Network & Space Systems first-quarter revenue was $2.3 billion, reduced by expected lower volume in Networked & Tactical Systems and Strategic Missile & Defense Systems.  Operating margin was 7.5 percent reflecting solid performance across the segment's array of programs.  A less favorable contract mix was partially offset by higher earnings from United Launch Alliance.  During the quarter, the Airborne Laser successfully shot down a representative missile target, the Tracking and Data Relay Satellite (TDRS) KL program successfully completed key reviews, and the company was awarded the core completion contract for Ground-based Midcourse Defense.

Global Services & Support (GS&S) revenue increased slightly to $2.0 billion on higher volume across its broad portfolio of services and logistics products.  During the quarter, GS&S operating margin was 10.9 percent driven by strong operating performance.  In this segment, the company was awarded contracts for the AEW&C Australia support contract, and Phase 1 of the US Air Force QF16 drone contract.

Backlog at Defense, Space & Security is $64.2 billion, approximately two times expected 2010 revenue.  The backlog declined by $0.6 billion as run-off of multi-year contracts slightly exceeded additions to backlog in the quarter.

Boeing Capital Corporation  

Boeing Capital Corporation (BCC) reported first-quarter pre-tax earnings of $46 million compared to $37 million in the same period last year (Table 6).  Earnings improvement was primarily driven by gains on sale of portfolio assets.  During the quarter, BCC's portfolio balance declined to $5.4 billion, down from $5.7 billion at year end, on normal run-off, asset pre-payments and depreciation.  BCC's debt-to-equity ratio decreased to 5.6-to-1.

Additional Information

The "Other" segment consists primarily of Boeing Engineering, Operations and Technology, as well as certain results related to the financial consolidation of all business units.  Other segment expense was $50 million in the first quarter, up from $23 million in the same period last year due to environmental expense.

Total pension expense for the first quarter was $284 million, as compared to $219 million in the same period last year.  A total of $305 million was recognized in the operating segments in the quarter (up from $242 million in the same period last year), partially offset by a $21 million contribution to earnings in unallocated items.  

Unallocated expense was $165 million, up from $115 million in the same quarter last year, driven by higher deferred compensation expense.  

Interest expense for the quarter was $122 million, up from $57 million in the same period last year due to debt issued in 2009.  

Income tax expense was $531 million in the quarter, up from $317 million last year, driven by the charge announced on March 31 associated with the new health care law that reduced earnings by $0.20 per share.  

Outlook

The company's 2010 financial guidance reflects solid operating performance amid lower volumes, higher pension expense and continued investment in development programs (Table 7).  Guidance is unchanged other than adjusting for the $0.20 charge on health care legislation.  

Boeing's 2010 revenue guidance is $64 billion to $66 billion and reflects previously announced production rate reduction on 777 beginning in mid-2010 and reduced scope on Army modernization and missile defense.  Earnings guidance for 2010 of $3.50 to $3.80 per share, reduced from $3.70 to $4.00 per share due to the charge on health care legislation, reflects the lower revenue and includes some consideration for development program and market risks.  Operating cash flow is expected to be approximately zero in 2010, including less than $100 million of pension contributions, as the company continues to build inventory on key development programs.

The company continues to expect that 2011 revenue will be higher than 2010, primarily driven by projected 787 and 747-8 deliveries.  Combining higher projected deliveries with spending plans for R&D investments and other factors, operating cash flow in 2011 is expected to be greater than $5 billion.

Commercial Airplanes' 2010 delivery guidance is unchanged at between 460 and 465 airplanes and is sold out.  It includes the first few 787 and 747-8 deliveries, which are expected to begin in the fourth quarter.  The unit's 2010 revenue is expected to be $31 billion to $32 billion with operating margins between 6.5 percent and 7.5 percent.  

Defense, Space & Security's revenue for 2010 is expected to be $32 billion to $33 billion with operating margins of approximately 10 percent.  

Boeing Capital Corporation expects that its aircraft finance portfolio will continue to reduce as its expected new aircraft financing for 2010 is less than $0.5 billion, below normal portfolio runoff through customer payments and depreciation.  BCC's debt-to-equity ratio is expected to return to the 5.0-to-1 level in the second half of 2010.

Boeing's 2010 R&D forecast is $3.9 billion to $4.1 billion on continued investment in development programs.  R&D is expected to decrease significantly in 2011.  Capital expenditures for 2010 are expected to be approximately $1.9 billion reflecting the bulk of capital investments required for the second 787 assembly line in South Carolina .  Capital expenditures in 2011 are expected to be lower than in 2010.