expense decreased in 2006 compared with 2005 mainly due to an absence of net settlement and curtailment charges partially offset by an increase in the amount of actuarial loss that was amortized.



The reduction in Share-based plans expense is primarily due to lower Performance Shares outstanding during 2007 and higher expense acceleration during 2006, resulting from 12 payouts compared with six payouts in 2007. The decrease in 2006 Share-based plans expense is primarily due to the increase in our stock price during 2005 which resulted in additional compensation expense due to an increase in the number of performance shares meeting the price growth targets and being converted to common stock. The year over year changes in deferred compensation expense are primarily driven by changes in our stock price. Other expense decreased in 2007 partly due to reduced intercompany profit elimination as a result of fewer intercompany deliveries during 2007 compared with 2006.

Other income, which primarily consists of interest income, was higher in 2007 compared with 2006 as a result of increases in average principal balances and higher average rates of return on cash and investments. Other income was higher in 2006 compared with 2005 as a result of increases in average principal balances and higher average rates of return, partially offset by lower interest income compared with 2005 related to federal income tax settlements for prior years.



Interest and debt expense decreased in 2007 and in 2006, primarily due to debt repayments.



The effective income tax rate of 33.7% for 2007 differed from the 2006 effective income tax rate of 30.9% primarily due to Foreign Sales Corporation and Extraterritorial Income exclusion tax benefits that existed in 2006, but did not recur in 2007. This was partially offset by the non-deduction in 2006 of the global settlement with the U.S. DoJ and other income tax provision adjustments. The 2007 tax rate of 33.7% included enhanced Research and Development credits that exceeded the credits in 2006. The effective income tax rate of 30.9% for 2006 differed from the 2005 effective income tax rate of 9.1% primarily due to the favorable 2005 settlement with the Internal Revenue Service and the non-deduction in 2006 of the global settlement with the U.S. DoJ. For additional discussion related to Income Taxes see Note 4.



Backlog



Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed, and unobligated U.S. and non-U.S. government contract funding. Contractual backlog increased by $80,397 million in 2007 compared to 2006 as a result of increases at Commercial Airplanes of $80,900 million, which were due to new orders in excess of deliveries for all programs offset by decreases at IDS of $503 million.



Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has not been authorized. Funding that is subsequently received is moved to contractual backlog. The decrease in IDS unobligated backlog of $3,502 million during 2007 compared with 2006 is primarily due to funding released from existing contracts on Future Combat Systems (FCS), Proprietary, C-17, P8-A and F-18, partially offset by increases in the F-22 program and Support Systems.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Revenues for the three months ended March 31, 2008 grew $625 million, a 4% increase compared with the same period in 2007. Commercial Airplanes revenues increased by $606 million, primarily due to higher new airplane deliveries and increased commercial aviation support business. Integrated Defense Systems (IDS) revenues decreased by $142 million due to lower volume in the Precision Engagement and Mobility Systems (PE&MS) and Network and Space Systems (N&SS) segments. Boeing Capital Corporation (BCC) revenues decreased by $28 million primarily due to a decrease in the customer financing portfolio. Accounting differences/eliminations changed by $190 million primarily due to a reduction in intercompany eliminations which occurred as a result of two aircraft deliveries to the customer.

Operating earnings for the three months ended March 31, 2008 improved by $490 million compared with the same period in 2007 primarily due to increases in Commercial Airplanes. Commercial Airplanes earnings increased by $277 million compared with the same period in 2007, primarily due to higher airplane deliveries, lower research and development expense and increased commercial aviation support business, offset by lower cost performance. Commercial Airplanes’ research and development expense decreased by $155 million to $633 million during the three months ended March 31, 2008 compared with the same period in 2007, primarily due to reduced spending on the 787 program. IDS earnings increased by $76 million compared with the same period in 2007 due to significantly higher earnings in the N&SS segment which was partially offset by lower earnings in the PE&MS segment. BCC operating earnings decreased $12 million reflecting lower revenues partially offset by lower interest expense.

We recorded net periodic benefit cost related to pensions and other postretirement benefits of $283 million and $443 million for the three months ended March 31, 2008 and 2007. Not all net periodic benefit cost is recognized in earnings in the period incurred because it is allocated to production as product costs and a portion remains in inventory at the end of the reporting period. Accordingly, earnings from operations included $328 million and $410 million of net periodic benefit cost for the three months ended March 31, 2008 and 2007. A portion of pension and other postretirement expense is recorded in the business segments and the remainder is included in unallocated pension and other postretirement expense.

Unallocated pension and other postretirement expense represents the difference between costs recognized under Generally Accepted Accounting Principles in the consolidated financial statements and federal cost accounting standards required to be utilized by our business segments for U.S. government contracting purposes. Pension and other postretirement expense decreased during the three months ended March 31, 2008 when compared with the same period of the prior year primarily due to a decrease in pension accounting valuation difference compared to the same period in the prior year. The prior year expense was also higher due to increased overall pension costs recognized in inventory as of December 31, 2006, which were subsequently expensed in cost of sales in 2007.

The year over year changes in deferred compensation expense are primarily driven by changes in our stock price.

The effective tax rates were 34.9% and 35.5% for the three months ended March 31, 2008 and 2007. The decrease in the effective tax rate as compared with the prior year was primarily due to nonrecurring 2007 income tax charges which were offset by U.S. research tax credit benefits that existed in 2007, but did not exist in 2008.

The research tax credit reduced the 2007 tax rate by 2.4%. For additional discussion related to Income Taxes see Note 3.

Backlog

Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed and unobligated U.S. and non-U.S. government contract funding. The increase in contractual backlog during the three months ended March 31, 2008 was primarily due to orders in excess of deliveries on Commercial Airplane programs.

Unobligated backlog includes U.S. and foreign government definitive contracts for which funding has not been authorized. The increase in unobligated backlog during the three months ended March 31, 2008 is primarily due to a five year Multi-Year Procurement contract awarded on the V-22 program. The increase was partially offset by funding released from existing multi-year contracts including the Future Combat Systems (FCS), F-22 and Proprietary programs.

Revenues for the three months ended March 31, 2008 increased by $606 million compared with the same period of 2007. This increase in revenue was primarily attributable to $540 million from new airplane deliveries and increased commercial aviation support business of $130 million, offset by a $64 million decrease in revenue from aircraft trading.

Earnings from Operations

Earnings from operations increased by $277 million and operating margins increased by 2.7 percentage points to 12% during the first three months of 2008 from the comparable period of 2007. This increase was due to higher airplane deliveries of $134 million, lower research and development expense of $155 million and increased volume from commercial aviation support business of $39 million, offset by other income and expense items of $51 million. This decrease in research and development expense was primarily due to decreased spending on the 787 program.

Backlog

The increase in contractual backlog during the three months ended March 31, 2008 compared with December 31, 2007 was primarily due to orders in excess of deliveries for our 737NG, 777 and 787 programs.

CONF CALL

Diana Sans - Vice President of Investor Relations

Thank you. Good morning and welcome to Boeing’s first quarter earnings call. I am Diana Sans and with me today are Jim McNerney, Boeing’s Chairman, President and Chief Executive Officer and James Bell, Boeing’s Chief Financial Officer.

After the brief comments by Jim and James, we will take your questions. In the interest of time, we ask that you limit yourself to one question. As always, we've provide a detailed financial information in our press release issued earlier today. And as a reminder, you can follow today’s broadcast and slide presentation through our website at boeing.com.

Before we begin, I need to remind you that any projections and goals we may include in our discussions, this morning are likely to involve risks, which are detailed in our news release and in our various SEC filings and the forward-looking statement at the end of the web presentation.

Now, I will turn the meeting over to Jim McNerney.

Jim McNerney - Chairman, President, Chief Executive Officer

Thanks Diana and good morning everyone. Let me being with some comments about our first quarter and then James will walk you through the results specifically. After that I will say a few words about what's ahead and then take your questions.

Starting with slide 2 please; our first quarter financial performance has us off to a very good start for the year. Our two big core businesses continue to demonstrate strong performance and remained well positioned in their markets. Virtually all of our programs are meeting or exceeding targets by driving growth and productivity initiatives. This performance is providing us the resources we need to manage through our product development challenges while still meeting our financial commitments.

Our financial highlights for the quarter included solid revenue growth, strong cash flows, and operating margins over 11%. Earnings per share and net income both grew about 40%. Our backlog continued to grow and reached another record level of $346 billion, which equals over five times our current annual revenues.

Integrated Defense Systems generated another strong quarter of double-digit margins by executing well on its large and balanced portfolio programs. IDS increased its backlog to $75 billion driven by a new multi-year contract for the V-22 Osprey. With one of the industries' leading backlogs IDS continues to demonstrate a breadth of capabilities to meet evolving customer requirements.

As you know, during the quarter, the US Air Force awarded the KCX tanker program to Northrop Grumman and Airbus parent EADS. On March 11th, we filed a former protest of that award. This was a decision we took very seriously. Boeing had not protested an award with GAO in over a decade. We felt this protest was necessary because of what we believe were serious flaws in the selection process.

We believe we offered the most capable tanker for the Warfighter, at the lowest cost to the tax payer as measured against the government's request for proposal. We expect the GAO to rule on the protest by early summer.

It is important to note that while the tanker program was won, we wanted to win and in fact are still fighting for. Its loss should not have an adverse impact on our overall outlook. Our growth prospects for the company and for IDS remained solid regardless of the tanker outcome.

Strong financial performance, a balance portfolio, and opportunities to grow, IDS is healthy and continues to build on its momentum from a series of contract wins last year. As I mentioned, we finalized the V-22 multi-year contract in the first quarter and we will see our customers making decisions this year on various opportunities including TSAT and a number of international programs. In addition, we expect a decision on the CSAR-X competition near the end of the year.

During the quarter, we also saw outstanding financial performance at Boeing Commercial Airplanes. BCA revenues rose 8% and it delivered 12% operating margins. The team successfully increased its 737 production rates in the quarter and continues to drive productivity throughout the business. BCA also continues to push ahead on its development programs. The 777 Freighter and the 747-8 programs remain on track.

As you heard from Scott Carson and Pat Shanahan, earlier this month, we have revised our schedule for the 787s first flight and first delivery and we are planning a more gradual ramp up to full-rate production.

While we are deeply disappointment in our performance to date and the impact our delays will have on our customers, the new plan reduces our schedule risk significantly. It is based on the lessons we've learned on the program thus far, discussions with our major supplier partners and a rigorous analysis of the capabilities of our overall supply chain.

We are having discussion with our customers on how the new 787 schedule well affect them and we will work together to minimize its impact. I have personally been in close contact with Scott, Pat and the team throughout this process and I believed the plan outlined early this month is one that we can achieve. Then my most recent visit to Edward last week, I saw good progress towards to completion of airplane one and meeting our commitments for power-on and first-flight.

Static and fatigue airplanes are also moving along. And the condition of assembly from our structural partners were noticeably improved on airplane #2 and similarly on components we have already started to received on airplane #3.

We will get through to startup of this innovative some would say leading edge program and when we do, we will be delivering a breakthrough new product, years ahead of its competition, and one that will offer substantial efficiencies and value for a customers. 787 continue to see strong demand from the road or alliance with 75 aircraft orders during the quarter and 892 firm orders since launch.

Turning for a minute to the overall market environment. During the first quarter we have seen the US economic situation become more tenuous as capital markets has soften and several small and weaker airlines have filed for bankruptcy. We are closely monitoring this situation. Right now these developments are not having a significant impact on us.

Our total backlog grew 19 billion in the quarter and remains diverse by region, product type, and customer. Only 11% of BCAs, $271 billion backlog is from airplanes based in the US. A strong portion is with customers in Asia and the Middle East where economic conditions are more favorable. In general our commercial airplane backlog is comprised of the established, quality customers whose financial strength exceeds the market average. In addition, nearly half of the company's total revenue is generated from our defense business, which is fairly well insulated against the recent economic volatility.

Commercial airplane demand globally remained strong and is being aided by high fuel prices and environmental concerns. In addition, there is still a significant need for airplane replacement within the US carriers. So while the market environment has become more viable it is not currently impacting our growth forecasts. If there is a more significant economic downturn, I believed Boeing is in the good position to weather it.

Our backlog has never been more diverse. Our production programs and services businesses are performing well and we have the right products for the markets. And we have a relentless drive to continuingly improve productivity. All of this is serving us well today and will do so through the economic cycles.

Let me ramp up my opening comments by reiterating my confidence now positioned and prospects going forward. The breath and depth of capabilities across our commercial and defense business is allowing us to pursue a wide range of opportunities. Capturing those opportunities and continuing our enterprise focus on productivity is what we'll secure and even stronger future.

Potential for this company can be seen in our financial outlook, which reflects significant earnings growth in 2009, as we continue to drive growth and productivity while making progress on our development programs.

With all that said, let me turn it over to James for a review of the numbers.

James A. Bell - Chief Financial Officer

Thank you, Jim and good morning. I will begin with first quarter results on slide 3. Our revenue increased 4% in the quarter driven by higher commercial airplane deliveries and services growth. Our EPS grew 43% to $1.62 per share while our net income expanded 38% to $1.2 billion. Operating margins increased to 11.3%.

Our earnings were driven by solid business performance, from both BCA and IDS, as well as lower allocated pension and deferred compensation cost.

Now let's start our business unit review with commercial airplanes on slide 4. BCA continues to profitably manage its production ramp up while growing its record backlog and investing in its growth. BCA delivered 115 airplanes in the quarter, which along with the higher service volumes drove an 8% increase in total revenue to $8.2 billion. Higher deliveries and services volumes would somewhat offset by lower aircraft trading sales.

Operating earnings grew to $983 million producing an operating margin of 12%. BCAs margin reflected volume and performance improvements across its products and lower R&D expense. This quarter included $50 million of supplier development cost sharing payments while they were non-due in the same period last year. BCA expects cost sharing payments for all of 2008 to be roughly equal to those received in 2007.

As discussed earlier this month, we expect 2008 R&D spending to be higher than previously thought. This is due to extending the 787 testing period prior to first-flight as well as additional cost on the 747-8. The revised R&D guidance result in total spending that is relatively flat for the reminder of the year with R&D cost decreasing in 2009.

Commercial program margins exceeded unit margins this quarter due to product mix and pricing that reflects airplanes sold several years ago in a tougher prices environment. We captured 289 gross orders in the first quarter, which lifted BCA backlog to another record of $271 billion. This represents greater than seven times current BCA revenues and we continue to expect our book-to-bill ratio to exceed one this year.

Now Jim has already talked about the new 787 schedule that was announced earlier this month. But let me discuss the financial implications of the new plan. As Jim noted, we are engaging with our customers on the impact of the 787 delays and appropriate mitigation plans. This will take time and could ultimately take various forms including the interim lift capability and revised terms on orders.

Now in our 2009 financial guidance we have assumed that the 787s delivered during that year will have a zero percent program accounting margin. We believe this allows for sufficient reserved to deal with customers issues and other cost associated with the delay.

The accounting quantity for 787 will not be determined until the middle of the next year in advance of our first delivery in Q3 2009. I should point out that it is difficult for new commercial programs to start with very low margins that increase over time as we go down the learning curve and achieve productivity benefits. We expect the 787 to do the same. With 892 orders since launch we firmly believe that the 787 will deliver significant value over its life to both customers and shareholders.

I want to reiterate that BCA continues to perform very well on its production and service programs, which are generating good top line and bottom line growth during this quarter.

Now moving to slide 5 and our Defense business. IDS delivered strong margins of 11.4% on revenues of $7.6 billion in the quarter. Precision Engagement and Mobility and Support System continue to generate strong double-digit margin of 11.9% and 12.5% respectively, reflecting outstanding performance on production and support programs.

Network and Space System nearly doubled its margins to 9.9% driven by performance across its products and a favorable settlement on a satellite program. IDS captured new and follow-on business including the V-22 multi-year contract as Jim discuss and a F-22 multi-year sustainment contract as well as the intent from the Missile Defense Agency to sole source the GMD follow-on development contract. Also during the quarter IDS delivered the first two KC-767 tankers to Japan and the P-8A program begin final assembly on its first aircraft.

Our Defense business remains well positioned for growth and profitability with this broad portfolio of development, production and support program and with good sales opportunities both domestically and internationally. The IDS team is performing very well across its businesses and is on track to achieve its growth and double-digit margin goals.

Now let's turn to slide 6. Boeing Capital delivered another solid quarter with pre-tax earnings of $61 million on revenue of a $185 million. BCC continues to reduce its portfolio, which totaled $6.3 billion as of March 31st.

First quarter other and unallocated costs have decreased approximately $150 million due to lower deferred compensation and unallocated pension expenses. We expect total other and unallocated expenses to be about $1.1 billion in 2008 and about $750 million in 2009, due to lower estimated pension costs. Total pension expense is forecasted to be around 800 million in 2008 and 500 million in 2009. Now the 2009 expense could vary depending on interest rates and market performance as of our measurement day which will be December 31, 2008.

Now let's move to our cash flow on slide 7. We generated $1.9 billion of operating cash flow in the quarter. Strong net income and non-cash items were somewhat offset by a planned $500 million contribution to our pension plan. The quarter also included certain advance payments that we anticipated receiving later in the year.

We continued our balanced cash deployment strategy as we invested in organic growth programs, used $1.2 billion to repurchase 15.6 million shares contributed to our pension plans and paid a 14% higher dividend to our shareholders. Share repurchase will moderate the remainder of the year, as we expect to use about the same amount of cash in 2008 as we did in 2007 to buy back shares.

Now moving to cash and debt balances on slide 8. Our balance sheet liquidity remains strong. We ended the first quarter with $12.1 billion in cash and in liquid investments. This was flat versus year-end as strong operating cash flow was used for capital investments share repurchase and dividends paid to shareholders. Our debt balance is also flat versus the end of 2007. We do expect BCC to pay down debt later in the year which will reduce our consolidated debt balance by year end.

Now turning to our financial guidance on slide 9. We are reaffirming our earnings guidance for 2008 and forecasting significantly additional EPS growth for 2009. Our outlook reflects strong performance from our core businesses increasing commercial airplane deliveries, decreasing R&D and pension costs and company-wide productivity improvements.

Boeing's revenue guidance for 2008 is unchanged that between 67 and $68 billion. Revenue for 2009 is expected to grow to between 72 and $73 billion. Earnings per share guidance, for 2008 remains unchanged at $5.70 to $5.85. We expect earnings in the second half to be slightly higher than in the first half reflecting delivery mix and timing of period expenses.

For 2009, we expect EPS to grow approximately 20% to between $6.80 and $7 per share driven by higher airplane deliveries and progress on growth and productivity initiatives as well as lower R&D and pension expenses. We are forecasting operating cash flow to exceed $2.5 billion in 2008 and exceed $6 billion in 2009. Our guidance includes potential supplier advances and customer impacts due to the revised 787 schedule.

Now turning to the segments; BCA deliveries and revenue forecast for 2008 remains unchanged at 475 to 480 airplanes and 34.5 to $35 billion respectively. 2009 deliveries will grow to between 500 and 505 airplanes including approximately 25, 787 Dreamliners. We expect further growth in deliveries in 2010.

2009 BCA revenue is expected to be between 37 and $38 billion. Airplane margins are forecasted to be about 11.5% in both 2008 and 2009. This reflects low R&D cost and continued strong performance on production and service program offset by margin dilution from the 787 deliveries in 2009. Our 2008 IDS financial guidance remains unchanged with revenue of 32 to $33 billion and operating margins of approximately 10.5%.

For 2009 we expect revenues of 33.5 to $34.5 billion with growth across all segments. 2009 margins are expected to expand to greater than 10.5%. We expect total R&D expense to be between 3.6 and $3.8 billion in 2008 reflecting the new 787 plan as well as higher 747-8 costs. 2009 R&D will decline over 13% to a range of 3.1 to $3.3 billion. Additional guidance information is provided in our earnings release.

Now I'll turn it back to Jim, who will give you some final thoughts. Jim.

Jim McNerney - Chairman, President, Chief Executive Officer

Thank you, James. As our numbers for the quarter attest we are off to a strong start and what believe will be another year of improving financial performance for this company. We are methodically working through our challenges including the startup of the 787. And our people remained focused on satisfying our customers and leveraging growth and productivity into better bottom line and top line performance.

With many of the early challenges on the 787 behind us, we can see our way to getting electrical power on the airplane by the end of June then flying lower this year and beginning deliveries of this game-changing new airplane next year.

Our production and services programs continue to perform well and we are driving productivity throughout this company to fuel future growth, deal with our challenges and deliver on our financial commitments. You can see it from our outlook that our goals for the remainder of this year and next are ambitious. We expect outstanding earnings growth and continued financial.

In summary then, our businesses are executing well and we understand and are working on the challenges before us aggressively. Our outlook remains bright and we continue to drive towards being the strongest, best, and best integrated aerospace company in the world for today and tomorrow.

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