Krause Fund Research

Autumn 2008

Industrials Boeing (NYSE: BA)

Recommendation: BUY November 13, 2008
Analysts
Benjamin Pomeroy Alberto Whitlatch Current Price: $43.16
benjamin-pomeroy@uiowa.edu alberto-whitlatch@uiowa.edu
Michael Crowley Lie Wang
Target Price: $45-$49
michael-crowley@uiowa.edu lie-wang@uiowa.edu
BA’s Backlog Powers Engines
Executive Summary
¾ (+) Though manufacturing activity remains weak,
In 1916, William E. Boeing founded the Boeing Company (BA). Boeing’s orders backlog continues to exhibit solid
With a strong history, Boeing remains the world’s largest growth. We forecast this growth to continue at steady
producer of commercial jetliners and military aircraft. Boeing rates as economic activity increases.
operates three business units: Boeing Commercial Airplanes,
Integrated Defense Systems and Boeing Capital Corporation. ¾ (-) Boeing’s 52 week Mechanist Strike resulted in lost
Boeing Commercial Airplanes account for 75% of commercial revenues of $100MM a day. While we expect Boeing
airline fleets. Integrated Defense Systems provide services for to recover this deferred revenue, increased collective
global military, government and commercial customers. Though bargaining places additional pressure on the
no longer in Seattle, Boeing maintains a strong presence in the manufacturer’s margins.
Pacific Northwest. Now headquartered in Chicago, Boeing
employs 160,000 people in 70 countries. Boeing consistently ¾ (+) Continued deregulation in Asian markets present
excels in a cyclical industry by delivering innovative reliable robust growth opportunities. With an estimated value
products and providing high levels of customer service. of $1.19 billion, Boeing finds itself strategically
positioned to capture this market through superior
Stock Performance Highlights product quality.
52 week High $94.60
52 week Low $39.07 ¾ (-) Continued delays in the 787 Dreamliner project
Beta Value 1.25 question Boeing’s operational efficiency. With
Average Daily Volume 8.79 MM delivery now slated for 2009, the company has
material accounts depending on the planes success.
Company Highlights
¾ (+) Strong customer service and innovative support
Market Capitalization $31.63BB
platforms enable Boeing to successfully integrate
Shares Outstanding 732.83 MM
technology to meet their customers’ needs ensuring its
EPS 2008E $4.13
competitive position.
EPS 2009E $5.35
2009 P/E Ratio 8.1
Dividend Yield 3.6% One Year Stock Performance vs. S&P 500
2008 Commercial Plane Deliveries 330 Figure 1
2008 Commercial Plane Orders 639

Company Performance Highlights

2007 ROA 6.02%
2007 ROE 49.83%
2007 BCA Sales $33.86 BB
2007 IDS Sales $32.08 BB

Financial Ratios
Current Ratio 0.829
Debt to Equity 0.873

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Important Disclosures appear on the last page of this document

Economic Analysis
Capital Markets are in a serious correction. Since the burst of the
tech bubble in 2000, interest rates hit historic lows of 1% from
2003 to 2004. The low interest rates enabled consumers and
businesses to finance projects at a low costs. With worries of
excess exposure and market liquidity, interest rates began to
increase. This increase caused defaults and excess write offs.
Banks tightened lending practices, slowing down economic
activity. With the recent failure of capital market institutions,
credit standards remain high until signs of financial stability,
depressing economic growth.
Boeing’s outlook remains stable during the 2008 recession and
threats of financial meltdowns. Boeing’s defense contracts
provide a stable business to maintain profits during the
recession. Additionally, Boeing’s internationally diverse
customer base ensures growth given the sluggish American
airline industry. Boeing’s relentless focus on delivering superior
value through product development creates a competitive
advantage in the aerospace industry. Given this, the focus of our
economic analysis tailors to systemic risk factors affecting the
aerospace industry.
Real Gross Domestic Product
Given the high volatility in capital markets, gross domestic
product, GDP, provides critical insight to the overall direction of
levels of unemployment negatively affect Boeing. The demand
for airplanes is a derived demand from air travel. With higher
levels of unemployment, total flight hours will decline as there
are fewer people traveling. Figure 3 indicates significant
deterioration in the once robust job market. During 2008’s third
quarter, 478,000 jobs were lost and 1,179,000 jobs have been
lost year to date. Weak credit markets coupled with negative
GDP growth indicate slow job growth well into the future. With
these grim prospects, Boeing temporarily faces a weaker demand
for commercial airplanes.
Another leading economic indicator is the national
unemployment rate. The most recent reading estimated national
unemployment at 6.5%, a 15-year high.1 Over this 15-year
period, the participation rate remained constant at 66%
indicating the drop in employment results from layoffs. We
believe this unemployment rate is only the beginning.
Unemployment will rise to 8% as firms continue to restructure
by laying off more workers. Reductions in the employment rate
reduce aviation hours, decreasing the demand for Boeing’s
commercial airplanes.
Figure 3
Number of Jobs Created (THS, SA)
0
-50
Jobs (THS)

the US economy. We expect the annualized contraction of 25 -100

basis points for 2008’s third quarter to be transitory (Figure 2). -150
GDP growth will moderately increase during 2009 at a 1% -200
annualized rate as capital markets correct and begin providing
-250
funds to investment markets. Investment and government
expenditures are the primary GDP components affecting Boeing. -300
While the low GDP readings lower the demand for business Jan Feb Mar Apr May Jun Jul Aug Sep Oct
investment, increased government expenditures help to offset
this decrease. Low readings place a slight damper on investment
demand in the short term, but not enough to reverse any long run Personal Income
economic outlook. With negative economic growth and high unemployment,
personal income decreased substantially. From September to
Figure 2 October wages and salaries increased by only .1%, a 20-basis
point decline from September.2 This increase was offset by
Real GDP Growth (Annualized % Change) rising inflation. With no growth in purchasing, the demand for
6 manufactured goods will continue to remain low. Low incomes
affect Boeing’s profitability. There is a strong correlation
5 between income and discretionary air travel, lower incomes
4 dictate fewer air traffic hours. While lower income affects short-
Growth Rate

term air traffic, we do not expect any changes in long run

3 projections of air traffic hours.
2
Stock Market Prospects
1 The weak economy, deteriorating job market and low income
0 levels substantially lowered the value of US equity markets. The
06Q4 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3
S&P 500 composite index represents the weighted equity value
-1 of 500 publically traded stocks. The S&P 500’s Broad range
Date
provides a solid metric for the general performance of US
equities. Observing the past three years it is obvious markets and
businesses have struggled. The index is down 37.6%
Employment Situation (approximately 588.84 points) from a 3 year high in May 2007.3
In addition to lower GDP growth, the employment situation
provides valuable insight to the direction of the economy. High

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Important Disclosures appear on the last page of this document
With the significant loss in market value, capital markets Figure5
inadequately channel funds to profitable business
investments. Lower business investment suggests fewer Core Intermediate PPI (YoY% Change)
growth opportunities for industrial manufactures. Boeing 14
must position itself to recover substantial portions of this 12
loss by delivering products that add long-term economic
10
value. Meeting key delivery dates ensures Boeing’s ability
8
to perform despite adverse market conditions.

%
6
Figure 4 4
2
S&P 500 (Daily Index Value) 0
2000 Jun 08 Jul 08 Aug 08 Sep 08

1500
1000
500
0 costs rise. Concurrently, the PPI for core finished goods only
Oct-05 Oct-06 Oct-07 Oct-08
Interest Rates
In efforts to stimulate the economy, monetary authorities
significantly lowered interest rates. With the 30 year T – Bond at
4.36% YTM coupled with the overall lack of liquidity, interest
rates on treasuries are critical.4 Lower interest rates enable
Boeing to sell more planes by offering attractive financing. With
an A credit rating, Boeing displays a strong balance sheet during
questionable economic times. Additionally, the secondary
treasury market is an area we feel warrants considerable
attention. With the Federal Reserve cutting interest rates to 1%,
we expect the Fed to use open market purchases to provide
additional liquidity. These purchases lower interest rates and
financing costs for companies like Boeing.
Liquidity Premiums
With the recent failure of financial institutions, additional
The rising cost of intermediate goods adversely affects Boeing’s
profitability. A continual increase in the materials required to
fabricate planes squeezes Boeing’s margins. In September 2008,
the cost of intermediate goods increased 12.1% compared to
September 2007.7 This increase lowers profitability as inventory
exhibited an increase of 4.1% from September 2007 to
September 2008.7 The spread of 8% suggest that manufactures
are taking margin cuts, as the price increase is not passed along
to the end consumer. Inflation rates will remain high until the
credit markets begin to increase lending and aggregate output
starts to increase.
MAPI Business Outlook Index
The prior economic metrics suggest declines in manufacturing.
Figure 6 shows third quarter manufacturing activity declined 17
basis points.
Figure 6
MAPI Business Outlook Index
70
60
50
40
%

emphasis is placed on liquidity premiums. One metric warrants

particular attention, the TED Spread. This metric shows the
spread between the 3-month T-Bill and 3-Month LIBOR. The
spread reached an all time high in October of 4.5% and has since
declined to 1.97%.5 This drop suggests easing of the liquidity
strain. The lower premium placed on liquidity benefits Boeing,
enabling it to pursue more aggressive sales financing. We
believe the spread will continue to fall as the economy moves
out of the recession and the Federal Reserve continues to back
major financial institutions.
Producer Price Index
Inflation remains a vigilant concern during these turbulent
economic times. With the Federal Funds Rate currently at 1%,
threats of inflation are foreseeable.6 Coupling the low interest
rate environment with the weak aggregate output incubate an
inflationary environment. Low interest rates increase the money
supply in the economy. During periods of prolonged weak
aggregate output the increase in the money supply place upward
pressure on prices. Figure 5 shows the core Producer Price Index
for intermediate goods.
30
20
10
0
07 Q1 07 Q2 07 Q3 07 Q4 08 Q1 08 Q2 08 Q3
Date
Three components captured in this index are backlog orders,
new orders, and shipments. Each of these metrics are crucial for
Boeing because they show how the business performs relative to
the economy.
• Orders backlogs fell 10 points from the prior quarter
suggesting a weak demand and exposure to the recession.8
• New orders fell from 46 points to 44 points in the third
quarter, suggesting lower demand.8
• Shipments fell from 52 to 47 during the third quarter,
indicating lower manufacturing revenues.8
The weak macro backlog coupled with declining new orders and
shipments affect Boeing; as the economy contracts, so will

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Important Disclosures appear on the last page of this document
Boeing. Boeing’s robust backlog provides idiosyncratic
protection from the lower manufacturing data.
Capacity Utilization
Additionally, capacity utilization shows signs of slower
manufacturing activity. During the third quarter, industrial
production, contracted 2.8%.9 We feel these numbers are
artificially lower because of exogenous variables. Figure 7
displays historical capacity utilization.
suggesting a smaller yet stabilizing demand. Conversely, the
increase in unit labor costs suggest Boeing’s margins may suffer
in the current economic environment, as compensation per hour
exceeds output per hour. The data regarding unit labor cost is a
key systemic risk factor for Boeing. With the resolution of the
Mechanist Strike, Boeing agreed to increase wages by 15% over
the next four years.11 With the systemic trend of increasing labor
costs per unit, this agreement induces more idiosyncratic risk on
Boeing’s margins.

Figure 7 Figure 9
Monthly Capacity Utlization Rates Productivity and Costs (% Change)
Jun 08 Jul 08 Aug 08 Sep 08 Q1 Q2 Q3
Capacity Utlization 79.7 79.6 78.7 76.4 Output Per Hour 2.6 3.6 1.1
Compensation Per Hour 3.8 3.5 4.7
Boeing faces systematic risk to manufacturing utilization. Unit Labor Costs 1.2 -0.1 3.6
Depending on the recession’s severity, capacity utilization could
remain low affecting Boeing’s ability to deliver profitable Export Prices
orders. Our estimates indicate capacity utilization will reach A major portion of Boeing’s commercial plane revenues come
77% during 2009. from abroad. We expect these revenues to grow as China and
India continue to grow and deregulate the airline industry.
ISM Index Boeing currently has a robust backlog with emerging market
The length of the recession remains a prominent question. Figure counties and we expect this strength to persist well into the
8 displays the ISM Purchasing Managers Index at a historic low future. Figure 10 shows the year over year percentage change in
of 38.9.10 This index acts as a leading indicator, identifying the export price of capital goods.
troughs in economic activity. The components of the index show
the credit crisis’s impact on the broader economy. Production Figure 10
fell 6.7 basis points from September to in October. The sharp YoY % Change in Export Prices
decline in production verifies the overall weak demand. July August September
Additionally, a drop in orders indicates lower future revenues for 2.20% 2.20% 2.00%
manufactures. Weak orders data negatively affect Boeing by
reducing future deliveries and revenues; however, Boeing’s While prices decreased from August to September
strong backlog ensures stable revenue growth during the comparatively. The annual increase indicates the growing
recession. Stable inventories show some demand for demand for capital goods from abroad. Boeing stands to profit
manufactured goods, indicating the market is on it way to from this trend as foreign markets act to stabilize demand for
equilibrium. Given this data, we expect to see curtailment of industrial goods at a higher price.
manufacturing activity through 2009.
Economic Analysis Summary
Figure 8 Overall, we anticipate economic growth to remain very low
Annual ISM Index through 2009. Beyond 2009, economic growth will average 1% -
3% annually. The weak credit markets vindicate slow economic
70 growth because funds are not readily available. Weak
60 manufacturing data threatens the severity of the recession.
50 Continued decreases in orders suggest that markets still have a
40 long way to go before establishing equilibrium. Our forecasts
%

30 account for slow economic growth. Boeing is not immune to the

weak manufacturing and recessionary environment; but its
20
robust backlog provides substantial shelter. Overall, we
10 hypothesize Boeing is strongly correlated to manufacturing
0 markets and will experience the majority of issues discussed in
Oct 05 Oct 06 Oct 07 Oct 08 this analysis.

Productivity and Costs

With slower orders and delivery rates, particularly close
attention is drawn to manufacturing efficiency. Two important
metrics for manufactures are productivity and labor cost. These
metrics indicate that manufacturers are operating in a
recessionary environment. Figure 9 summarizes the data for
2008. Productivity growth remained strong during the economic
downturn indicated by the positive increase in output per hour,

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Important Disclosures appear on the last page of this document
 Industry Analysis industry is rather limited. Boeing, Raytheon, Lockheed Martian
and Northrop Grumman compete for the majority of defense
contracts. Figure 12 shows the revenues and margins for these
Industry Cycle main players.
The US aerospace defense industry has already reached
maturity. Total industry revenue growth averaged 5.85% over Figure 12
the past four years.12 Internationally, particularly in China and Operating Market
India, there are underdeveloped aviation markets. In these Sales Margin Share
emerging markets, continued economic deregulation stimulates BA(IDS) $ 32,080 10.7% 25.6%
business travel. Airlines in these countries need wide body RTN $ 23,090 11.2% 17.8%
jetliners to accommodate increased travel, presenting a great LMT $ 42,440 11.2% 33.0%
opportunity for aeronautical corporations such as Boeing. NOC $ 33,690 17.9% 18.5%
Globalization continues to transform the aerospace industry.
A large disparity exists between the products and services
Sustainable sales growth will come predominantly from Asia
provided to the Department of Defense (DoD). Boeing mostly
and the Euro Zone accounting for 37% and 25% of the global
provides aircraft, missile defense, satellites, and information
market respectively. Figure 11 shows the projected
systems. Raytheon produces primarily missile defense systems
decomposition of global market value from 2008-2027. Boeing
and defense systems for the Army and Navy. Northrop
needs to successfully introduce its product lines in these
Grumman services primarily the Navy with its shipbuilding
emerging markets to compete with low cost generics. The
techniques and provides information technology services to the
increased exposure to these regions threatens to commoditize the
Air Force. Boeing’s direct competitor for fighter planes is
aerospace industry. Market expansion presents opportunities for
Lockheed Martin, LMT. LMT is primarily know for its
new corporations to enter the largely established aeronautical
development of the F-117 stealth fighter but produces a number
industry. With new entrants from abroad, additional pressure
of planes creating formidable competition. Given the
will be placed on price. Boeing must bring its superior brand to
technological capabilities of these participants, competition for
these markets to insure adequate sales volumes while
defense contracts is high. However, given the large sunk costs
maintaining reasonable margins.
required to operate in the defense industry we believe market
conditions have significant barriers to entry, keeping
Figure 11
competition highly concentrated.
Market Value By Region (2008-2027 est.)
Demand
The economic expansion over the past two decades made the
industrialized world highly interdependent. Businesses operate
15% Asia  internationally to hedge risk and maximize profits. Efficient and
reliable travel ensures corporate sustainability in the
37% North America international landscape. General aviation hours on fixed wing
25% Euro Zone planes averaged 24, 436 hours over the past seven years.14 We
expect aviation hours to rise steadily at an average rate of 7.2%
23% Other Regions through 2025 indicated in figure 13.

Figure 13
Projected Aviation Hours
Supply
40,000
The wide body Commercial Airplane market operates largely as
a duopoly between Boeing and Airbus. Airbus’s ability to 30,000
provide comparable planes at a competitive price threatens
Hours

Boeing’s profitability. Airbus continues to gain ground on 20,000

Boeing as it restructures itself and the dollar strengthens against
the Euro.13 As air travel increases in emerging markets, 10,000
governments will encourage the development of wide body
0
aircraft to accommodate the higher demand, creating a more
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024

competitive market. Infant commercial plane manufactures

threaten Boeing’s profitability. More manufactures increase the
supply of commercial aircraft and limit Boeing’s pricing power.
The increased flight hours for fixed winged planes drives the
Boeing’s other major business unit, Integrated Defense Systems,
demand for these vehicles. Between 2000 and 2007, the number
IDS, operates in a highly competitive environment. This industry
of active fixed wing planes averaged 180,757.14 With the
operates primarily as service contractors for the Department of
projected increase in air traffic hours we anticipate the growth of
Defense to develop and integrate technology into the military. In
fixed wing planes to average 4.8% through 2025. While this
the interest of national defense, the number of suppliers in the
growth rate is 2.4 basis points below the average aviation hours

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Important Disclosures appear on the last page of this document
growth, this spread is reasonable since old planes accommodate Figure 15
portions of demand. The demand for single aisle planes is
expected to grow 92% by the year 2027.15 Boeing is strategically Industry Cost Structure
positioned to capitalize on this demand through product Purchases
innovation. The 787 dreamliner and next generation 737
integrate features of long haul wide body planes in the middle 8%
and short range markets. Improved fuel efficiency combined Wages
13%
with better seating capacity attracts airlines to convert their fleets
to these newer jets. In addition to the US market, China and 6%
India contribute to the growing demand. Boeing provides Other
guidance that Asia will demand 9,160 or 37% of the market for 73%
commercial airplanes by 2027. 15
Profit

With 49% of its business centered around Integrated Defense

Systems (IDS), Boeing is subject to Geopolitical risk. The
current conflicts in Iraq and Afghanistan provide Boeing with Labor costs in the industry are subject to increases. During fall
lucrative defense contracts. Withdrawing troops from this area 2008 the Machinist Union, representing 27,000 Boeing
adversely affects Boeing’s profitability. Figure 14 shows the employees engaged in two-month strike.11 With the settlement,
annual change in the Department of Defense Budget from 2004 labor costs are expected to rise by 15% over the four year
to 2007. contract.11 These wage increases threaten the profitability of
aerospace manufactures. The low profitability of airlines
Figure 14 coupled with the lease financing of Boeing Capital Corporation
Department of Defense Budget (BCC) limit the cost Boeing can pass along to the airlines.
Strong collective bargaining attempts threaten the profitability of
540 BCA.
520
$Billions

500 A final factor in profitability is the ability of airplane

manufactures to price their planes. While there is some variation
480 in the materials used to construct airplanes, companies such as
460 Boeing and Airbus can place additional price premiums on
440 safety records. The attention airlines pay to having a fleet
04 05 06 07 comprised of safe name brand planes creates a large barrier to
entry in the commercial airplane market. From 1988 to 2007
Year fatal airline accidents per 100,000 flight hours averaged 0.0224.
Figure 16 shows published FAA statistics for all accidents of
large commercial flights. Given the low accident rate, consumers
The decreased defense budget over the past three years shows a trust the planes of Boeing and Airbus, the majority of planes
weaker demand. We expect the defense budget to decrease with captured in the data. High safety records create significant value
the administration change and the gradual withdraw of troops for these two commercial airplane manufacturers, limiting the
from the Middle East. Boeing faces a weaker demand for these threat of emerging airline manufactures with unproven safety
products and services compared to 2003 at the height of the records.
Global War on Terror (GWOT). We expect mild demand for
these products as the DoD continues to invest to maintain a Figure 16
technological efficient military. While the IDS business serves
other major US allies and is diversified by products and services, Accidents Per Accidents Per
we believe any cuts in the defense budget lower revenues from 100,000 Flight 1,000,000
material accounts. Therefore, reapportioning of US defense Year Accidents Hours Miles Flown
funds substantially decrease the demand for Boeing’s defense 2003 54 0.309 0.0074
systems. 2004 30 0.159 0.0038
Profitability
2005 40 0.206 0.0049
The profitability in the commercial airplane market is largely 2006 33 0.171 0.0041
affected by purchase costs. Boeing Commercial Airplanes 2007 26 0.135 0.0032
(BCA) acts as an assembly shop integrating many pieces to
construct a plane. The key purchases for construction are: wiring Boeing has profitable opportunities in the defense industry.
and electronics, galleys, seating, titanium and composite While we anticipate overall defense spending to decline, we do
materials, and jet engines. Most of these inputs are available not anticipate any new competitors entering this market. Steadily
through a limited number of suppliers, exposing aircraft high barriers to entry prohibit the emergence of new
manufactures to price increases. Large inputs, like jet engines, competitors. Arms regulation restricts the suppliers of these
are provided by sub-entities of GE and Rolls Royce, making products and keeps most of the information classified for
price comparison difficult. national security.16 With a limited customer base, prospective

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Important Disclosures appear on the last page of this document
firms will avoid the market given the high costs required to
produce state of the art defense systems. Even with the prospects
of lower revenues, Boeing IDS will provide a strong profits and
free cash flow to Boeing.
Technology
Technology plays an integral role in aerospace manufacturing.
Product functionality requires state of the art materials that
ensure safety, durability and efficiency.16 Additionally,
technology plays a key role in product development. By using
Computer Aided Design (CAD), engineers gain a better
understating of product design and mitigate costs by bringing the
product to market faster.16 BCA successfully levers technology.
The company’s main investment, 787 Dreamliner project, shows
BCA’s rigor to bring innovation to the marketplace by
improving operational efficiencies while mitigating
environmental impact. Successfully using technology to
improve the development and efficiency of Boeing’s commercial
aircraft allows the firm to add value to a prestigious product.
IDS makes ready use of technology and materials providing state
of the art defense and space exploration equipment. Boeing
must utilize technology to maintain its competitive position in
the commercial airline and defense manufacturing.
Industry Analysis Summary
While the commercial aerospace industry is concentrated among
two corporations, market structure will change as international
competition grows. Boeing plans to compete in these markets by
delivering high efficiencies through versatile aircraft. Though
mature, this industry will continue to grow as new markets
develop and aviation hours increase. Given the growth
opportunities in this market profitability will likely erode as new
suppliers increase competition. However, Boeing’s record for
making safe planes and delivering innovative and reliable
products enable it to compete on quality rather than price. To
ensure its market dominance Boeing will continuously lever
technology to improve product quality and customer satisfaction.
Similar conditions persist for Boeing’s IDS business. Fierce
competition will endures among current players but will not
diffuse internationally due to heavy regulation and national
security interests. Demand for these products will fall as the
GWOT subsides limiting Boeing’s profit growth. Overall, the
IDS business remains a material source of income as the military
continues to update its technology. Similarly, Boeing’s ability to
integrate technology in defense systems ensures its industry
leading position and suggests it will continue to win lucrative
defense contracts providing Boeing with steady and safe cash
flows.
Important Disclosures appear on the last page of this document
Boeing Specific Analysis
Overview
Founded in Seattle Washington in 1916, William E. Boeing
established the modern workings of The Boeing Company with
his incorporation Pacific Aero Products Company. Today, the
company is based in Chicago, Illinois and operates three major
business segments: commercial aircraft, integrated defense
systems and airplane lease financing. The Boeing Company is
the industry leader for the commercial airplane market with a
reputation of incredibly reliable products. Boeing’s reputation
for reliable products transcends to its Integrated Defense
Systems (IDS) business. Boeing’s management philosophy is to
deliver superior products that add long run economic value.
Boeing does this through new product development and
improving efficiencies on current products.
Products and Markets
The Boeing Company consists of three major business units:
Boeing Commercial Airplanes (BCA), Integrated Defense
Systems (IDS), and Boeing Capital Corporation (BCC). Each
strategic business unit serves unique markets. Figure 17 shows
2007 revenues generated from each segment.
Figure 17
% of 2007 Revenues By Business
1%
BCA
49% IDS
50%
BCC
BCA fabricates large commercial jetliners for airlines. Models
currently in production include: 737, 747, 777 and the 787. Each
model targets a specific flight range allowing airlines to
maximize seating capacity and fuel efficiencies. For example,
the 737, Boeing’s most popular model, serves short to mid range
flights and has the reputation of exceptional reliability. This
reputation procured orders of 6,000 737’s exceeding the orders
of any competitor’s product line since incorporation.17
IDS provides products and services to the United States Defense
Department and to similar international counterparts. This
business offers a variety of products ranging from fighter jets to
command and control systems. The Chinook, Air Force One,
and the F-22 Raptor are a few of Boeing’s better known defense
products.
BCC acts as an industry leading lessor of planes allowing
airlines to mitigate fixed costs. Although three separate
businesses, Boeing emphasizes applied innovation to improve
supply chain efficiencies and maximize customer satisfaction.
Page | 7
Key Customers diversification for Boeing’s manufacturing business. Boeing’s
Boeing’s orders books are filled by a variety of airlines. As the ability to align products and services with customer needs
premier aerospace manufacture, airlines actively purchase ensures it is the first company customers think of when they
Boeing commercial airplanes. BCA’s customer base is need new products or services.
internationally diverse mitigating geographic risk. To date
Boeing has robust orders from airlines in three continents.18 Orders & Deliveries
With a strong portion of domestic orders, Boeing faces While Boeing works closely with customers to deliver quality
considerable risk to airline profitability. Weak airline profits products, it operates on a long business cycle, requiring many
prohibit strong orders growth in a key market segment. The days to deliver orders. In manufacturing, backlogged orders
merger of Delta and Northwest Airlines last spring shows the represent future deliveries and revenues. Boeing must work
changing landscape of the American aviation industry. As US quickly to ensure it meets the customer’s needs in a timely
airlines suffer record losses, they will look to recapitalize their fashion. Figure 19 shows Boeing’s orders books from 2005 to
business. One capitalization is to convert their fleets to lower 2007.
cost planes from rival manufacturers, threatening Boeing’s
margins. With a highly concentrated customer base, Boeing While 2008 orders books have not closed, they are substantially
must continuously work to affirm that its products satisfy down from 2007. The sharp decline in orders suggests lower
customer’s needs. Figure 18 show BCA’s top customers’ this airline spending to ensure survival given the weak economy.
year. Furthermore, the sharp decline in 787 orders indicates airlines
feel that the 787 will take longer to get to market. Since its
Figure 18 introduction in 2004, there have been three cancelled 787
Notable Customers orders.21 The weak orders growth threatens Boeing’s
Airline YTD Orders profitability. As fewer orders are booked, future revenues
Lion Air 56 decrease. Concurrently, Boeing’s mechanist strike lowered the
Fly Dubai 50 number of deliveries in 2008 costing $5.20 billion in revenue.
American Airlines 36 Our estimates show Boeing will take an additional 55 days to
Air China 30 deliver a 737, following the strike. The decreased orders and
Republic of Iraq 30 lower efficiency rate drop Boeing’s projected revenues. Lower
Continential Airlines 25 orders mean fewer works in process and thus fewer sales. We
expect Boeing’s delivery rate to increase as factories reopen
Strong Customer Focus following the Mechanist Strike. However, we feel Boeing faces
To mitigate the risk of losing customer accounts, Boeing weak orders books with a struggling economy and continued
introduces new products that help airlines increase profit delays on key projects.
margins. One example of improving air travel efficiency is
Boeing’s introduction of the 787 Dreamliner. Constructed from Figure 19
Gross Orders
lightweight composite materials, the 787 makes air travel more
efficient by creating a plane 40,000 lbs lighter than any Airbus Model 2005 2006 2007 2008
model; increasing fuel efficiency by 20%.19 Additionally, the 737 574 733 850 481
composite materials allow BCA to increase the volume of the 747 48 72 25 3
plane, giving airlines more revenue through greater seating and 767 19 8 36 24
luggage capacity.19 The 787 displays BCA’s commitment for 777 153 77 143 52
customer satisfaction. BCA establishes strong customer loyalty 787 235 160 369 79
by creating planes that increase airlines revenue and mitigate Total 1029 1050 1423 639
variable costs. Continuously providing superior products in the
competitive aerospace industry ensures Boeing’s long run Key Suppliers
profitability. BCA acts as an assembly shop to provide airlines with planes. In
an effort to mitigate in process inventories and improve
Boeing’s strong customer focus creates a powerful brand name operating margins, Boeing switched from a traditional assembly
in the aerospace defense market. In 2007, Boeing won 9 out of line to an integrated supply chain. Disruptions in any component
11 defense contracts.20 The reputation of high product quality of the supply chain adversely affect Boeing’s profitability.
enables Boeing to penetrate new markets. Broader defense Galley supplier, Sell was unable to deliver 5 of 10 wide body
systems present highly lucrative contracts, providing stable galleys due to unionized labor strikes.22 Disruptions like these
profits for Boeing IDS.20 Boeing’s technological capabilities threaten Boeing’s reputation of delivering quality products on
make it the only company capable of organically satisfying any time and delay revenue recognition. We believe Boeing will rely
customer’s demand. heavily on strategic partnerships to boost profitability but by
doing so, it inherently increases operational risk.
In addition to designing and delivering products that meet
customer’s needs, Boeing provides support services to improve Unionized Labor
the product quality for the customer. The market for engineering In addition to increases in materials prices, Boeing’s margins are
services provides robust growth opportunities. In 2007, Boeing threatened by increases in the cost of labor hours. This
won a $19 billion contract to provide training for F-16 fighter September, mechanist walked out of BCA plants demanding
pilots.20 These servicing contracts provide excellent better benefits. These strikes occur on roughly a three-year basis

Page | 8
Important Disclosures appear on the last page of this document
and pose a significant threat to Boeing’s profitability. With
workers absent from the plant, Boeing lost $100 million a day or
$5.2 billion in deferred revenues. The majority of this revenue
will not be recouped until 2011, when the mechanist’s contract
expires.23 Strong unionized labor threatens Boeing’s margins by
increasing variable costs and delaying revenue collection. We
expect Boeing will face additional collective bargaining pushes
as unions try to tap into prior record profits.
787 Dreamliner Project
In 2004, BCA introduced the 787 Dreamliner project. The 787 is
a new jet aimed at improving the travel efficiencies of mid range
flights by using fewer inputs and lighter materials. The project
suffered delays pushing the initial delivery date back from 2008
to 2009 by company guidance. This project is critical to
Boeing’s long run value. The plane aims to capture the growing
market of fuel-efficient single aisle aircraft estimated at $610
billion over the next twenty years.24 Additionally, the plane
emphasizes Boeing’s strong customer focus by enabling airlines
to improve cash seat per mile by 10%.25
The project also represents Boeing’s movement to create
environmentally friendly aviation. Consisting of primarily
composite materials Boeing aims at creating a plane 40,000 lbs
lighter than the competition and improve fuel efficiencies by
20%. With new electrical architecture, the 787 requires 35% less
power from engines and reduces carbon emissions by 20%.
Similarly, the plane requires fewer raw materials and eliminates
up to 60 miles of copper wiring.25 These improvements show
Boeing’s green concise and make it the industry leader in
environmentally friendly aviation. When the 787 takes flight it
will create significant value for Boeing. Figure 20 shows the
airlines with the most 787 orders.
Figure 20
Key 787 Customers
Airline Orders
Quantas 65
Nippon Airways 50
Air Canada 37
Continential Airlines 25
British Airways 24
Management
Under the leadership of Jim McNerney, Boeing houses a superb
management team. Mr. McNerney assumed the role as Chairman
and Chief Executive Officer in 2005. Prior to his position at
Boeing, Mr. McNerney served in a similar capacity at 3M
Corporation from 2000-2005 and was president and CEO of GE
aviation from 1997-2000.26 At GE Mr. McNerney learned
valuable leadership and management lessons from GE Chairman
and CEO, John Francis Welch. Mr. Welch taught Mr. McNerney
how to improve shareholder value by bringing innovation to the
market. Mr. Mr. McNerney applies Mr. Welch’s lessons at
Boeing, by introducing innovation through new products and
improved efficiencies. With only three years at Boeing, Mr.
McNerney’s management expertise has yet to be realized. We
expect Mr. McNerney to continue modernizing Boeing by
improving operational performance. His expertise ensures
Boeing maintains its competitive position in the dynamic
aerospace market.
Important Disclosures appear on the last page of this document
Valuation Analysis
Target Price
The Discounted Cash Flow Model (DCF) results in a valuation
of $47.83, the same value obtained from the Economic Profit
Model (EP). This price is 10.8% above the current market price.
Both models assume continuing growth rates of 3.5% reflecting
slower GDP growth and inflation. The model also incorporates a
continuing values return on invested capital (ROIC) of 14.79%,
derived from our NOPLAT and Invested Capital estimations.
The Dividend Discount Model (DDM) estimated an intrinsic
value of $49.93 slightly higher than our other estimate.
Continuing value Return on Equity was 17%, substantially lower
than Boeing’s current ROE of 49%. Variance between the
models results from increases in Retained Earnings, due to a
more conservative payout policy. Additionally, the
computational focus on Assets and Liabilities in the DCF model
compared to the DDM’s focus on dividends and earnings explain
the irreconcilability of these valuations.
Figure 21
Valuation Average High Low
DCF $ 47.83 - -
EP $ 47.83 - -
DDM $ 49.35 - -
Defense Contractors $ 44.82 $ 51.05 $ 38.96
Relative Industrials $ 47.76 $ 56.85 $ 39.17
Additional Relative Price to Earnings (P/E) and PEG valuations
produce similar results to the DCF and EP Models. Boeing
trades at a price of $44.82 compared to other major aerospace
defense manufactures and a price of $47.76 compared to other
major industrial companies. We chose to compare Boeing to
both the aerospace defense firms and industrial manufactures to
account for Boeing’s diverse operations. The valuations are
based on 2008 and 2009 forward looking P/E and PEG ratios.
Price estimates range from $38.96 for the 2008 defense
contractor P/E, to a high of $56.85 using the PEG for relative
industrials. Relative to peers, above average earnings and growth
estimates explain the high variance.
Our analysis leads us to believe Boeing is undervalued compared
to its competitors in aerospace defense systems and other
industrial manufactures. Companies used as relative aerospace
defense peers include: Raytheon (RTN), General Dynamics
(GD), Lockheed Martin (LMT), Northrop Grumman (NOC), and
Honneywell (HON). The relative industrial peers consist of:
General Electric (GE), Caterpillar (CAT), Deere and Company
(DE), Emerson Electric (EMR), Illinois Tools Works (ITW), and
3M Co (MMM).
Overall, our model valuations trade above Boeing’s current price
of $43.16. Our expected price range of $45-$49 results from our
DCF/EP models. We believe this model does the best job of
articulating all economic and accounting data through its use of
balance sheet, income statement and exogenous growth
forecasts. We maintain our BUY recommendation on the fact
that Boeing traded moved off its 52-week low of $39 today
Page | 9
presenting a great opportunity to capture profits in a growing
industry.
Weighted Average Cost of Capital
We made critical assumptions in regards to Boeing’s cost of
equity and cost of debt to derive the weighted average cost of
capital (WACC). We implemented the Capital Asset Pricing
Model (CAPM) to estimate the cost of equity. The following
assumptions were used in the CAPM:
• The 30-year T-bond proxies as the risk free rate at 4.36%
reflecting a strong focus on quality returns
• We calculated the Market Risk Premium of 4.82% by taking
geometric average between S&P 500 returns and T-Bond
returns from 1928-2007.
• Beta of 1.25 represents the average of regression coefficients
on weekly and monthly one, three and five year returns of
Boeing and the S&P 500.
Giving Boeing’s strong Balance Sheet, we do not anticipate any
plans to alter capital structure. We estimated cost of debt at
6.51% by backing into the amount from other analysts’
calculations. We then applied this cost to operating leases
accounting for off balance sheet financing. From here, we took a
weighted average of the required returns relative to the market
weights to arrive at a WACC of 9.02%.
Revenues and Expenses
Based on the Mechanist Strike and weak manufacturing data, we
see revenues declining to $54.59 billion during the 2008. Our
revenue forecasts derive from estimations on plane and defense
contract deliveries. Due to increased backlogs, delays in the
supply chain and growing competition we feel Boeing’s
deliveries will grow at moderate rates averaging 2% annually.
The strong revenue growth of 2010 and beyond comes from the
deliveries of the 787. These estimated delivery rates are in line
with the FAA’s projection for aviation hours fulfilling market
equilibrium. We anticipate IDS deliveries to continue to grow
but at diminishing rates as the Global War on Terror concludes.
Figure 22 shows the projected revenue for Boeing’s BCA and
IDS divisions. We feel Boeing will be able to maintain this unit
revenue based on its strong commitment to increasing customer
value.
Figure 22
BCA & IDS Projected Revenue
$50,000
$40,000
$30,000
$20,000 BCA
$10,000 IDS
$0
Even with the increased labor costs from the Mechanist Strike,
Boeing’s cost of products will drop. With the 787 requiring
fewer inputs than previous models, Boeing can offset increases
Important Disclosures appear on the last page of this document
in direct labor hours by reducing the costs of raw materials.
Furthermore, the decline in 2008 revenue projections contributes
to the decrease in cost of products. Over the forecast, we
anticipate costs to moderately rise as the cost of direct labor
hours increase but Boeing can offset them through increased
bargaining power. We project Boeing can maintain its minimum
efficient scale as volume increases, indicated by Figure 23.
Figure 23
Costs as % of Sales
80%
60%
Cost of
40%
Products
20% Cost of
0% Services
Customer Financing & Net PP&E
Our forecasts call for increases in Customer Financing and Net
PP&E. Customer Financing is strongly correlated to plane sales.
We forecasted Customer Financing as a percentage of sales.
Based on company guidance we expect this metric to increase
throughout the forecast, as Boeing uses financing to attract
customers.
Net PP&E was forecasted as a percentage of sales. We expect
Net PP&E to increase as Boeing further utilizes technology to
improve production. We feel Boeing needs to keep its facilities
modern and these increases represent capitalized expenditures.
While it appears that all our assets increase over time, Net
Customer Financing and Net PP&E are the only material
operating assets that increase relative to sales volume.
Accounts Payable & Product Warranties
Accounts Payable is projected as a historical percentage of cost
of products. Accounts payable should increase to represent
better operating performance. However, we expect Boeing will
modestly sacrifice AP turns to maintain an efficient supply
chain. Furthermore, Boeing’s new defense systems and airplanes
require state of the art materials from different suppliers. To
establish reliable distribution, Boeing will pay down these
accounts faster.
As a manufacturer, Boeing places additional emphasis on
product quality. To ensure product quality, it offers warranties.
We found it necessary to include these warranties in our free
cash flow estimates as they represent a claim on Boeing’s
resources. Time series analysis for this off balance sheet account
was limited leading us to extrapolate 2007 warranties through
the forecasted period. This estimate implies that new warranties
replace expired warranties at the same rate.
Page | 10
 MRP increase price by 2.4%, while an increase in the MRP
Sensitivity Analysis decreases price by 2.4%.

Figure 26
While valuing Boeing, we made a number of critical MRP Sensitivity Analysis
assumptions. While these assumptions strongly influence MRP 4.62% 4.72% 4.82% 4.92% 5.02%
Boeing’s intrinsic value, we feel they are logical, but find it Price $50.24 $49.02 $47.83 $46.69 $45.58
necessary to examine their influence on our model. We
examined both exogenous and endogenous variables to test the We expected these variables to affect the pricing abilities of our
strength of our valuations. model, as they determine the discounting rate. However, we
anticipated these variables to influence price estimates with
Exogenous Factors similar magnitudes. After further examination, we attribute the
Plane Growth differences to Beta’s multiplier effect on the CAPM.
The growth rate of commercial plane deliveries is a key
assumption for forecasted revenues. These estimates are based Risk-free Rate
off Boeing’s orders backlog and projected aviation demand. To One crucial assumption to our WACC calculation was our
test this assumption, we ran best and worst case scenario choice of the risk free rate. We elected to use the 30-year T-bond
analysis. The worst-case analysis decreased all growth estimates to proxy as a risk free asset. We felt that increased demand for
by one-half, except current year growth accounting for planes the 10-year treasuries artificially lowered its YTM and felt the
already delivered. The best-case scenario doubled all growth 30 year offered the best alternative risk free asset. Daily changes
rates. These deviations in the growth rates show large deviations in this 30-year’s YTM greatly influence our cost of capital
in the number of deliveries. Furthermore, we feel all scenarios estimations and intrinsic value. Figure 27 displays that a .1%
closely reflect possible delivery schedules for 2008, with deviation in the risk-free rate alters estimated intrinsic value by
deliveries to date at 330. Figure 24 shows the resulting valuation 2%, favorably and unfavorably.
and delivery differences.
Figure 27
Figure 24 Risk Free Rate Sensitivity Analysis
Worst Base Best YTM 4.16% 4.26% 4.36% 4.46% 4.56%
Case Case Case Price $49.75 $48.78 $47.84 $46.92 $46.03
Estimated Stock Price $44.12 $47.83 $58.62
2008 Deliveries 332 343 386 CV Growth
CV Deliveries 477 564 816 One of the most difficult assumptions to make was Boeing’s
continuing value growth rate. Although we see Boeing’s
We feel this test accurately captures changes in aircraft demand, operations steadily growing, non quantifiable exogenous factors
Boeing’s orders backlog and Boeing’s internal abilities to influence how fast the company grows. We felt that a reasonable
increase order turnover. As seen in figure 24 even with these growth estimate is 3.50 but found through our analysis that
volatile changes in growth expectations, our estimates of changes in the growth rate greatly influence Boeing’s value.
Boeing’s intrinsic value still exceed the current market value, Figure 28 suggests that minor changes in the growth rate have a
affirming our BUY rating. marginal impact on Boeing’s intrinsic value. However, large
changes in the growth rate greatly influence the model’s
Beta and Market Risk Premium predictive capabilities.
To calculate the cost of capital we assumed two exogenous
variables were static. The first variable Beta, proxies as a risk Figure 28
factor in the WACC. Changes in this variable alter price CV Growth Sensitivity Analysis
estimates for Boeing. Although we are confident with our Beta CV Growth 3.40% 3.45% 3.50% 3.55% 3.60%
estimate of 1.25, price estimates depend on this number. Figure Price $47.38 $47.61 $47.83 $48.06 $48.30
25 shows that a .05 increase in beta reduces the price by 4.7%,
where a decrease in beta by .05 increases price by 4.8%. Endogenous Factors
Revenue Per Delivery
Figure 25 One critical assumption in our model is the revenue generated
Beta Sensitivity Analysis per delivery. We estimated these numbers from historical
Beta 1.15 1.2 1.25 1.3 1.35 averages. Changes in unit revenues reflect Boeing’s ability to
Price $52.65 $50.15 $47.83 $45.66 $43.63 maintain margins through higher price premiums. Figure 29
shows that a decrease in unit revenue of $10 million lowers the
In addition to Beta, the Market Risk Premium (MRP) was intrinsic value by 11.5%. While an increase in unit, revenue of
another exogenous variable assumed in the model. We $10 million raises intrinsic value by 10.3%. This test captures
calculated the MRP on historical geometric averages and pricing variations in the competitive aerospace markets. Lower
assumed it remained static over time. While we are confident estimates display a more competitive market limiting pricing
with our current MRP estimate of 4.82%, this number will power. Scenarios with higher estimates reflect Boeing’s ability
change over time. Figure 26 shows that a 10% decrease in the to increase its pricing power.

Page | 11
Important Disclosures appear on the last page of this document
Figure 29
Unit Revenue Sensitivity Analysis Investment Summary
Revenue Per Plane 54 64 74 84 94
Price $37.89 $42.86 $47.83 $52.80 $57.77
Based on our analysis, we believe that Boeing’s (BA) current
In addition to testing the commercial airplane unit revenue, we stock price of $43.16 is undervalued. With Boeing’s strong
also tested unit revenues per defense contract. Changes in these historical performance and stable growth forecasts, we feel that
figures affect the intrinsic value less. For instance, a decrease in Boeing’s intrinsic value falls between $45 and $49. Boeing’s
IDS unit revenue of $10 million lowers the intrinsic value 2.2% diverse business segments, strong product lines, customer focus
where an increase only raises intrinsic value 2.2%. This analysis and product innovation create significant upside potential. A
affirms our assumptions that Boeing’s value comes from its large portion of this value depends on the success of the 787,
commercial airplane business and not defense contracting. which delays continue to reduce Boeing’s stock price. Once this
Figure 30 displays price variations by varying unit revenues. product gets to market, these discounts will dissipate reflecting
Boeing’s ability to improve aviation. After a rigorous analysis of
Figure 30 the economy, the aerospace industry and Boeing itself, we can
Unit Revenue Sensitivity Analysis confidently say that Boeing warrents a BUY rating.
Revenue Per Contract 105 115 125 135 145
Price $45.68 $46.76 $47.83 $48.91 $49.98

Continuing Value Cost of Products

One other variable that influences Boeing’s margins is the Cost
of Products. We were especially interested in these inputs given
recent increases in direct labor hours and the decreases in raw
materials required for fabrication. Given Boeing’s increase in
labor cost from the Mechanist and Engineer contracts modest
increases in these percentages could occur. Figure 31 shows how
changes in cost of products expressed as a percentage of sales
affect Boeing’s intrinsic value. A 1% increase in this ratio
decreases the intrinsic value by 17% while a 1% decrease
increases value by 15%. We are confident that our estimate of
63.82% reflects Boeing’s ability to manage costs and maintain
economies of scale.

Figure 31
CV Cost of Products Sensitivity Analysis
CV Cost of Products 61.82% 62.82% 63.82% 64.82% 65.82%
Price $62.08 $54.95 $47.81 $40.67 $33.53

CV ROIC
The CV ROIC aggregates endogenous variables and therefore is
a good metric to examine the affects of all estimations. We are
confident that our CV ROIC of 14.79% accurately reflects the
returns from Boeing’s operations. Figure 32 show that marginal
increase and decreases of .1% only affect price by .7% in both
directions. Moving beyond this quartile results in similar
changes but at higher magnitudes, a .2% increase or decrease in
CV ROIC moves the intrinsic value by 1.5% favorably and
unfavorably. Given the symmetry of these changes and marginal
impact on intrinsic value, we feel that our estimates for
endogenous variables appropriately represent Boeing’s intrinsic
value.

Figure 32
CV ROIC Sensitivity Analysis
CV ROIC 14.59% 14.69% 14.79% 14.89% 14.99%
Price $47.09 $47.46 $47.83 $48.20 $48.57

Page | 12
Important Disclosures appear on the last page of this document
 Source Citations 16. IBIS World Aircraft engine and parts manufacturing
in the US industry report (Industry Conditions)
1. Dismal Scientist Employment Situation http://www.ibisworld.com/industry/conditions.aspx?
http://www.economy.com/dismal/pro/release.asp indid=842

2. Dismal Scientist Personal Income 17. Boeing 737 Family

http://www.economy.com/dismal/pro/release.asp?r= http://www.boeing.com/commercial/787family/prog
usa_income ramfacts.html

3. Yahoo Finance S&P 500 Index 18. Boeing Orders Report

http://finance.yahoo.com http://active.boeing.com/commercial/orders/ind
ex.cfm?content=displaystandardreport.cfm&pa
4. Yahoo Finance geid=m25062&RequestTimeout=100000
http://finance.yahoo.com/bonds
19. Boeing 787 Dreamliner
5. Bloomberg Finance TED Spread http://www.boeing.com/commercial/787family/prog
http://www.bloomberg.com/apps/quote?ticker=.teds ramfacts.html
p%3Aind
20. Boeing Annual Report
6. Federal Reserve Board (Satisfying Customers. P. 13)
http://www.federalreserve.gov/fomc/fundsrate.htm
21. Boeing Orders Report
7. Dismal Scientist Producer Price Index http://active.boeing.com/commercial/orders/ind
http://www.economy.com/dismal/pro/release.asp?r= ex.cfm?content=displaystandardreport.cfm&pa
usa_industrial geid=m25063&RequestTimeout=20000

8. Dismal Scientist Manufactures Alliance MAPI 22. Seattle Time Boeing’s Profits Dive
Survey http://seattletimes.nwsource.com/html/boeingae
http://www.economy.com/dismal/pro/release.asp?r= rospace/2008300051_boeing23.html
usa_mapi
23. Boeing Union reach deal to end 53 day strike
9. Dismal Scientist Industrial Production Index http://www.msnbc.msn.com/id/27408804/
http://www.economy.com/dismal/pro/release.asp?r=
usa_industrial 24. Balanced Growth
http://www.boeing.com/commercial/cmo/growth.ht
10. Dismal Scientist ISM Index ml
http://www.economy.com/dismal/pro/release.asp?r=
usa_napm 25. 787 Fact Sheet
http://www.boeing.com/commercial/787family/prog
11. Boeing and Machinists Agree – now to round 2 ramfacts.html
http://www.marketwatch.com
26. Forbes.com
12. IBIS World Aircraft Transportation Industry Report http://people.forbes.com/profile/w-james-
http://www.ibisworld.com/industry/keystatistics.asp mcnerney/78335
x?indid=951

13. Boeing Annual Report Figure Citations

14. FAA Aero Space Forecasts General Aviation
http://www.faa.gov/data_statistics/aviation/aerospac Figure 1: Yahoo Finance
e_forecasts/2008-2025/ http://finance.yahoo.com/q/bc?t=1y&s=BA&l=on&
z=m&q=l&c=&c=%5EGSPC
15. Current Market Outlook
http://www.boeing.com/commercial/cmo/index.html Figure 2: Analyst created chart. Source: Dismal Scientist
United States GDP
http://www.economy.com/dismal/pro/release.as
p?r=usa_gdp

Page | 13
Important Disclosures appear on the last page of this document

Figure 3: Analyst created chart. Source: Dismal Scientist
Employment Situation
http://www.economy.com/dismal/pro/releas
e.asp?rk=0DACB97C-6564-4902-9B40-
78C674EBE5CA
Figure 4: Analyst created chart. Source: Yahoo Finance S&P
500 Index
http://finance.yahoo.com/q/hp?s=%5EGSPC
&a=09&b=31&c=2005&d=10&e=1&f=2008
&g=d
Figure 5: Analyst created chart. Source: Dismal Scientist
Producer Price Index
http://www.economy.com/dismal/pro/release.
asp?r=usa_ppi
Figure 6: Analyst created chart. Source: Dismal
Scientist Manufactures Alliance MAPI
Survey
http://www.economy.com/dismal/pro/releas
e.asp?r=usa_mapi
Figure 7: Analyst created chart. Source: Dismal Scientist
Industrial Production
http://www.economy.com/dismal/pro/releas
e.asp?r=usa_industrial
Figure 8: Analyst created chart. Source: Dismal
Scientist ISM Index
http://www.economy.com/dismal/pro/relea
se.asp?r=usa_napm
Figure 9: Analyst created chart. Source: Dismal
Scientist Productivity and Cost
http://www.economy.com/dismal/pro/relea
se.asp?r=usa_productivity
Figure 10: Analyst created chart. Source: Dismal Scientist
Import Export Prices
http://www.economy.com/dismal/pro/relea
se.asp?r=usa_impex
Figure 11: Analyst created chart. Source: Boeing
Current Market outlook
http://www.boeing.com/commercial/cmo/
markets.html
Figure 12: Analyst created chart. Source: Boeing
Annual Report and yahoo finance
http://finance.yahoo.com/q/co?s=RTN
Figure 13: Analyst created chart. Source: FAA General
Aviation tables.
http://www.faa.gov/data_statistics/aviation/
aerospace_forecasts/2008-2025/
Important Disclosures appear on the last page of this document
Figure 14: Analyst created chart. Source: Department of
Defense Budget
http://www.defenselink.mil/comptroller/defb
udget/fy2007/fy2007_greenbook.pdf
Figure 15: Analyst created chart. Source: IBIS World
Industry Conditions
http://www.ibisworld.com/industry/condition
s.aspx?indid=951
Figure 16: Analyst created chart. Source: General Aviation
tables
www.faa.gov/data_statistics
Figure 17: Analyst created chart. Source: Boeing Annual
Report
Figure 18: Analyst created chart. Source:
http://active.boeing.com/commercial/orders/inde
x.cfm
Figure 19: Analyst created chart. Source:
http://active.boeing.com/commercial/orders/inde
x.cfm
Figure 20: Analyst created chart. Source:
http://active.boeing.com/commercial/orders/inde
x.cfm
Figure 21: Analyst created chart. Analyst’s estimates.
Figure 22: Analyst created chart. Analyst’s estimates.
Figure 23: Analyst created chart. Analyst’s estimates.
Figure 24: Analyst created chart. Analyst’s estimates.
Figure 25: Analyst created chart. Analyst’s estimates.
Figure 26: Analyst created chart. Analyst’s estimates.
Figure 27: Analyst created chart. Analyst’s estimates.
Figure 28: Analyst created chart. Analyst’s estimates.
Figure 29: Analyst created chart. Analyst’s estimates.
Figure 30: Analyst created chart. Analyst’s estimates.
Figure 31: Analyst created chart. Analyst’s estimates.
Figure 32: Analyst created chart. Analyst’s estimates.
Page | 14
Important Disclaimer

This report was created by students enrolled in the Security

Analysis (6F:112) class at the University of Iowa. The report
was originally created to offer an internal investment
recommendation for the University of Iowa Krause Fund and
its advisory board. The report also provides potential
employers and other interested parties an example of the
students’ skills, knowledge and abilities. Members of the
Krause Fund are not registered investment advisors, brokers
or officially licensed financial professionals. The investment
advice contained in this report does not represent an offer or
solicitation to buy or sell any of the securities mentioned.
Unless otherwise noted, facts and figures included in this
report are from publicly available sources. This report is not a
complete compilation of data, and its accuracy is not
guaranteed. From time to time, the University of Iowa, its
faculty, staff, students, or the Krause Fund may hold a
financial interest in the companies mentioned in this report.

Page | 15
Important Disclosures appear on the last page of this document
The Boeing Co.
Key Assumptions of Valuation Model

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CV

Earnings Accounts

Sales of products (Cyclical) %of Total Sales 82.78% 85.56% 85.93% 85% 85% 85% 85% 85% 85% 85% 85%

Sales Of Services %of Total Sales 17.22% 14.44% 14.07% 15% 15% 15% 15% 15% 15% 15% 15%

Costs

Cost of Products Cost of Products/Sales 69.44% 69.06% 68.35% 67.15% 63.59% 64.02% 64.02% 64.02% 63.92% 63.82% 63.82%

Cost of Services Cost of Services/Sales 14.16% 12.34% 11.65% 12.98% 12.78% 12.44% 12.46% 12.67% 13.09% 13.16% 13.20%

Boeing Capital Interest Cost Interest Cost/Sales 0.65% 0.57% 0.44% 0.56% 0.53% 0.51% 0.53% 0.52% 0.52% 0.52% 0.56%

Income from Operating Investments Income from Op Investments/Sales 0.16% 0.24% 0.28% 0.31% 0.28% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29%

SG&A SG&A/Sales 7.71% 6.78% 5.32% 5.58% 5.89% 5.60% 5.69% 5.73% 5.67% 5.70% 5.70%

R&D R&D/Sales 4.02% 5.29% 5.80% 6.14% 6.84% 7.36% 6.78% 7.00% 7.05% 7.14% 7.26%

Other Income Other income/ Sales 0.55% 0.68% 0.73% 0.83% 0.82% 0.87% 0.79% 0.81% 0.82% 0.78% 0.77%

Interest and Debt Expense Interest Expense/Total Debt -3% -3% -2% -3% -2% -2% -3% -2% -2% -2% -2%

Provision for Income Taxes Tax Expense/Earnings Before Taxes 9.12% 30.93% 33.67% 34.24% 35.89% 37.00% 36.45% 36.72% 36.58% 36.65% 36.62%

Balance Sheet Accounts

Cash Cash/Sales 9.87% 9.94% 10.61% 10.91% 11.26% 10.52% 10.65% 10.79% 10.82% 10.81% 10.72%

Net Accounts Receivable Net A/R/ Sales 9.57% 8.59% 8.65% 8.72% 8.68% 8.64% 8.46% 8.43% 8.39% 8.32% 8.25%

Current Portion of Customer Financing Current Portion/ Net A/R 7.00% 7.00% 5.71% 5.79% 6.56% 6.41% 6.64% 6.93% 7.05% 7.26% 7.47%

inventories and progress billings Inventories/Cogs +Stdev 21% 19% 21% 19% 18% 20% 19% 20% 19% 19% 19%

net customer financing net customer financing/sales 18% 14% 10% 17% 16% 15% 14% 14% 15% 15% 15%

Net PP&E Net P&E / Revenues 15% 12% 12% 15% 16% 16% 18% 20% 21% 22% 25%

Other Assets Other Assets/ Sales 1.80% 4.44% 1.89% 3.14% 3.51% 3.26% 3.38% 3.64% 3.51% 3.41% 3.45%

Accounts Payable AP/GOGS 43% 38% 37% 35.50% 34.13% 33.02% 30.95% 29.51% 28.06% 26.58% 25.06%

Advanced Billings Advanced Billings/ Sales 18.11% 18.61% 20.86% 17.03% 16.49% 16.22% 15.84% 15.29% 14.17% 15.60% 15.36%

Income Taxes Payable Income Tax Payable/ Tax expense -216% -68% -12% -12.00% -12.00% -12.00% -12.00% -12.00% -12.00% -12.00% -12.00%

Short Term Debt and Current portion of Long Term Debt Shrot term debt/ Current Assets 5% 6% 3% 3.77% 3.19% 4.23% 4.00% 3.60% 3.76% 3.76% 3.87%

non current income taxes payable Non Current Income Taxes Payable/EBT 0% 0% 18% 15% 13% 11% 9% 7% 5% 3% 1%

other L-T liabilities Other LT Liabilities/Sales 0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Long term debt LT debt/ assets 16% 16% 13% 12.69% 12.10% 13.81% 13.40% 12.93% 12.99% 13.05% 13.23%
The Boeing Company
Revenue Decomposition
$MM

Historical Boeing Earnings 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
Commercial Airplanes $ 21,365 $ 28,465 $ 33,386 $ 25,054 $ 28,812 $ 35,660 $ 36,286 $ 38,492 $ 40,096 $ 41,267 $ 41,751
Integrated Defense Systems $ 31,106 $ 32,439 $ 32,080 $ 28,496 $ 29,068 $ 29,413 $ 30,665 $ 30,238 $ 30,637 $ 30,838 $ 31,072
Boeing Capital Corporation $ 966 $ 1,025 $ 815 $ 752 $ 977 $ 1,108 $ 1,083 $ 1,201 $ 1,264 $ 1,276 $ 1,289
Other $ 657 $ 299 $ 280 $ 290 $ 285 $ 287 $ 286 $ 287 $ 286 $ 286 $ 286
Accounting differences/eliminations $ (473) $ (698) $ (174) $ - $ - $ - $ - $ - $ - $ - $ -
Revenues $ 53,621 $ 61,530 $ 66,387 $ 54,591 $ 59,142 $ 66,469 $ 68,320 $ 70,218 $ 72,283 $ 73,668 $ 74,398

Boeing Commercial Airplanes

Deliveries
717 12 5 0
737 212 302 330 264 304 314 321 333 347 355 359
747 13 12 16 13 15 15 16 16 17 17 17
757 2 0 0
767 10 12 12
777 40 65 83 66 76 79 81 84 87 89 90
787 80 80 87 91 96 98

Total Deliveries 289 396 441 343 395 488 497 520 542 558 564
Revenue Per Delivery 73.93 71.88 75.71 73.00 73.00 73.00 73.00 74.00 74.00 74.00 74.00

Revenue Split Per Backlogged Plane Order

(Revenue/Orders)*Model Order
717 $ 887 $ 359 $ - $ - $ - $ - $ - $ - $ - $ - $ -
737 $ 15,673 $ 21,708 $ 24,983 $ 19,272 $ 22,163 $ 22,938 $ 23,397 $ 24,666 $ 25,653 $ 26,294 $ 26,557
747 $ 961 $ 863 $ 1,211 $ 934 $ 1,075 $ 1,112 $ 1,134 $ 1,196 $ 1,244 $ 1,275 $ 1,288
757 $ 148 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
767 $ 739 $ 863 $ 908 $ - $ - $ - $ - $ - $ - $ - $ -
777 $ 2,957 $ 4,672 $ 6,284 $ 4,847 $ 5,574 $ 5,769 $ 5,885 $ 6,204 $ 6,452 $ 6,613 $ 6,680
787 $ - $ - $ - $ - $ - $ 5,840 $ 5,869 $ 6,426 $ 6,747 $ 7,084 $ 7,226
Total Commercial Plane Revenue $ 21,365 $ 28,465 $ 33,386 $ 25,054 $ 28,812 $ 35,660 $ 36,286 $ 38,492 $ 40,096 $ 41,267 $ 41,751

Boeing Capital
% of Commerical Plane Revenue 5% 4% 2% 3% 3% 3% 3% 3% 3% 3% 3%

Integrated Defense Systems

IDS Deliveries
F/A-18 Models 42 42 44 44 45 46 48 48 49 50 50
T-45TS Goshawk 10 13 9 10 10 11 11 11 11 12 12
F-15E Eagle 6 12 12 12 12 13 13 13 13 14 14
C-17 Globemaster 16 16 16 16 16 17 17 18 18 18 18
CH-47 Chinook 2 10 10 10 11 11 11 11 11 11
AH-64 Apache 12 31 17 16 16 17 17 17 18 18 18
C-40A Clipper 2 1 3 2 2 2 2 2 2 2 2
Total Deliveries 88 117 111 110 112 116 119 121 123 124 126

Revenue per Delivery 151.23 120.57 123.29 125.00 125.00 125.00 125.00 125.00 125.00 125.00 125.00

Revenue Split Per Contract Delivery

(Revenue/Orders)*Model Order
F/A-18 Models $6,352 $5,064 $5,425 $5,500 $5,610 $5,778 $5,952 $6,041 $6,162 $6,223 $6,286
T-45TS Goshawk $1,512 $1,567 $1,110 $1,275 $1,301 $1,340 $1,380 $1,400 $1,428 $1,443 $1,457
F-15E Eagle $907 $1,447 $1,479 $1,500 $1,530 $1,576 $1,623 $1,648 $1,680 $1,697 $1,714
C-17 Globemaster $2,420 $1,929 $1,973 $2,000 $2,040 $2,101 $2,164 $2,197 $2,241 $2,263 $2,286
CH-47 Chinook $0 $241 $1,233 $1,250 $1,275 $1,313 $1,353 $1,373 $1,400 $1,414 $1,429
AH-64 Apache $1,815 $3,738 $2,096 $1,969 $2,008 $2,068 $2,130 $2,162 $2,206 $2,228 $2,250
C-40A Clipper $302 $121 $370 $250 $255 $263 $271 $275 $280 $283 $286
Total Revenue of Precision Engagement and Mobility System $13,308 $14,107 $13,685 $13,744 $14,019 $14,439 $14,872 $15,095 $15,397 $15,551 $15,707

Network and Space System

Delta II Commercial
Delta II Government 2 2
Delta IV Government 3
Satellites 3 4 4 4 4 4 4 4 4 4 4
Total Deliveries 5 9 4 4 4 4 4 4 4 4 4

Revenue/Delivery 2444 1327 2924 2216 2228 2174 2385 2251 2259 2267 2291

Revenue Split Per Order

(Revenue/Orders)*Model Order
Delta II Commercial - - - - - - - - - - -
Delta II Government $4,888 $2,654 - - - - - - - - -
Delta IV Government $0 $3,980 - - - - - - - - -
Satellites $7,333 $5,307 $11,696 $8,865 $8,911 $8,695 $9,542 $9,003 $9,038 $9,070 $9,163
Total Revenue of Network and Space System $12,221 $11,941 $11,696 $8,865 $8,911 $8,695 $9,542 $9,003 $9,038 $9,070 $9,163

Total Revenue of Support System $5,577 $6,391 $6,699 $5,887 $6,139 $6,279 $6,251 $6,139 $6,202 $6,218 $6,202

Total IDS Revenue $31,106 $32,439 $32,080 $28,496 $29,068 $29,413 $30,665 $30,238 $30,637 $30,838 $31,072
The Boeing Co.
Income Statement
Fiscal Years Ending December 31
$MM
2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
Total revenues 54,845 61,530 66,387 54,591 59,142 66,469 68,320 70,218 72,283 73,668 74,398
Sales of products 45,398 52,644 57,049 46,139 50,091 56,616 58,127 59,592 61,408 62,632 63,224
Sales of services 9,447 8,886 9,338 8,452 9,051 9,853 10,193 10,626 10,875 11,035 11,174

Total costs & expenses 46,208 50,437 53,402 44,049 45,481 51,157 52,613 54,212 56,037 57,096 57,714
Cost of products 38,082 42,490 45,375 36,657 37,610 42,551 43,736 44,951 46,200 47,012 47,478
Cost of services 7,767 7,594 7,732 7,088 7,561 8,268 8,515 8,895 9,461 9,698 9,818
Boeing Capital Corporation interest expense 359 353 295 304 311 338 363 366 376 386 418

Gross profit (loss) 8,637 11,093 12,985 10,542 13,661 15,311 15,706 16,006 16,245 16,571 16,684

Income (loss) from operating investments, net 88 146 188 30 103 107 162 199 226 205 217
General & administrative expense (4,228) (4,171) (3,531) (3,046) (3,485) (3,720) (3,887) (4,021) (4,099) (4,196) (4,239)
Research & development expense (2,205) (3,257) (3,850) (3,351) (4,048) (4,893) (4,633) (4,912) (5,093) (5,261) (5,402)
Gain (loss) on dispositions/business shutdown, net 520 (226) 38
Share Based Plans Expense
Goodwill impairment - - - - - - - - - - -
Settlement with U.S. Department of Justice, net of accruals - (571) - - - - - - - - -
Impact of September 11, 2001, charges (recoveries) - - - - - - - - - - -

Earnings (loss) from operations 2,812 3,014 5,830 4,175 6,231 6,805 7,348 7,271 7,280 7,320 7,260
Other income, net 301 420 484 455 484 579 538 567 595 576 576
Interest & debt expense (294) (240) (196) (207) (200) (249) (252) (249) (261) (269) (280)

Earnings (loss) before income taxes 2,819 3,194 6,118 4,423 6,514 7,136 7,634 7,590 7,614 7,627 7,556
Income tax (expense) Benefit (257) (988) (2,060) (1,513) (2,228) (2,440) (2,611) (2,596) (2,604) (2,608) (2,584)
Net earnings (loss) from continuing operations 2,562 2,206 4,058 2,910 4,286 4,695 5,023 4,994 5,010 5,018 4,972
Income (loss) from discontinued operations, net - - -
Net gain (loss) on disposal of discontinued operations, net (7) 9 16
Cumulative effect of accounting change, net of taxes 17 - - - - - - - - - -

Net earnings (loss) 2,572 2,215 4,074 2,910 4,286 4,695 5,023 4,994 5,010 5,018 4,972

Net earnings (loss) per share-basic 3.27 2.89 5.38 4.15 5.36 5.71 6.39 6.39 6.39 6.38 6.54

Shares 787 766 757 702 799 823 786 782 784 787 760

Dividends 861 991 1,129 1,426 1,321 1,500 1,643 1,758 1,748 1,753 1,756

Dividend Per Share $ 1.05 $ 1.25 $ 1.45 $ 1.88 $ 1.88 $ 1.88 $ 2.00 $ 2.24 $ 2.24 $ 2.24 $ 2.23
The Boeing Co.
Common Size Income Statement
Fiscal Years Ending December 31

2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
Total revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Sales of products 82.78% 85.56% 85.93% 84.52% 84.70% 85.18% 85.08% 84.87% 84.96% 85.02% 84.98%
Sales of services 17.22% 14.44% 14.07% 15.48% 15.30% 14.82% 14.92% 15.13% 15.04% 14.98% 15.02%

Total costs & expenses 84.25% 81.97% 80.44% 80.69% 76.90% 76.96% 77.01% 77.21% 77.53% 77.51% 77.57%
Cost of products 69.44% 69.06% 68.35% 67.15% 63.59% 64.02% 64.02% 64.02% 63.92% 63.82% 63.82%
Cost of services 14.16% 12.34% 11.65% 12.98% 12.78% 12.44% 12.46% 12.67% 13.09% 13.16% 13.20%
Boeing Capital Corporation interest expense 0.65% 0.57% 0.44%

Gross profit (loss) 15.75% 18.03% 19.56% 19.31% 23.10% 23.04% 22.99% 22.79% 22.47% 22.49% 22.43%

Income (loss) from operating investments, net 0.16% 0.24% 0.28% 0.06% 0.17% 0.16% 0.24% 0.28% 0.31% 0.28% 0.29%
General & administrative expense -7.71% -6.78% -5.32% -5.58% -5.89% -5.60% -5.69% -5.73% -5.67% -5.70% -5.70%
Research & development expense -4.02% -5.29% -5.80% -6.14% -6.84% -7.36% -6.78% -7.00% -7.05% -7.14% -7.26%
Gain (loss) on dispositions/business shutdown, net 0.95% -0.37% 0.06% - - - - - - - -
Goodwill impairment 0.00% - - - - - - - - - -
Settlement with U.S. Department of Justice, net of accruals 0.00% -0.93% - - - - - - - - -
Impact of September 11, 2001, charges (recoveries) 0.00% - - - - - - - - - -

Earnings (loss) from operations 5.13% 4.90% 8.78% 7.65% 10.54% 10.24% 10.76% 10.36% 10.07% 9.94% 9.76%
Other income, net 0.55% 0.68% 0.73% 0.83% 0.82% 0.87% 0.79% 0.81% 0.82% 0.78% 0.77%
Interest & debt expense -0.54% -0.39% -0.30% -0.38% -0.34% -0.37% -0.37% -0.35% -0.36% -0.36% -0.38%

Earnings (loss) before income taxes 5.14% 5.19% 9.22% 8.10% 11.01% 10.74% 11.17% 10.81% 10.53% 10.35% 10.16%
Income tax expense (benefit) -0.47% -1.61% -3.10% -2.77% -3.77% -3.67% -3.82% -3.70% -3.60% -3.54% -3.47%
Net earnings (loss) from continuing operations 4.67% 3.59% 6.11% 5.33% 7.25% 7.06% 7.35% 7.11% 6.93% 6.81% 6.68%
Income (loss) from discontinued operations, net 0.00% - - - - - - - - - -
Net gain (loss) on disposal of discontinued operations, net -0.01% 0.01% 0.02% - - - - - - - -
Cumulative effect of accounting change, net of taxes 0.03% - - - - - - - - - -

Net earnings (loss) 4.69% 3.60% 6.14% 5.33% 7.25% 7.06% 7.35% 7.11% 6.93% 6.81% 6.68%
The Boeing Co.
Balance Sheet
Fiscal Years Ending December 31
$MM
2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
Cash & cash equivalents 5,412 6,118 7,042 5,956 6,657 6,991 7,274 7,575 7,824 7,961 7,973
Short-term investments 554 268 2,266 2,358 2,454 2,554 2,658 2,766 2,879 2,996 3,118
Accounts receivable, net 5,246 5,285 5,740 4,762 5,133 5,743 5,777 5,918 6,061 6,127 6,135
Current portion of customer financing, net 367 370 328 276 337 368 384 410 427 445 458
Income taxes receivable - - - - - - - - - - -
Deferred income taxes 2,449 2,837 2,341 2,128 1,935 1,759 1,599 1,454 1,321 1,201 1,092
Inventories, net of advances & progress billings 7,940 8,105 9,563 7,070 6,892 8,392 8,527 8,802 8,909 9,065 9,246
Assets of discontinued operations - - - - - - - - - - -
Total current assets 21,968 22,983 27,280 22,550 23,408 25,807 26,219 26,925 27,421 27,795 28,021

Customer financing, net 9,639 8,520 6,777 9,322 9,286 9,892 9,799 10,141 11,051 10,999 10,994
Property, plant & equipment, net 8,420 7,675 8,265 7,978 9,593 10,798 12,571 13,769 15,208 16,446 18,262
Goodwill 1,924 3,047 3,081 3,081 3,081 3,081 3,081 3,081 3,081 3,081 3,081
Prepaid pension expense 13,251 - - - - - - - - - -
Other acquired intangibles, net 875 1,698 2,093 2,224 2,556 2,442 2,405 2,391 2,385 2,395 2,397
Deferred income taxes 140 1,051 197 179 163 148 135 122 111 101 92
Investments 2,852 4,085 4,111 4,275 4,446 4,624 4,809 5,002 5,202 5,410 5,626
Pension plan assets, net - - 5,924 5,924 5,924 5,924 5,924 5,924 5,924 5,924 5,924
Other assets 989 2,735 1,258 1,713 2,075 2,168 2,309 2,557 2,536 2,509 2,567
Total assets 60,058 51,794 58,986 57,247 60,532 64,883 67,251 69,912 72,920 74,661 76,964

Accounts payable & other liabilities 16,513 16,201 16,676 13,012 12,837 14,049 13,535 13,265 12,965 12,494 11,900
Advances & billings in excess of related costs 9,930 11,449 13,847 9,297 9,754 10,780 10,823 10,735 10,245 11,494 11,427
Income taxes payable 556 670 253 182 267 293 313 311 312 313 310
Short-term debt & current portion of long-term debt 1,189 1,381 762 849 747 1,093 1,048 968 1,030 1,044 1,084
Total current liabilities 28,188 29,701 31,538 23,339 23,605 26,214 25,719 25,280 24,553 25,345 24,721

Deferred income taxes 2,067 1,190 1,082 983 894 813 739 672 611 555
Accrued retiree health care 5,989 7,671 7,007 7,286 7,400 7,331 7,363 7,344 7,353 7,349 7,351
Accrued pension plan liability 2,948 1,135 1,155 1,238 1,235 1,252 1,241 1,245 1,243 1,244 1,244
Non-current income taxes payable - - 1,121 663 847 785 687 531 381 229 76
Deferred lease income 269 - - - - - - - - - -
Other long-term liabilities - 391 516 386 439 481 501 512 528 537 543
Long-term debt 9,538 8,157 7,455 7,265 7,327 8,962 9,011 9,039 9,470 9,741 10,186
Total Liabilities 48,999 47,055 49,982 41,259 41,836 45,920 45,336 44,690 44,200 45,056 44,676

Common Equity 9,432 9,716 9,818 9,818 9,818 9,818 9,818 9,818 9,818 9,818 9,818
Treasury shares, at cost (11,075) (12,459) (14,842) (10,201) (8,955) (11,089) (11,354) (11,217) (10,991) (13,325) (13,952)
Retained earnings (accumulated deficit) 17,276 18,453 21,376 22,860 25,825 29,020 32,400 35,636 38,898 42,163 45,378
Accumulated other comprehensive income (loss) (1,778) (8,217) (4,596) (3,690) (5,193) (5,985) (6,148) (6,215) (6,206) (6,250) (6,156)
ShareValue trust shares (2,796) (2,754) (2,752) (2,800) (2,800) (2,800) (2,800) (2,800) (2,800) (2,800) (2,800)
Total shareholders' equity 11,059 4,739 9,004 15,988 18,696 18,964 21,916 25,222 28,720 29,605 32,288
Total Liabilities and Shareholders' equity 60,058 51,794 58,986 57,247 60,532 64,883 67,251 69,912 72,920 74,661 76,964
The Boeing Co.
Common Size Balance Sheet
Fiscal Years Ending December 31

2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
Cash & cash equivalents 9.87% 9.94% 10.61% 10.91% 11.26% 10.52% 10.65% 10.79% 10.82% 10.81% 10.72%
Short-term investments 1.01% 0.44% 3.41% 4.32% 4.15% 3.84% 3.89% 3.94% 3.98% 4.07% 4.19%
Accounts receivable, net 9.57% 8.59% 8.65% 8.72% 8.68% 8.64% 8.46% 8.43% 8.39% 8.32% 8.25%
Current portion of customer financing, net 0.67% 0.60% 0.49% 0.51% 0.57% 0.55% 0.56% 0.58% 0.59% 0.60% 0.62%
Income taxes receivable 0.00% 0.00% - - - - - - - - -
Deferred income taxes 4.47% 4.61% 3.53% 3.90% 3.27% 2.65% 2.34% 2.07% 1.83% 1.63% 1.47%
Inventories, net of advances & progress billings 14.48% 13.17% 14.40% 12.95% 11.65% 12.63% 12.48% 12.54% 12.33% 12.31% 12.43%
Assets of discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total current assets 40.05% 37.35% 41.09% 41.31% 39.58% 38.83% 38.38% 38.35% 37.94% 37.73% 37.66%

Customer financing, net 17.57% 13.85% 10.21% 17.08% 15.70% 14.88% 14.34% 14.44% 15.29% 14.93% 14.78%
Gross P&E
Accumulated Depreciation
Property, plant & equipment, net 15.35% 12.47% 12.45% 14.61% 16.22% 16.24% 18.40% 19.61% 21.04% 22.33% 24.55%
Goodwill 3.51% 4.95% 4.64% 5.64% 5.21% 4.64% 4.51% 4.39% 4.26% 4.18% 4.14%
Prepaid pension expense 24.16% 0.00% - - - - - - - - -
Other acquired intangibles, net 1.60% 2.76% 3.15% 4.07% 4.32% 3.67% 3.52% 3.41% 3.30% 3.25% 3.22%
Deferred income taxes 0.26% 1.71% 0.30% 0.33% 0.28% 0.22% 0.20% 0.17% 0.15% 0.14% 0.12%
Investments 5.20% 6.64% 6.19% 7.83% 7.52% 6.96% 7.04% 7.12% 7.20% 7.34% 7.56%
Pension plan assets, net 0.00% 0.00% 8.92% 10.85% 10.02% 8.91% 8.67% 8.44% 8.20% 8.04% 7.96%
Other assets 1.80% 4.44% 1.89% 3.14% 3.51% 3.26% 3.38% 3.64% 3.51% 3.41% 3.45%
Total assets 109.50% 84.18% 88.85% 104.87% 102.35% 97.62% 98.44% 99.56% 100.88% 101.35% 103.45%

Accounts payable & other liabilities 30.11% 26.33% 25.12% 23.83% 21.71% 21.14% 19.81% 18.89% 17.94% 16.96% 16.00%
Advances & billings in excess of related costs 18.11% 18.61% 20.86% 17.03% 16.49% 16.22% 15.84% 15.29% 14.17% 15.60% 15.36%
Income taxes payable 1.01% 1.09% 0.38% 0.33% 0.45% 0.44% 0.46% 0.44% 0.43% 0.42% 0.42%
Short-term debt & current portion of long-term debt 2.17% 2.24% 1.15% 1.56% 1.26% 1.64% 1.53% 1.38% 1.43% 1.42% 1.46%
Total current liabilities 51.40% 48.27% 47.51% 42.75% 39.91% 39.44% 37.65% 36.00% 33.97% 34.40% 33.23%

Deferred income taxes 3.77% 0.00% 1.79% 1.98% 1.66% 1.35% 1.19% 1.05% 0.93% 0.83% 0.75%
Accrued retiree health care 10.92% 12.47% 10.55% 13.35% 12.51% 11.03% 10.78% 10.46% 10.17% 9.98% 9.88%
Accrued pension plan liability 5.38% 1.84% 1.74% 2.27% 2.09% 1.88% 1.82% 1.77% 1.72% 1.69% 1.67%
Non-current income taxes payable 0.00% 0.00% 1.69% 1.22% 1.43% 1.18% 1.01% 0.76% 0.53% 0.31% 0.10%
Deferred lease income 0.49% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other long-term liabilities 0.00% 0.64% 0.78% 0.71% 0.74% 0.72% 0.73% 0.73% 0.73% 0.73% 0.73%
Long-term debt 17.39% 13.26% 11.23% 13.31% 12.39% 13.48% 13.19% 12.87% 13.10% 13.22% 13.69%

Common shares 17.20% 15.79% 14.79%

Treasury shares, at cost -20.19% -20.25% -22.36% -18.69% -15.14% -16.68% -16.62% -15.97% -15.21% -18.09% -18.75%
Retained earnings (accumulated deficit) 31.50% 29.99% 32.20% 41.88% 43.67% 43.66% 47.42% 50.75% 53.81% 57.23% 60.99%
Accumulated other comprehensive income (loss) -3.24% -13.35% -6.92% -6.76% -8.78% -9.00% -9.00% -8.85% -8.59% -8.48% -8.27%
ShareValue trust shares -5.10% -4.48% -4.15% -5.13% -4.73% -4.21% -4.10% -3.99% -3.87% -3.80% -3.76%
Total shareholders' equity 20.16% 7.70% 13.56% 29.29% 31.61% 28.53% 32.08% 35.92% 39.73% 40.19% 43.40%
Total Liabilities and Shareholders' equity 109.50% 84.18% 88.85% 104.87% 102.35% 97.62% 98.44% 99.56% 100.88% 101.35% 103.45%
The Boeing Co.
Cash Flow Statement
Fiscal Years Ending December 31
$MM
2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV

Operating Activities
Net earnings (loss) 2,572 2,215 4,074 2,910 4,286 4,695 5,023 4,994 5,010 5,018 4,972
Adjustments To Net Income 3,494 3,097 2,835 10,511 (950) 1,780 (335) (893) 483 (129) 362
Changes In Assets and Liabilities
Accounts receivable (592) (244) (392) 978 (371) (610) (34) (142) (143) (66) (7)
Inventories, net of advances, progress billings & reserves (1,965) 444 (1,558) 52 (61) (32) (16) (26) (17) (18) (13)
Accounts payable & other liabilities 963 (744) 928 (3,664) (175) 1,212 (514) (270) (300) (471) (594)
Advances & billings in excess of related costs 3,562 1,739 2,369 (4,550) 457 1,027 42 (88) (490) 1,249 (67)
Income taxes receivable, payable & deferred 628 933 1,290 1455 (654) (577) (410) (222) (255) (234) (233)
Deferred Lease Income
Other long-term liabilities (476) (62) 71 (130) 53 43 19 11 17 9 6
Prepaid Pension Expense (1,862) (522) (580) - - - - - - - -
Goodwill - - - - - - - - - - -
Other acquired intangibles 11 - - - - - - - - - -
Accrued retiree health care 30 114 (664) (279) (114) 69 (32) 19 (9) 4 (2)
Customer financing 589 718 1,458 (2,493) (24) (637) 77 (368) (928) 34 (8)
Other assets & liabilities 46 (189) (247) (455) (362) (93) (141) (249) 22 27 (58)
Net Operating Cash Flow 7,000 7,499 9,584 4,335 2,085 6,875 3,681 2,767 3,391 5,422 4,358

Investing Activities
Discontinued operations customer financing, additions
Discontinued operations customer financing, reductions 2 - -
PP&E (additions) reductions (1,496) (1,456) (1,672) 287 (1,614) (1,205) (1,774) (1,197) (1,440) (1,238) (1,816)
Acquisitions, net of cash acquired (172) (1,854) (75) - - - - - - - -
Proceeds from dispositions of discontinued operations - - - - - - - - - - -
Proceeds from dispositions 1,709 123 - - - - - - - - -
Investments (Contributions) Proceeds (141) 35 (1,893) 257 267 278 289 301 313 325 338
Other investing activities - (34) (182) - - - - - - - -
Net cash flows from investing activities (98) (3,186) (3,822) 543 (1,347) (927) (1,485) (897) (1,127) (913) (1,477)

Financing Activities
Net Borrowings (1,378) (1,680) (1,366) 103 39 (1,981) (5) 52 (493) (284) (485)
Stock options exercised 348 294 209 0 0 0 0 0 0 0 0
Excess tax benefits from share-based payment arrangements 70 395 144 - - - - - - - -
Common shares repurchased (2,877) (1,698) (2,775) (4,641) 1,246 (2,134) (265) 137 226 (2,334) (627)
Dividends paid (820) (956) (1,096) (1,426) (1,321) (1,500) (1,643) (1,758) (1,748) (1,753) (1,756)
Net cash flows from financing activities (4,657) (3,645) (4,884) (5,964) (36) (5,615) (1,913) (1,569) (2,015) (4,372) (2,869)

Effect of exchange rate changes on cash & cash equivalents (37) 38 46 - - - - - - - -

Net increase (decrease) in cash & cash equivalents 2,208 706 924 (1,086) 702 333 283 301 249 137 12
Cash & cash equivalents at beginning of year 3,204 5,412 6,118 7,042 5,956 6,657 6,991 7,274 7,575 7,824 7,961
Cash & cash equivalents at end of year 5,412 6,118 7,042 5,956 6,657 6,991 7,274 7,575 7,824 7,961 7,973
The Boeing Co.
Value Driver Estimation
Fiscal Years Ending December 31
$MM
2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV
NOPLAT
EBITA
Gross Profit 8,637 11,093 12,985 10,542 13,661 15,311 15,706 16,006 16,245 16,571 16,684
SG&A (4,228) (4,171) (3,531) (3,046) (3,485) (3,720) (3,887) (4,021) (4,099) (4,196) (4,239)
Boeing Capital Corporation Interest Expense (359) (353) (295) (304) (311) (338) (363) (366) (376) (386) (418)
Research and Development (2,205) (3,257) (3,850) (3,351) (4,048) (4,893) (4,633) (4,912) (5,093) (5,261) (5,402)
Income from Operating Investments 88 146 188 30 103 107 162 199 226 205 217

Total Operating Income (EBITA) 1,933 3,458 5,497 3,870 5,920 6,466 6,986 6,905 6,903 6,933 6,842
Less: Total Adjusted Taxes
Marginal Tax Rate 34.90% 34.70% 34.20% 34.20% 34.20% 34.20% 34.20% 34.20% 34.20% 34.20% 34.20%
Total Income Tax Provision 257 988 2,060 1,513 2,228 2,440 2,611 2,596 2,604 2,608 2,584
Plus: Tax Shield From Interest Expense 103 83 67 71 69 85 86 85 89 92 96
Less: Depositions on Business Divestures (181) 78 (13) - - - - - - - -
Plus: Tax Shield From Share Plan Expense
Plus: Tax Shield on Goodwill Impairment
Plus: Tax Shield from State Department Settlement - 198 - - - - - - - - -
Less: September 11th Recovery - - - - - - - - - - -
Less: Tax on Other Income (105) (146) (166) (156) (165) (198) (184) (194) (204) (197) (197)
Less: Adjusted Taxes 73 1,202 1,949 1,428 2,131 2,327 2,513 2,487 2,490 2,503 2,483
Deferred Taxes
Deferred Tax Liability 2,067 - 1,190 1,082 983 894 813 739 672 611 555
Deferred Tax Asset 2,589 3,888 2,538 2,307 2,098 1,907 1,733 1,576 1,433 1,302 1,184
Plus: Change in Deferred Taxes 533 (3,366) 2,540 123 111 101 92 84 76 69 63
NOPLAT 2,393 (1,110) 6,088 2,565 3,901 4,240 4,565 4,502 4,490 4,499 4,422

Invested Capital
Operating Current Assets
Cash & Equivalents 5,412 6,118 7,042 5,956 6,657 6,991 7,274 7,575 7,824 7,961 7,973
Excess Cash 476 580 1,067 1,043 1,335 1,008 1,125 1,255 1,318 1,331 1,277
Plus: Normal Cash (9% of Sales) 4,936 5,538 5,975 4,913 5,323 5,982 6,149 6,320 6,505 6,630 6,696
Plus: Receivables 5,246 5,285 5,740 4,762 5,133 5,743 5,777 5,918 6,061 6,127 6,135
Plus: Current Portion of Customer Financing 367 370 328 276 337 368 384 410 427 445 458
Plus: Inventory& Progress Billings 7,940 8,105 9,563 7,070 6,892 8,392 8,527 8,802 8,909 9,065 9,246
Plus: Income Taxes Receivable - - - - - - - - - - -
Total Operating Current Assets 18,489 19,298 21,606 17,021 17,685 20,486 20,837 21,450 21,903 22,267 22,534
Operating Current Liabilities
Less: Accounts Payable 16,513 16,201 16,676 13,012 12,837 14,049 13,535 13,265 12,965 12,494 11,900
Less: Income Taxes Payable 556 670 253 182 267 293 313 311 312 313 310
Less: Advances & Billings in excess of Related Cost 9,930 11,449 13,847 9,297 9,754 10,780 10,823 10,735 10,245 11,494 11,427
Total Operating Current Liabilities 26,999 28,320 30,776 22,490 22,858 25,122 24,671 24,312 23,523 24,301 23,637

Net Operating Working Capital (8,510) (9,022) (9,170) (5,469) (5,173) (4,636) (3,834) (2,861) (1,620) (2,034) (1,103)

Plus: Net Property, Plant & Equipment 8,420 7,675 8,265 7,978 9,593 10,798 12,571 13,769 15,208 16,446 18,262
Plus: Other L-T Operating Assets
Net Other Acquired Intangibles 875 1,698 2,093 2,224 2,556 2,442 2,405 2,391 2,385 2,395 2,397
Other Operating Assets 989 2,735 1,258 1,713 2,075 2,168 2,309 2,557 2,536 2,509 2,567
L-T Customer Financing 9,639 8,520 6,777 9,322 9,286 9,892 9,799 10,141 11,051 10,999 10,994
PV Operating Leases 1,995 1,064 1,086 1,086 1,482 1,409 1,354 1,247 1,277 1,309 1,346
Total L-T Operating Assets 13,498 14,017 11,214 14,345 15,398 15,911 15,866 16,336 17,250 17,213 17,305
Less: Other L-T Operating Liabilities
Deferred Lease Income 269 - - - - - - - - - -
Non Current Income Taxes Payable - - 1,121 663 847 785 687 531 381 229 76
Other L-T Liabilities - 391 516 386 439 481 501 512 528 537 543
Product Warranties 781 781 962 962 962 962 962 962 962 962 962
Total L-T Operating Liabilities 1,050 1,172 2,599 2,011 2,248 2,228 2,150 2,005 1,871 1,728 1,581

Net Invested Capital 12,358 11,498 7,710 14,844 17,570 19,844 22,453 25,238 28,967 29,897 32,883

ROIC (NOPLAT/Invested Capital)

NOPLAT 2,393 (1,110) 6,088 2,565 3,901 4,240 4,565 4,502 4,490 4,499 4,422
ROIC (NOPLAT/Invested Capital) 16.45% -8.98% 52.95% 33.27% 26.28% 24.14% 23.00% 20.05% 17.79% 15.53% 14.79%

Free Cash Flow

NOPLAT 2,393 (1,110) 6,088 2,565 3,901 4,240 4,565 4,502 4,490 4,499 4,422
Net Investment (Change in invested Capital) 2,188 860 3,788 (7,134) (2,726) (2,274) (2,609) (2,785) (3,729) (930) (2,985)
Free Cash Flow (NOPLAT-Net Investment) 4,581 (250) 9,876 (4,568) 1,174 1,966 1,956 1,717 761 3,569 1,437

Economic Profit
ROIC 16.45% -8.98% 52.95% 33.27% 26.28% 24.14% 23.00% 20.05% 17.79% 15.53% 14.79%
WACC 9.02% 9.02% 9.02% 9.02% 9.02% 9.02% 9.02% 9.02% 9.02% 9.02% 9.02%
EP(Invested Capital*(ROIC-WACC)) 1,081 (2,224) 5,052 1,870 2,562 2,656 2,776 2,478 2,214 1,888 1,726
The Boeing Co.
Weighted Average Cost of Capital (WACC) Estimation

Risk Free Rate 4.36%

Market Risk Premium 4.82%
Beta 1.25
Cost of Equity 10.39%
Cost of Debt 6.51%
Cost of Operating Leases 6.51%

Market Value of Equity $ 31,949,190,000

Market Value of Debt $ 8,160,000,000
Operating Leases $ 1,086,000,000
Total $ 41,195,190,000

Weighted Cost
Equity 8.05%
Debt*(1-Tax Rate) 0.85%
Operating Leases*(1-Tax Rate) 0.11%
WACC 9.02%
The Boeing Co.
Discounted Cash Flow (DCF) and Economic Profit (EP) Model Valuation
Fiscal Years Ending December

Assumptions: CV growth 3.5%

CV ROIC 15%
WACC 9.02%
Cost of Equity 10.39%

DCF Model 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV

FCF (4,568) 1,174 1,966 1,956 1,717 761 3,569 61,193

Discounted Cash Flow (4,191) 988 1,517 1,385 1,115 453 1,950 33,440
PV of Future Cash Flows $ 36,658
Less PV ESOP $ (124)
Less PV Debt $ (8,160)
Less PV Op Leases $ (1,086)
Less Accrued Pension Plan Liability $ (1,155)
Less Accrued Retriee Health Care $ (7,007)
Plus ST Investments $ 2,266
Plus Pension Plan Assets $ 5,924
Plus Investments $ 4,111
Plus Excess Cash 1067
Equity Value $ 32,495
Shares Outstanding 740.25
Target Price FYE 2007 $ 43.90
Target Price 11/13/2008 $ 47.83

EP Model 2008E 2009E 2010E 2011E 2012E 2013E 2014E CV

Economic Profit 1,870 2,562 2,656 2,776 2,478 2,214 1,888 31,295
Discounted Economic Profit $1,715.43 $2,155.95 $2,050.31 $1,965.16 $1,609.10 $1,319.21 $1,031.53 $17,101.96
PV of Economic Profit $ 28,949
Invested Capital $ 7,710
Less PV ESOP $ (124)
Less PV of Debt $ (8,160)
Less PV of Op Leases $ (1,086)
Less Accrued Pension Plan Liability $ (1,155)
Less Accrued Retriee Health Care $ (7,007)
Plus ST Investments $ 2,266
Plus Pension Plan Assets $ 5,924
Plus Investments $ 4,111
Plus Excess Cash $ 1,067
Equity Value $ 32,495
Shares Outstanding 740.25
Target Price FYE 2007 $ 43.90
Target Price 11/13/2008 $ 47.83
The Boeing Co.
Dividend Discount Model (DDM)
Fiscal Years Ending December

2008E 2009E 2010E 2011E 2012E 2013E 2014E CV

EPS 4.15 5.36 5.71 6.39 6.39 6.39 6.38 6.54

Key Assumptions
CV growth 2.6%
CV ROE 17%
Cost of Equity 10.39%

Future Cash Flows

P/E Multiple 10.86
EPS(next period) 6.54
Future Stock Price $ 71.05
Dividends Per Share 1.88 1.88 1.88 2.00 2.24 2.24 2.24
Future Cash Flows 1.88 1.88 1.88 2.00 2.24 2.24 73.29

Discounted Cash Flows 1.71 1.55 1.40 1.35 1.36 1.24 36.70

Price FYE 2007 $ 45.29

Price 11/13/2008 $ 49.35
The Boeing Company
Relative P/E Analysis

Defense Contractors
EPS EPS Est.
Ticker Company Price 2008E 2009E P/E 08 P/E 09 5yr Gr. PEG 08 PEG 09
RTN Raytheon $ 49.41 $4.01 $4.60 12.3 10.7 12.50 0.99 0.86
GD General Dynamics $ 56.20 $6.18 $6.72 9.1 8.4 9.4 0.97 0.89
LMT Lockheed Martian $ 75.21 $7.72 $8.02 9.7 9.4 11.3 0.87 0.83
NOC Northrop Grumman $ 42.40 $5.18 $5.41 8.2 7.8 12.8 0.64 0.61
HON Honneywell $ 28.79 $3.77 $3.72 7.6 7.7 10.0 0.76 0.77
Average 9.4 8.8 0.8 0.8

BA Boeing $ 43.16 4.15 5.36 10.4 8.0 11.99 0.9 0.7

Implied Value:
Relative P/E (EPS08) $ 38.96
Relative P/E (EPS09) $ 47.26
PEG Ratio (EPS08) $ 42.00 (average PEG ratio * growth * EPS)
PEG Ratio (EPS09) $ 51.05
Average Price $ 44.82

Other Industrial Manufactures

EPS EPS Est.
Ticker Company Price 2008E 2009E P/E 08 P/E 09 5yr Gr. PEG 08 PEG 09
GE General Electric $ 16.86 $1.96 $1.78 8.6 9.5 10.8 0.79 0.87
CAT Caterpiller $ 39.41 $5.97 $5.01 6.6 7.9 11.5 0.57 0.68
DE Deere and Company $ 35.78 $4.89 $5.64 7.3 6.3 9.0 0.81 0.70
EMR Emerson Electric $ 35.91 $3.00 $2.97 12.0 12.1 12.8 0.93 0.94
ITW Illinois Tool Works $ 33.80 $3.27 $3.22 10.3 10.5 10.36 1.00 1.01
MMM 3M Co $ 64.43 $5.44 $5.45 11.8 11.8 10.9 1.09 1.08
Average 9.4 9.7 0.9 0.9

BA Boeing $ 43.16 4.15 5.36 10.4 8.0 11.99 0.9 0.7

Implied Value:
Relative P/E (EPS08) $ 39.17
Relative P/E (EPS09) $ 51.92
PEG Ratio (EPS08) $ 43.09 (average PEG ratio * growth * EPS)
PEG Ratio (EPS09) $ 56.85
Average Price $ 47.76
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 16

Average Time to Maturity (years): 6.84
Expected Annual Number of Options Exercised: 0

Current Average Strike Price: $ 68.36

Cost of Equity: 10.39%
Current Stock Price: $ 43.16

2008 2009 2010 2011 2012 2013 2014 2015

Increase in Shares Outstanding: 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Average Strike Price: $ 68.36 $ 75.46 $ 83.30 $ 91.95 $ 101.49 $ 112.03 $ 123.67 $ 136.51
Increase in Common Stock Account: - - - - - - - -

Change in Treasury Stock 2,383 (4,641) (1,246) 2,134 265 (137) (226) 2,334
Expected Price of Repurchased Shares: $ 43.16 $ 47.64 $ 52.59 $ 58.05 $ 64.08 $ 70.73 $ 78.08 $ 86.19
Number of Shares Repurchased: 55 (97) (24) 37 4 (2) (3) 27

Shares Outstanding (beginning of the year) 757 702 799 823 786 782 784 787
Plus: Shares Issued Through ESOP 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Less: Shares Repurchased in Treasury 55 (97) (24) 37 4 (2) (3) 27
Shares Outstanding (end of the year) 702 799 823 786 782 784 787 760
VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol BA
Current Stock Price 43.16
Risk Free Rate 4.62%
Current Dividend Yield 1.70%
Annualized St. Dev. of Stock Returns 28.40%

Average Average B-S Value

Range of Number Exercise Remaining Option of Options
Outstanding Options of Shares Price Life (yrs) Price Granted
Range 1 15.84 68.36 6.84 $ 7.81 $ 123.71
Total 15.84 $ 68.36 6.84 $ 10.22 $ 123.71
$ 123.71
The Boeing Company
Sensitivity Analysis

Beta
1.1 1.15 1.2 1.25 1.3 1.35 1.4 1.45
4.52% $ 59.35 $ 56.55 $ 53.95 $ 51.52 $ 49.25 $ 47.12 $ 45.13 $ 43.25
4.62% $ 57.96 $ 55.20 $ 52.64 $ 50.24 $ 48.01 $ 45.92 $ 43.95 $ 42.11
4.72% $ 56.62 $ 53.90 $ 51.37 $ 49.02 $ 46.81 $ 44.75 $ 42.82 $ 41.00
MRP
4.82% $ 55.33 $ 52.65 $ 50.15 $ 47.83 $ 45.66 $ 43.63 $ 41.73 $ 39.94
4.92% $ 54.08 $ 51.44 $ 48.98 $ 46.69 $ 44.55 $ 42.55 $ 40.68 $ 38.91
5.02% $ 52.87 $ 50.26 $ 47.84 $ 45.58 $ 43.48 $ 41.51 $ 39.66 $ 37.92
5.12% $ 51.71 $ 49.13 $ 46.74 $ 44.52 $ 42.44 $ 40.50 $ 38.68 $ 36.97

CV Revenue Per IDS Contract

95 105 115 125 135 145 155 165
44.00 $ 29.70 $ 30.78 $ 31.85 $ 32.92 $ 34.00 $ 35.07 $ 36.14 $ 37.22
54.00 $ 34.67 $ 35.75 $ 36.82 $ 37.89 $ 38.97 $ 40.04 $ 41.11 $ 42.19
CV Revenue

64.00 $ 39.64 $ 40.72 $ 41.79 $ 42.86 $ 43.94 $ 45.01 $ 46.08 $ 47.16

Per Plane

74.00 $ 44.61 $ 45.68 $ 46.76 $ 47.83 $ 48.91 $ 49.98 $ 51.05 $ 52.13

84.00 $ 49.58 $ 50.65 $ 51.73 $ 52.80 $ 53.88 $ 54.95 $ 56.02 $ 57.10
94.00 $ 54.55 $ 55.62 $ 56.70 $ 57.77 $ 58.84 $ 59.92 $ 60.99 $ 62.07
104.00 $ 59.52 $ 60.59 $ 61.67 $ 62.74 $ 63.81 $ 64.89 $ 65.96 $ 67.03

CV Cost of Services
12.60% 12.80% 13.00% 13.20% 13.40% 13.60% 13.80% 14.00%
60.82% $ 73.48 $ 72.05 $ 70.62 $ 69.22 $ 67.77 $ 66.34 $ 64.91 $ 63.48
61.82% $ 66.34 $ 64.91 $ 63.48 $ 62.08 $ 60.63 $ 59.20 $ 57.77 $ 56.34
CV Cost of

62.82% $ 59.20 $ 57.77 $ 56.34 $ 54.95 $ 53.49 $ 52.06 $ 50.63 $ 49.21

Products

63.82% $ 52.06 $ 50.63 $ 49.21 $ 47.81 $ 46.35 $ 44.92 $ 43.49 $ 42.07

64.82% $ 44.92 $ 43.49 $ 42.07 $ 40.67 $ 39.21 $ 37.78 $ 36.36 $ 34.93
65.82% $ 37.78 $ 36.36 $ 34.93 $ 33.53 $ 32.07 $ 30.64 $ 29.22 $ 27.79
66.82% $ 30.64 $ 29.22 $ 27.79 $ 26.39 $ 24.93 $ 23.51 $ 22.08 $ 20.65

CV ROIC
14.49% 14.59% 14.69% 14.79% 14.89% 14.99% 15.09% 15.19%
3.35% $ 46.07 $ 46.44 $ 46.80 $ 47.17 $ 47.53 $ 47.89 $ 48.25 $ 48.61
3.40% $ 46.28 $ 46.65 $ 47.02 $ 47.38 $ 47.75 $ 48.11 $ 48.47 $ 48.83
CV Growth

3.45% $ 46.50 $ 46.87 $ 47.24 $ 47.61 $ 47.97 $ 48.34 $ 48.70 $ 49.07

3.50% $ 46.72 $ 47.09 $ 47.46 $ 47.83 $ 48.20 $ 48.57 $ 48.94 $ 49.30
3.55% $ 46.94 $ 47.32 $ 47.69 $ 48.06 $ 48.43 $ 48.80 $ 49.17 $ 49.54
3.60% $ 47.17 $ 47.54 $ 47.92 $ 48.30 $ 48.67 $ 49.04 $ 49.42 $ 49.79
3.65% $ 47.40 $ 47.78 $ 48.16 $ 48.54 $ 48.91 $ 49.29 $ 49.66 $ 50.03

Cost of Debt
6.21% 6.31% 6.41% 6.51% 6.61% 6.71% 6.81% 6.91%
4.06% $ 51.36 $ 51.16 $ 50.96 $ 50.75 $ 50.55 $ 50.35 $ 50.16 $ 49.96
Risk Free Rate

4.16% $ 50.34 $ 50.15 $ 49.95 $ 49.75 $ 49.56 $ 49.37 $ 49.17 $ 48.98

4.26% $ 49.36 $ 49.16 $ 48.97 $ 48.78 $ 48.59 $ 48.40 $ 48.22 $ 48.03
4.36% $ 48.40 $ 48.21 $ 48.02 $ 47.84 $ 47.65 $ 47.47 $ 47.29 $ 47.11
4.46% $ 47.46 $ 47.28 $ 47.10 $ 46.92 $ 46.74 $ 46.56 $ 46.39 $ 46.21
4.56% $ 46.55 $ 46.38 $ 46.20 $ 46.03 $ 45.85 $ 45.68 $ 45.51 $ 45.34
4.66% $ 45.67 $ 45.50 $ 45.33 $ 45.16 $ 44.99 $ 44.82 $ 44.65 $ 44.49