(1) Adjusted EPS* excludes $0.14 in tax-related benefits in 4Q2006, a divestiture-related charge of $0.16 in 4Q2005, and other smaller adjustments on page 16. Adjusted EPS* for 2006 excludes a $0.75 charge for global settlement, a $0.24 charge for Connexion and a $0.21 tax-related benefit; 2005 excludes tax-related benefits of $0.76, divestiture-related benefits of $0.03 and smaller items on page 17. * Non-GAAP measure. A complete definition and reconciliation of Boeing's use of non-GAAP measures, identified by an asterisk (*), is found on page 9, "Non-GAAP Measure Disclosure."
Boeing boosted its 2007 earnings per share guidance to between $4.55 and $4.75, and set its 2008 guidance at between $5.55 and $5.75, reflecting expected strong revenue growth and expanding margins across its businesses. The company's 2007 R&D forecast is unchanged and R&D spending is expected to decline in 2008.
"2006 was a very good year for Boeing. We achieved new records in revenue, cash flow and backlog, and overcame some meaningful challenges by focusing on improving productivity and meeting our commitments," said Boeing Chairman, President and Chief Executive Jim McNerney. "This focus on performance gives us the confidence to set high expectations for 2007 and 2008."
Boeing's fourth-quarter revenue rose 26 percent to $17.5 billion on double-digit growth in its Commercial Airplanes and Integrated Defense Systems businesses. The 57 percent increase in fourth-quarter adjusted EPS* was due to strong business performance, partially offset by an additional charge on the Airborne Early Warning & Control (AEW&C) program. Operating cash flow for the quarter was $2.4 billion driven by strong earnings growth and a large volume of commercial airplane orders (Table 2).
For 2006, the company's reported earnings totaled $2.85 per share, down from $3.20, while revenue rose 15 percent to $61.5 billion. Adjusted EPS* for the year grew 51 percent to $3.62 per share. Record operating cash flow of $7.5 billion provided outstanding liquidity to the company, while free cash flow* increased to $5.8 billion.
Table 2. Cash Flow 4th Quarter Full Year (Millions) 2006 2005 2006 2005 Operating Cash Flow(1) $2,441 $2,387 $7,499 $7,000 Less Additions to Property, Plant & Equipment ($588) ($473) ($1,681) ($1,547) Free Cash Flow* $1,853 $1,914 $5,818 $5,453 (1) Includes Global Settlement payment of $615 million and Connexion shutdown costs totaling $320 million in the 3rd and 4th quarters of 2006.
Reflecting a second consecutive year of record commercial airplane orders, Boeing's backlog at year-end also reached a record level. The backlog rose to $250 billion, up 22 percent for the year.
Cash and investments in marketable securities totaled $9.3 billion at year end, up from $8.2 billion at the end of the third quarter (Table 3). Principal uses of cash during the quarter included $444 million for share repurchases, retirement of $583 million of maturing debt, and planned investment increases in Boeing's core businesses.
The company spent $2.0 billion repurchasing 25.0 million shares during the year. This leaves $2.4 billion remaining available under the current repurchase authorization. During 2006, the company also contributed $526 million to its pension plans and retired approximately $1 billion of maturing debt.
In December, Boeing's board of directors increased the quarterly dividend by 17 percent to $0.35 per share, or $1.40 annually, based on the company's strong operating performance and outlook, excellent cash generation and commitment to delivering value to shareholders.
Table 3. Cash, Marketable Securities and Debt Balances Quarter-End (Billions) 4Q06 3Q06 Cash $6.1 $5.2 Marketable Securities(1) $3.2 $3.0 Total $9.3 $8.2 Debt Balances: The Boeing Company $3.9 $4.4 Boeing Capital Corporation $5.6 $5.7 Total Consolidated Debt $9.5 $10.1 (1) Marketable securities consists primarily of investments in high-quality fixed-income and asset-backed securities classified as "short-term investments" and "investments." Segment Results Commercial Airplanes
Boeing Commercial Airplanes (BCA) fourth-quarter revenues increased 37 percent to $7.6 billion driven by a 41 percent increase in airplane deliveries and higher services revenue (Table 4). BCA operating earnings doubled to $665 million. Margins expanded to 8.7 percent due to higher operating leverage and productivity improvements, partially offset by planned R&D spending increases and the absence of supplier development cost-sharing payments.
For the year, BCA deliveries rose 37 percent to 398 airplanes and revenue rose 33 percent to $28.5 billion. Operating earnings grew 91 percent to $2.7 billion as margins reached 9.6 percent.