0000012927 us-gaap:OperatingSegmentsMember ba:AsiaOtherThanChinaMember ba:CommercialAirplanesSegmentMember 2017-01-01 2017-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182020
or
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-442
(Exact name of registrant as specified in its charter)
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| Delaware | | 91-0425694 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
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Delaware | | 91-0425694 |
State or other jurisdiction of
incorporation or organization
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100 N. Riverside Plaza, Chicago, IL | Chicago, | IL | | 60606-1596 |
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Registrant’s telephone number, including area code (312)-544-2000
(312) 544-2000
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, $5 par value$5.00 Par Value | | BA | | New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer Accelerated Filerx | ☒ | | Accelerated filer | ¨☐ |
Non-accelerated filer¨ | ☐ | | Smaller reporting company | ¨☐ |
Emerging growth company¨ | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ☒
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As of June 30, 2018,2020, there were 575,883,680564,420,221 common shares outstanding held by nonaffiliates of the registrant, and the aggregate market value of the common shares (based upon the closing price of these shares on the New York Stock Exchange) was approximately $193.2$103.5 billion.
The number of shares of the registrant’s common stock outstanding as of February 1, 2019January 25, 2021 was 564,985,109.582,996,860.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference to the registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2018.2020.
THE BOEING COMPANY
Index to the Form 10-K
For the Fiscal Year Ended December 31, 2018
PART I
Item 1. Business
The Boeing Company, together with its subsidiaries (herein referred to as “Boeing,” the “Company,” “we,” “us,” “our”), is one of the world’s major aerospace firms.
We are organized based on the products and services we offer. We operate in four reportable segments:
•Commercial Airplanes (BCA);
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• | •Defense, Space & Security (BDS); •Global Services (BGS); •Boeing Capital (BCC). Defense, Space & Security (BDS);
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Commercial Airplanes Segment
This segment develops, produces and markets commercial jet aircraft and provides fleet support services, principally to the commercial airline industry worldwide. We are a leading producer of commercial aircraft and offer a family of commercial jetliners designed to meet a broad spectrum of global passenger and cargo requirements of airlines. This family of commercial jet aircraft in production includes the 737 narrow-body model and the 747, 767, 777 and 787 wide-body models. Development continues on the 777X program and certain 737 MAX derivatives and the 777X program.derivatives.
Defense, Space & Security Segment
This segment is engagedengages in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for strike, surveillance and mobility, including fighter and trainer aircraft; vertical lift, including rotorcraft and tilt-rotor aircraft; and commercial derivative aircraft, including anti-submarine and tanker aircraft. In addition, this segment is engagedengages in the research, development, production and modification of the following products and related services: strategic defense and intelligence systems, including strategic missile and defense systems, command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), cyber and information solutions, and intelligence systems; satellite systems, including government and commercial satellites and space exploration.
BDS' primary customer is the United States Department of Defense (U.S. DoD) (U.S. DoD). Revenues from the U.S. DoD, including foreign military sales through the U.S. government, accounted for approximately 86%83% of its 20182020 revenues. Other significant BDS customers include the National Aeronautics and Space Administration (NASA) and customers in international defense, civil and commercial satellite markets.
This segment's primary products include the following fixed-wing military aircraft: F/A-18E/F Super Hornet, F-15 Strike Eagle,programs, P-8 programs, KC-46A Tanker, and T-X Trainer.T-7A Red Hawk. This segment produces rotorcraft and rotary-wing programs, such as CH-47 Chinook, AH-64 Apache, and V-22 Osprey. Unmanned vehicles include the MQ-25, QF-16, and Insitu’s Scan Eagle aircraft. In addition, this segment's products include space and missile systems including: government and commercial satellites, NASA’s Space Launch System (SLS), the International Space Station, Commercial Crew, missile defense and weapons programs, and Joint Direct Attack Munition, as well as the United Launch Alliance joint venture.
Global Services Segment
This segment provides services to our commercial and defense customers worldwide. BGS sustains aerospace platforms and systems with a full spectrum of products and services, including supply chain and logistics management, engineering, maintenance and modifications, upgrades and conversions, spare
parts, pilot and maintenance training systems and services, technical and maintenance documents, and data analytics and digital services.
Boeing Capital Segment
BCC seeks to ensure that Boeing customers have the financing they need to buy and take delivery of their Boeing product, and manageswhile managing overall financing exposure. BCC’sBCC’s portfolio consists of equipment under operating leases, sales-type/finance leases, notes and other receivables, assets held for sale or re-lease and investments.
Intellectual Property
We own numerous patents and have licenses for the use of patents owned by others, which relate to our products and their manufacture. In addition to owning a large portfolio of intellectual property, we also license intellectual property to and from third parties. For example, the U.S. government has licenses in our patents that are developed in performance of government contracts, and it may use or authorize others to use the inventions covered by such patents for government purposes. Unpatented research, development and engineering skills, as well as certain trademarks, trade secrets, and other intellectual property rights, also make an important contribution to our business. While our intellectual property rights in the aggregate are important to the operation of each of our businesses, we do not believe that our business would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement.
EmployeesHuman Capital
Total workforce levelThe COVID-19 pandemic continues to impact lives and businesses around the world. We have taken proactive steps to help protect the health and safety of our employees and maintain business continuity. A vast majority of our office workers continue to telecommute. Within our production and office areas we have established a number of safety protocols, including face covering and physical distance requirements, enhanced cleaning, encouraging daily self-health checks, voluntary temperature screening stations, and access to virtual primary care physicians at December 31, 2018 was approximately 153,000.no cost. We have also implemented a coronavirus hotline with direct access to our Health Services group to report COVID-19 tests due to illness or exposure and positive COVID-19 tests. As part of that reporting process, we have developed a robust contact tracing program to identify employees who were in close contact with the ill employee in the workplace. We are also actively planning for the time when COVID-19 vaccines will be available for our employees, including reaching out to county public health departments to learn more about their plans to distribute vaccines and monitoring information from vaccine manufacturers about when vaccines will be available. All of the actions above are overseen by Boeing’s Crisis Management Working Group, a multi-functional, multi-discipline team tasked with integrating all aspects of Boeing’s COVID-19 response.
Additionally, we are adapting to the market impacts of COVID-19 and positioning the company for the future. One of these measures includes reducing the size of our workforce. As of December 31, 2018,2020, Boeing’s total workforce was approximately 141,000, with 11% located outside of the U.S. We expect to reduce the size of our workforce in 2021 through additional workforce actions as well as natural attrition.
As of December 31, 2020, our workforce is composed of approximately 47,000 union members. Our principal collective bargaining agreements were with the following unions:
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| Union | Percent of our Employees Represented | Status of the Agreements with Major Union |
| The International Association of Machinists and Aerospace Workers (IAM) | 22%20% | We have two major agreements; one expiring in JuneJuly 2022 and one in September 2024. |
| The Society of Professional Engineering Employees in Aerospace (SPEEA) | 11%10% | We have two major agreements expiring in October 2022.2026. |
| The United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) | 1% | We have one major agreement expiring in October 2022. |
We aspire to be the most equitable, diverse and inclusive company. Guided by our values, we are committed to creating a company where everyone is included and respected, and where we support each other in reaching our full potential. We are committed to diverse representation across all levels of our workforce to reflect the vibrant and thriving diversity of the communities in which we live and work. We also support Business Resource Groups open to all employees that focus on gender, race & ethnicity, generations, gender identity, sexual orientation, disability or veteran status. These groups help foster inclusion among all teammates, build awareness, recruit and retain a diverse workforce and support the company in successfully operating in a global, multicultural business environment. We are committed to increased transparency and will publicly share our diversity metrics annually, beginning in 2021.
To attract and retain the best-qualified talent, we offer competitive benefits, including market-competitive compensation, healthcare, paid time off, parental leave, retirement benefits, tuition assistance, employee skills development, leadership development, and rotation programs. In 2020, our voluntary resignation rate was approximately 3%. Additionally, we hired approximately 8,000 new employees in 2020 for critical skills and had an offer acceptance rate of 82%.
Employees are encouraged to provide feedback about their experience through ongoing employee engagement activities. Boeing actively listens to its employees via surveys ranging from pre-hire to exiting the company. These voluntary surveys provide aggregate trend reports for the company to address in real time and ensure Boeing maintains an employee-focused experience and culture. We also invest in rewarding performance and have established a multi-level recognition program for the purpose of acknowledging the achievements of excellent individual or team performance.
We are committed to supporting our employees continuous development of professional, technical and leadership skills through access to digital learning resources and through partnerships with leading professional/technical societies and organizations around the world. For 2020, Boeing employees consumed approximately 4 million hours of learning. We offer the ability for our people to pursue degree programs, professional certificates and individual courses in strategic fields of study from more than 300 accredited colleges and universities, online and across the globe through our tuition assistance program. Over 12,000 Boeing employees leverage these programs every year.
Safety, quality and integrity are at the core of how Boeing operates. We aspire to achieve zero workplace injuries and provide a safe, open and accountable work environment for our employees. We provide several channels for all employees to speak up, ask for guidance, and report concerns related
to ethics or safety violations. We address employee concerns and take appropriate actions that uphold our Boeing values.
Competition
The commercial jet aircraft market and the airline industry remain extremely competitive. We face aggressive international competitors who are intent on increasing their market share, such as Airbus and other entrants from Russia, China and Japan. We are focused on improving our processes and continuing cost reduction efforts. We intend to continue to compete with other airplane manufacturers by providing customers with greater value products.
BDS faces strong competition in all market segments, primarily from Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon Company,Technologies Corporation, General Dynamics Corporation and SpaceX. Non-U.S. companies such as BAE Systems and Airbus Group continue to build a strategic presence in the U.S.
market by strengthening their North American operations and partnering with U.S. defense companies. In addition, certain competitors have occasionally formed teams with other competitors to address specific customer requirements. BDS expects the trend of strong competition to continue into 2019.2021.
The commercial and defense services market is anmarkets are extremely challenging landscapeand are made up of many of the same strong U.S. and non-U.S. competitors facing BCA and BDS along with other competitors in those markets. BGS leverages our extensive services network offering products and services which span the life cycle of our defense and commercial airplane programs: training, fleet services and logistics, maintenance and engineering, modifications and upgrades - as well as the daily cycle of gate-to-gate operations. BGS expects the market to remain highly competitive in 2019,2021, and intends to grow market share by leveraging a high level of customer satisfaction and productivity.
Regulatory Matters
Our businesses are heavily regulated in most of our markets. We deal with numerous U.S. government agencies and entities, including but not limited to all of the branches of the U.S. military, NASA, the Federal Aviation Administration (FAA) and the Department of Homeland Security. Similar government authorities exist in our non-U.S. markets.
Government Contracts. The U.S. government, and other governments, may terminate any of our government contracts at their convenience, as well as for default based on our failure to meet specified performance requirements. If any of our U.S. government contracts were to be terminated for convenience, we generally would be entitled to receive payment for work completed and allowable termination or cancellation costs. If any of our government contracts were to be terminated for default, generally the U.S. government would pay only for the work that has been accepted and could require us to pay the difference between the original contract price and the cost to re-procure the contract items, net of the work accepted from the original contract. The U.S. government can also hold us liable for damages resulting from the default.
Commercial Aircraft. In the U.S., our commercial aircraft products are required to comply with FAA regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. Outside the U.S., similar requirements exist for airworthiness, installation and operational approvals. These requirements are generally administered by the national aviation authorities of each country and, in the case of Europe, coordinated by the European JointUnion Aviation Authorities.Safety Agency.
Environmental. We are subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and
remediation of hazardous substances and wastes. We continually assess our compliance status and management of environmental matters to ensure our operations are in compliance with all applicable environmental laws and regulations. Investigation, remediation, and operation and maintenance costs associated with environmental compliance and management of sites are a normal, recurring part of our operations. These costs often are allowable costs under our contracts with the U.S. government. It is reasonably possible that costs incurred to ensure continued environmental compliance could have a material impact on our results of operations, financial condition or cash flows if additional work requirements or more stringent clean-up standards are imposed by regulators, new areas of soil, air and groundwater contamination are discovered and/or expansions of work scope are prompted by the results of investigations.
A Potentially Responsible Party (PRP) has joint and several liability under existing U.S. environmental laws. Where we have been designated a PRP by the Environmental Protection Agency or a state environmental agency, we are potentially liable to the government or third parties for the full cost of remediating contamination at our facilities or former facilities or at third-party sites. If we were required to fully fund the remediation of a site for which we were originally assigned a partial share, the statutory
framework would allow us to pursue rights to contribution from other PRPs. For additional information relating to environmental contingencies, see Note 1413 to our Consolidated Financial Statements.
Non-U.S. Sales. Our non-U.S. sales are subject to both U.S. and non-U.S. governmental regulations and procurement policies and practices, including regulations relating to import-export control, tariffs, investment, exchange controls, anti-corruption, and repatriation of earnings. Non-U.S. sales are also subject to varying currency, political and economic risks.
Raw Materials, Parts, and Subassemblies
We are highly dependent on the availability of essential materials, parts and subassemblies from our suppliers and subcontractors. The most important raw materials required for our aerospace products are aluminum (sheet, plate, forgings and extrusions), titanium (sheet, plate, forgings and extrusions) and composites (including carbon and boron). Although alternative sources generally exist for these raw materials, qualification of the sources could take a year or more. Many major components and product equipment items are procured or subcontracted on a sole-source basis with a number of companies.
Suppliers
We are dependent upon the ability of a large number of U.S. and non-U.S. suppliers and subcontractors to meet performance specifications, quality standards and delivery schedules at our anticipated costs. While we maintain an extensive qualification and performance surveillance system to control risk associated with such reliance on third parties, failure of suppliers or subcontractors to meet commitments could adversely affect production schedules and program/contract profitability, thereby jeopardizing our ability to fulfill commitments to our customers. We are also dependent on the availability of energy sources, such as electricity, at affordable prices.
Seasonality
No material portion of our business is considered to be seasonal.
Executive Officers of the Registrant
See “Item 10. Directors, Executive Officers and Corporate Governance” in Part III.
Other Information
Boeing was originally incorporated in the State of Washington in 1916 and reincorporated in Delaware in 1934. Our principal executive offices are located at 100 N. Riverside Plaza, Chicago, Illinois 60606 and our telephone number is (312) 544-2000.
General information about us can be found at www.boeing.com. The information contained on or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the Securities and Exchange Commission (SEC). Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including Boeing.
Forward-Looking Statements
This report, as well as our annual report to shareholders, quarterly reports, and other filings we make with the SEC, press and earnings releases and other written and oral communications, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates” and similar expressions generally identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact.
Forward-looking statements are based on expectations and assumptions that we believe to be reasonable when made, but that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors, including those set forth in the “Risk Factors” section below and other important factors disclosed in this report and from time to time in our other filings with the SEC, could cause actual results to differ materially and adversely from these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement whether as a result of new information, future events or otherwise, except as required by law.
Item 1A. Risk Factors
An investment in our common stock or debt securities involves risks and uncertainties and our actual results and future trends may differ materially from our past or projected future performance. We urge investors to consider carefully the risk factors described below in evaluating the information contained in this report.
Risks Related to COVID-19
We face significant risks related to the spread of the COVID-19 virus and developments surrounding the global pandemic have had, and will continue to have, significant effects on our business, financial condition, results of operations, and cash flows. We also face significant risks related to the global economic downturn and severe reduction in commercial air traffic caused by the pandemic. These risks include materially reduced demand for our products and services, increased instability in our supply chain, and challenges to the ongoing viability of some of our customers. We may face similar risks in connection with any future public health crises, including resurgences in the spread of COVID-19.
The COVID-19 pandemic has subjected our business, operations, financial performance, cash flows and financial condition to a number of risks, including, but not limited to those discussed below.
Operations-related risks: As a result of the COVID-19 pandemic, we are facing increased operational challenges from the need to protect employee health and safety. These challenges have included, and may in the future include production site shutdowns, and workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and those of our customers and suppliers.
For example, during the second quarter of 2020, we temporarily suspended operations in Puget Sound, South Carolina, and Philadelphia, as well as at several other key production sites. We had not previously experienced a complete suspension of our operations at these production sites. While we have resumed operations at all of our production sites we cannot predict whether or where further production disruptions could be required or what the ongoing impact of COVID-19-related operating restrictions will be. For example, we continue to experience additional operating costs due to social distancing requirements and other factors related to COVID-19 restrictions. We cannot predict the impact that future production disruptions may have on our business, operations, financial performance and financial condition. We continue to monitor federal, state, and municipal health authorities for new or modified guidance and requirements concerning the COVID-19 pandemic, and we may be required to impose additional operational restrictions and/or suspend operations at key production sites based on these requirements and recommendations and/or workplace disruptions caused by COVID-19.
Many of our suppliers also were required to suspend operations during the second quarter of 2020, and they may experience additional disruptions in 2021. Any such disruptions could have severe adverse impacts on our production costs, delivery schedule and/or ability to meet customer commitments.
Any prolonged suspension of operations or delayed recovery in our operations, and/or any similar suspension of operations or delayed recovery at one or more of our key suppliers, or the failure of any of our key suppliers, would result in further challenges to our business, leading to a further material adverse effect on our business, financial condition, results of operations, and cash flows.
Liquidity risks:The COVID-19 pandemic has also had a significant impact on our liquidity and overall debt levels. During the year ended December 31, 2020, net cash used by operating activities was $18.4 billion. At December 31, 2020, cash and short-term investments totaled $25.6 billion. Our debt balance totaled $63.6 billion at December 31, 2020, up from $27.3 billion at December 31, 2019. We expect negative operating cash flows in future quarters until deliveries begin to return to historical levels, and if
the pace and scope of the recovery are worse than we currently contemplate, we may need to obtain additional financing in order to fund our operations and obligations. If we were to need to obtain additional financing, uncertainty related to COVID-19 and its impact on us and the aerospace industry, as well as continued uncertainty with respect to our credit rating could limit our access to credit markets and we may have difficulty obtaining financing on terms acceptable to us or at all. In addition, certain of our customers may also be unable to make timely payments to us. Factors that could limit our access to additional liquidity include further disruptions in the global capital markets and/or additional declines in our financial performance, outlook or credit ratings. The occurrence of any or all of these events could adversely affect our ability to fund our operations and/or meet outstanding debt obligations and contractual commitments. In addition, further downgrades in our credit ratings could adversely affect our cost of funds and related margins, liquidity, competitive position and access to capital markets, and a significant downgrade could have an adverse impact on our businesses.
Customer-related risks: Commercial air traffic has fallen dramatically due to the COVID-19 pandemic. This trend has impacted passenger traffic most severely. Near-term cargo traffic has also fallen, but to a lesser extent as global trade has begun to recover. Most airlines have significantly reduced their capacity, and many could implement further reductions in the near future. Many airlines are also implementing significant reductions in staffing. These capacity changes are causing, and are expected to continue to cause, negative impacts to our customers’ revenue, earnings, and cash flow, and in some cases may threaten the future viability of some of our customers, potentially causing defaults within our customer financing portfolio, which was $2.0 billion as of December 31, 2020 and/or requiring us to remarket aircraft that have already been produced and/or are currently in backlog. If we are unable to successfully remarket these aircraft and/or the narrow-body and wide-body markets do not recover as soon as we are currently assuming, or if we are required to further reduce production rates and/or contract the accounting quantity on any of our commercial programs, we could experience material reductions in earnings and/or be required to recognize a reach-forward loss on one or more of our programs. For example, in the fourth quarter of 2020, we recognized a reach-forward loss on the 777X program in part due to impacts related to the COVID-19 pandemic. In addition, if 737 MAX aircraft in one or more jurisdictions remain grounded for an extended period of time, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand. Our customers may also lack sufficient liquidity to purchase new aircraft due to impacts from the pandemic. We are also observing a significant increase in the number of requests for payment deferrals, contract modifications, lease restructurings and similar actions, and these trends may lead to additional charges, impairments and other adverse financial impacts in our business over time. In addition, to the extent that customers have valid rights to cancel undelivered aircraft, we may be required to refund pre-delivery payments, putting additional constraints on our liquidity.
In addition to the near-term impact, there is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises. In addition, airlines may experience reduced demand due to reluctance by the flying public to travel due to travel restrictions and/or social distancing requirements.
As a result, there is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The COVID-19 pandemic also has increased, and its aftermath is also expected to continue to increase, uncertainty with respect to global trade volumes, which could put negative pressure on cargo traffic levels. Any of these factors would have a significant impact on the demand for both single-aisle and wide-body commercial aircraft, as well as for the services we provide to commercial airlines. In addition, a lengthy period of reduced industry-wide demand for commercial aircraft would put additional pressure on our suppliers, resulting in increased procurement costs and/or additional supply chain disruption. To
the extent that the COVID-19 pandemic or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers and/or suppliers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.
Other risks: The magnitude and duration of the global COVID-19 pandemic is uncertain and continues to adversely affect our business and operating and financial results. For example, during the fourth quarter of 2020, due in part to the prolonged adverse impact of the pandemic on our earnings, we recorded an increase of $2.5 billion to the valuation allowance associated with deferred income tax assets. The pandemic also is expected to heighten many of the other risks described below. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results.
Risks Related to Our Business and Operations
We are subject to a number of risks and uncertainties related to the 737 MAX. These risks include uncertainties regarding the timing and conditions of 737 MAX regulatory approvals, in certain non-U.S. jurisdictions, lower than planned production rates and/or delivery rates, increased considerations to customers, increased supplier costs and supply chain health, changes to the assumptions and estimates made in our financial statements regarding the 737 program, and potential outcomes of various 737 MAX-related legal proceedings and government investigations.
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft operators following two fatal 737 MAX accidents. Non-U.S. civil aviation authorities issued directives to the same effect. Deliveries of the 737 MAX were suspended until December 2020. The grounding has reduced revenues, operating margins, and cash flows, and will continue to do so until production rates return to pre-grounding levels. In connection with the effort to return the 737 MAX to service, we developed software updates for the 737 MAX, together with an associated pilot training and supplementary education program. We continue to work with certain non-U.S. civil aviation authorities to complete remaining steps toward certification and readiness for return to service worldwide. Any delays in certification in one or more jurisdictions and/or the ramp-up of deliveries or other liabilities associated with the accidents or grounding could have a material adverse effect on our financial position, results of operations, and/or cash flows. In addition, multiple legal actions have been filed against us related to the 737 MAX. We also are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX, including investigations by the Securities and Exchange Commission. In January 2021, we entered into a Deferred Prosecution Agreement with the U.S. Department of Justice that resolves the Department of Justice’s previously disclosed investigation into us regarding the evaluation of the 737 MAX airplane by the FAA. We expensed $744 in the fourth quarter of 2020 related to this agreement. Any further adverse impacts related to any such litigation or investigation could have a further material impact on our financial position, results of operations and/or cash flows.
During 2019, we announced plans to reduce, and ultimately to suspend 737 production. Impacts related to these actions significantly increased costs to produce aircraft included in the current accounting quantity and have resulted in reduced 737 program and overall BCA segment operating margins. We have also made significant assumptions regarding estimated costs expected to be incurred in 2021 that should be included in program inventory and those estimated costs that will be expensed when incurred as abnormal production costs. If we are unable to return the 737 MAX aircraft to service in one or more jurisdictions or deliver 737 aircraft to customers on the schedule and/or at a pace consistent with our expectations, we will incur significant additional costs and/or delay the planned ramp-up of 737 production. These delays would also result in significant additional disruption to the 737 production system and further delay efforts to restore and/or implement previously planned increases in the 737
production rate. Cash flows continue to be negatively impacted by delayed payments from customers, higher costs and inventory levels, and payments made to customers in connection with disruption to their operations. In addition, we have experienced claims and assertions from customers in connection with the grounding, and we recorded an earnings charge of $8,259 million, net of insurance recoveries of $500 million, in 2019, in connection with an estimate of potential concessions and other considerations to customers for disruptions related to the grounding and associated delivery delays.
Any further delays in regulatory approval of the 737 MAX in one or more jurisdictions, further disruptions to suppliers and/or the long-term health of the production system, supplier claims or assertions, or changes to estimated concessions or other considerations we expect to provide to customers could have a material adverse effect on our financial position, results of operations, and/or cash flows. In the event of unanticipated additional training requirements in one or more jurisdictions, delays in regulatory approval, and/or delays in our ability to resume deliveries to one or more customers, we may be required to take actions with longer-term impact, such as further changes to our production plans, employment reductions and/or the expenditure of significant resources to support our supply chain and/or customers.
We have made significant estimates with respect to the 737 program regarding the number of units to be produced, the period during which those units are likely to be produced, and the units’ expected sales prices, production costs, program tooling and other non-recurring costs, and routine warranty costs. In addition to the estimated timing of the resumption of deliveries, we have made assumptions regarding outcomes of accident investigations and other government inquiries, timing of future 737 production rate increases, timing and sequence of future deliveries, supply chain health as we implement our production plans, as well as outcomes of negotiations with customers. Any changes in these estimates and/or assumptions with respect to the 737 program could have a material impact on our financial position, results of operations, and/or cash flows. For additional information, see our discussion under “Management’s Discussion and Analysis-Critical Accounting Policies and Estimates-737 MAX Grounding” on pages 55 - 56.
In addition to the impact of COVID-19 described above, our Commercial Airplanes and Global Services businesses depend heavily on commercial airlines, and are subject to unique risks.
Market conditions have a significant impact on demand for our commercial aircraft and related services. The commercial aircraft market is predominantly driven by long-term trends in airline passenger and cargo traffic. The principal factors underlying long-term traffic growth are sustained economic growth and political stability both in developed and emerging markets. Demand for our commercial aircraft is further influenced by airline profitability, availability of aircraft financing, world trade policies, government-to-government relations, technological advances, price and other competitive factors, fuel prices, terrorism, epidemics and environmental regulations. Traditionally, the airline industry has been cyclical and very competitive and has experienced significant profit swings and constant challenges to be more cost competitive. In addition, availability of financing to non-U.S. customers depends in part on the Export-Import Bank of the United States being fully operational. Significant deterioration in the global economic environment, the airline industry generally, or the financial stability of one or more of our major customers could result in fewer new orders for aircraft or services, or could cause customers to seek to postpone or cancel contractual orders and/or payments to us, which could result in lower revenues, profitability and cash flows and a reduction in our contractual backlog. In addition, because our commercial aircraft backlog consists of aircraft scheduled for delivery over a period of several years, any of these macroeconomic, industry or customer impacts could unexpectedly affect deliveries over a long period.
We enter into firm fixed-price aircraft sales contracts with indexed price escalation clauses which could subject us to losses if we have cost overruns or if increases in our costs exceed the applicable escalation rate. Commercial aircraft sales contracts are often entered into years before the aircraft are delivered. In order to help account for economic fluctuations between the contract date and delivery date, aircraft pricing generally consists of a fixed amount as modified by price escalation formulas
derived from labor, commodity and other price indices. Our revenue estimates are based on current expectations with respect to these escalation formulas, but the actual escalation amounts are outside of our control. Escalation factors can
fluctuate significantly from period to period. Changes in escalation amounts can significantly impact revenues and operating margins in our Commercial Airplanes business.
We derive a significant portion of our revenues from a limited number of commercial airlines. We can make no assurance that any customer will exercise purchase options, fulfill existing purchase commitments or purchase additional products or services from us. In addition, fleet decisions, airline consolidations or financial challenges involving any of our major commercial airline customers could significantly reduce our revenues and limit our opportunity to generate profits from those customers.
Our Commercial Airplanes business depends on our ability to maintain a healthy production system, achieve planned production rate targets, successfully develop new aircraft or new derivative aircraft, and meet or exceed stringent performance and reliability standards.
The commercial aircraft business is extremely complex, involving extensive coordination and integration with U.S and non-U.S. suppliers, highly-skilled labor from thousands of employees and other partners, and stringent regulatory requirements, including the risk of evolving standards for commercial aircraft certification, and performance and reliability standards. In addition, the introduction of new aircraft programs and/or derivatives, such as the 777X, involves increased risks associated with meeting development, testing, production, and certification schedules. The 737 program has also experienced significant disruption due to the grounding of the 737 MAX and associated suspension of 737 MAX production for part of 2020. As a result, our ability to deliver aircraft on time, satisfy regulatory and customer requirements, and achieve or maintain, as applicable, program profitability is subject to significant risks. For example, a number of our customers may have contractual remedies, including rights to reject individual airplane deliveries if the actual delivery date is significantly later than the contractual delivery date. Delays on the 737 MAX and 777X programs have resulted in, and may continue to result in, customers having the right to terminate orders and or substitute orders for other Boeing aircraft.
We must minimize disruption caused by production changes and achieve productivity improvements in order to meet customer demand and maintain our profitability. We have previously announced plans to adjust production rates on several of our commercial aircraft programs, while at the same time engagingprograms. We continue to engage in significant ongoing development, testing and production of the 777X aircraft. In addition, we continue to seek opportunities to reduce the costs of building our aircraft, including working with our suppliers to reduce supplier costs, identifying and implementing productivity improvements, and optimizing how we manage inventory. If production rate changes at any of our commercial aircraft assembly facilities are delayed or create significant disruption to our production system, or if our suppliers cannot timely deliver components to us at the cost and rates necessary to achieve our targets, we may be unable to meet delivery schedules and/or the financial performance of one or more of our programs may suffer.
Operational challenges impacting the production system for one or more of our commercial aircraft programs could result in production delays and/or failure to meet customer demand for new aircraft, either of which would negatively impact our revenues and operating margins. Our commercial aircraft production system is extremely complex. Operational issues, including delays or defects in supplier components, failure to meet internal performance plans, or delays or failures to achieve required regulatory certifications,approval, could result in significant out-of-sequence work and increased production costs, as well as delayed deliveries to customers, impacts to aircraft performance and/or increased warranty or fleet support costs. For example, in the fourth quarter of 2020, we expanded the scope of production inspections on the 787 program, and those inspections and associated rework are delaying scheduled deliveries and resulting in additional 787 aircraft in inventory.
If our commercial airplanes fail to satisfy performance and reliability requirements, we could face additional costs and/or lower revenues. Developing and manufacturing commercial aircraft that meet or exceed our performance and reliability standards, as well as those of customers and regulatory agencies, can be costly and technologically challenging. These challenges are particularly significant with newer aircraft programs. Any failure of any Boeing aircraft to satisfy performance or reliability requirements could result in disruption to our operations, higher costs and/or lower revenues.
Changes in levels of U.S. government defense spending or overall acquisition priorities could negatively impact our financial position and results of operations.
We derive a substantial portion of our revenue from the U.S. government, primarily from defense related programs with the United States Department of Defense (U.S. DoD).DoD. Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the evolving nature of the national security threat environment, U.S. national security strategy, U.S. foreign policy, the domestic political environment, U.S.
foreign policy, macroeconomic conditions and the ability of the U.S. government to enact relevant legislation such as authorization and appropriations bills.
The Bipartisan Budget ActAlthough FY21 appropriations have been enacted, long-term uncertainty remains with respect to overall levels of 2018 raised preexistingdefense spending caps for fiscal years 2018 and 2019 (FY18 and FY19). The consolidated spending bills signed into law in September 2018 provide defense funding for FY19. However, other departments and agencies, including the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA), are being temporarily funded at FY18 levels. Failure to enact a Continuing Resolution or FY19 appropriations by February 15, 2019 would result in a partial government shutdown affecting these departments and agencies. Such a shutdown could impact the Company’s operations. In addition, reduced discretionary spending limits initially enacted in 2011 would take effect again in fiscal years 2020 and 2021 (FY20 and FY21) unless Congress acts to raise the spending caps or to repeal or suspend the law establishing the reduced limits. As a result, continued budget uncertainty and the risk of future sequestration cuts remainbeyond FY21, and it is likely that U.S. government discretionary spending, levelsincluding defense spending, will continue to be subject to pressure.
In addition, therethe timeliness of future appropriations for government departments and agencies remains a recurrent risk. A lapse in appropriations for government department or agencies would result in a full or partial government shutdown, which could impact the Company’s operations. Alternatively, Congress may fund government departments and agencies with one or more Continuing Resolutions; however, this could restrict the execution of certain program activities and delay new programs or competitions.
There continues to be significant uncertainty with respect to future acquisition priorities and program-level appropriations for the U.S. DoD and other government agencies (including NASA) within the overall budgetary framework described above. While the House, including tension between modernization investments, sustainment investments, and Senate Appropriations Committees included funding for Boeing’s major programs, such as F/A-18 Super Hornet, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Pegasus Tanker and P-8 Poseidon,investments in their final FY19 defense appropriations, uncertainty remains about how defense budgets in FY20 and beyond will affect Boeing’s programs.new technologies or emergent capabilities. Future budget cuts or investment priority changes or budget cuts, including changes associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs.programs, or future program opportunities. Any of these impacts could have a material effect on the results of the Company’s operations, financial position and/or cash flows.
In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending levels and the evolving nature of the national security threat environment, we also expect the U.S. DoD to continue to emphasize cost-cuttingaffordability, innovation, cybersecurity, and other efficiency initiativesdelivery of technical data and software in its procurement processes. If we can no longer adjust successfully to these changing acquisition priorities and/or fail to meet affordability targets set by the U.S. DoD customer,policies our revenues and market share wouldcould be further impacted.
Our ability to deliver products and services that satisfy customer requirements is heavily dependent on the performance and financial stability of our subcontractors and suppliers, as well as on the availability of raw materials and other components.
We rely on other companies including U.S. and non-U.S. subcontractors and suppliers to provide and produce raw materials, integrated components and sub-assemblies, and production commodities and to perform some of the services that we provide to our customers. If one or more of our suppliers or subcontractors experiences financial difficulties, delivery delays or other performance problems, we may be unable to meet commitments to our customers or incur additional costs. In addition, if one or more of the raw materials on which we depend (such as aluminum, titanium or composites) becomes unavailable or is available only at very high prices, we may be unable to deliver one or more of our products in a timely fashion or at budgeted costs. In some instances, we depend upon a single source of supply. Any service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geopolitical developments, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.
Competition within our markets and with respect to the products we sell may reduce our future contracts and sales.
The markets in which we operate are highly competitive and one or more of our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. In our Commercial Airplanes business, we anticipate increasing competition among non-U.S. aircraft manufacturers of commercial jet aircraft. In our BDS business, we anticipate that the effects of defense industry consolidation, shifting acquisition and budget priorities, and continued cost pressure at our U.S. DoD and non-U.S. customers will intensify competition for many of our BDS products. Our BGS segment faces competition from many of the same strong U.S. and non-U.S. competitors facing BCA and BDS. Furthermore, we are facing increased international competition and cross-border consolidation of competition. There can be no assurance that we will be able to compete successfully against our current or future competitors or that the competitive pressures we face will not result in reduced revenues and market share.
We derive a significant portion of our revenues from non-U.S. sales and are subject to the risks of doing business in other countries.
In 2020, non-U.S. customers, which includes foreign military sales (FMS), accounted for approximately 37% of our revenues. We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are subject to risks of doing business internationally, including:
•changes in regulatory requirements;
•changes in the global trade environment, including disputes with authorities in non-U.S. jurisdictions, including international trade authorities, that could impact sales and/or delivery of products and services outside the U.S. and/or impose costs on our customers in the form of tariffs, duties, or penalties attributable to the importation of Boeing products and services;
•U.S. and non-U.S. government policies, including requirements to expend a portion of program funds locally and governmental industrial cooperation or participation requirements;
•fluctuations in international currency exchange rates;
•volatility in international political and economic environments and changes in non-U.S. national priorities and budgets, which can lead to delays or fluctuations in orders;
•the complexity and necessity of using non-U.S. representatives and consultants;
•the uncertainty of the ability of non-U.S. customers to finance purchases, including the availability of financing from the Export-Import Bank of the United States;
•uncertainties and restrictions concerning the availability of funding credit or guarantees;
•imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions and other trade restrictions;
•the difficulty of management and operation of an enterprise spread over many countries;
•compliance with a variety of non-U.S. laws, as well as U.S. laws affecting the activities of U.S. companies abroad; and
•unforeseen developments and conditions, including terrorism, war, epidemics and international tensions and conflicts.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations in the future. For example, since 2018, the U.S. and China have imposed tariffs on each other’s imports. China is a very significant market for commercial airplanes and represents a significant component of our commercial airplanes backlog.In addition, the U.S. and European Union (EU) have been engaged in two long-running disputes at the World Trade Organization (WTO) relating to large civil aircraft, including one that has resulted in the imposition of tariffs on certain of our products. Impacts from these or future potential tariffs, or deterioration in trade relations between the U.S. and one or more other countries, could have a material adverse impact on our revenues, operating earnings, and/or cash flows.
We use estimates in accounting for many contracts and programs. Changes in our estimates could adversely affect our future financial results.
Contract and program accounting require judgment relative to assessing risks, estimating revenues and costs and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts and programs, the estimation of total revenues and cost at completion is complicated and subject to many variables. Assumptions have to be made regarding the length of time to complete the contract or program because costs also include expected increases in wages and employee benefits, material prices and allocated fixed costs. Incentives or penalties related to performance on contracts are considered in estimating sales and profit rates, and are recorded when there is sufficient information for us to assess anticipated performance. Supplier claims and assertions are also assessed and considered in estimating costs and profit rates. Estimates of future award fees are also included in sales and profit rates.
With respect to each of our commercial aircraft programs, inventoriable production costs (including overhead), program tooling and other non-recurring costs and routine warranty costs are accumulated and charged as cost of sales by program instead of by individual units or contracts. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts limited by the ability to make reasonably dependable estimates. To establish the relationship of sales to cost of sales, program accounting requires estimates of (a) the number of units to be produced and sold in a program, (b) the period over which the units can reasonably be expected to be produced and (c) the units’ expected sales prices, production costs, program tooling and other non-recurring costs, and routine warranty costs for the total program. Several factors determine accounting quantity, including firm orders, letters of intent from prospective customers and market studies. Changes to customer or model mix, production costs and rates, learning curve, changes to price escalation indices, costs of derivative aircraft, supplier performance, customer and supplier negotiations/settlements, supplier claims and/or certification issues can impact these estimates. In addition, on development programs such as the 777X, we are subject to risks with respect to the timing and conditions of aircraft certification, including potential gaps between when aircraft are certified in various jurisdictions, and our estimates with
respect to timing of future certifications could have an impact on overall program status. Any such change in estimates relating to program accounting may adversely affect future financial performance.
Because of the significance of the judgments and estimation processes described above, materially different sales and profit amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial performance. For additional information on our accounting policies for recognizing sales and profits, see our discussion under “Management’s Discussion and Analysis – Critical Accounting Policies – Contract Accounting/Program Accounting” on pages 53 – 55 and Note 1 to our Consolidated Financial Statements on pages 68 – 81 of this Form 10-K.
We may not realize the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures.
As part of our business strategy, we may merge with or acquire businesses and/or form joint ventures and strategic alliances. Whether we realize the anticipated benefits from these acquisitions and related activities depends, in part, upon our ability to integrate the operations of the acquired business, the performance of the underlying product and service portfolio, and the performance of the management team and other personnel of the acquired operations. Accordingly, our financial results could be adversely affected by unanticipated performance issues, legacy liabilities, transaction-related charges, amortization of expenses related to intangibles, charges for impairment of long-term assets, credit guarantees, partner performance and indemnifications. Consolidations of joint ventures could also impact our reported results of operations or financial position. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful. We also may make strategic divestitures from time to time. These transactions may result in continued financial involvement in the divested businesses, such as through guarantees or other financial arrangements, following the transaction. Nonperformance by those divested businesses could affect our future financial results through additional payment obligations, higher costs or asset write-downs.
Risks Related to Our Contracts
We conduct a significant portion of our business pursuant to U.S. government contracts, which are subject to unique risks.
In 2018,31%2020, 51% of our revenues were earned pursuant to U.S. government contracts, which include foreign military sales (FMS)FMS through the U.S. government. Business conducted pursuant to such contracts is subject to extensive procurement regulations and other unique risks.
Our sales to the U.S. government are subject to extensive procurement regulations, and changes to those regulations could increase our costs. New procurement regulations, or changes to existing requirements, could increase our compliance costs or otherwise have a material impact on the operating margins of our BDS and BGS businesses. These requirements may result in increased compliance costs, and we could be subject to additional costs in the form of withheld payments and/or reduced future business if we fail to comply with these requirements in the future. Compliance costs attributable to current and potential future procurement regulations such as these could negatively impact our financial condition and operating results.
The U.S. government may modify, curtail or terminate one or more of our contracts. The U.S. government contracting party may modify, curtail or terminate its contracts and subcontracts with us, without prior notice and either at its convenience or for default based on performance. In addition, funding pursuant to our U.S. government contracts may be reduced or withheld as part of the U.S.
Congressional appropriations process due to fiscal constraints, changes in U.S. national security strategy and/or priorities or other
reasons. Further uncertainty with respect to ongoing programs could also result in the event that the U.S. government finances its operations through temporary funding measures such as “continuing resolutions” rather than full-year appropriations. Any loss or anticipated loss or reduction of expected funding and/or modification, curtailment, or termination of one or more large programs could have a material adverse effect on our earnings, cash flow and/or financial position.
We are subject to U.S. government inquiries and investigations, including periodic audits of costs that we determine are reimbursable under U.S. government contracts. U.S. government agencies, including the Defense Contract Audit Agency and the Defense Contract Management Agency, routinely audit government contractors. These agencies review our performance under contracts, cost structure and compliance with applicable laws, regulations, and standards, as well as the adequacy of and our compliance with our internal control systems and policies. Any costs found to be misclassified or inaccurately allocated to a specific contract will be deemed non-reimbursable, and to the extent already reimbursed, must be refunded. Any inadequacies in our systems and policies could result in withholds on billed receivables, penalties and reduced future business. Furthermore, if any audit, inquiry or investigation uncovers improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with the U.S. government. We also could suffer reputational harm if allegations of impropriety were made against us, even if such allegations are later determined to be false.
We enter into fixed-price contracts which could subject us to losses if we have cost overruns.
Our BDS and BGS defense businesses generated approximately 65%69% and 77%72% of their 20182020 revenues from fixed-price contracts. While fixed-price contracts enable us to benefit from performance improvements, cost reductions and efficiencies, they also subject us to the risk of reduced margins or incurring losses if we are unable to achieve estimated costs and revenues. If our estimated costs exceed our estimated price, we recognize reach-forward losses which can significantly affect our reported results. For example during 2018,in 2020, we recorded additional reach-forward losses totaling $736of $1,320 million on the USAF KC-46A Tanker contract primarily reflecting higher estimated$551 million of costs associated with certification, testingthe agreement signed in April 2020 with the U.S. Air Force to develop and change incorporation on aircraft, as well as higher than expected effort to meet customer requirements in order to support deliveryintegrate a new Remote Vision System, and the remaining costs reflect production inefficiencies including impacts of COVID-19 disruption. New programs could also have risk for reach-forward loss upon contract award and during the initial aircraft. In addition,period of contract performance. For example, in 2018, in connection with winning the T-XT-7A Red Hawk and MQ-25 Stingray competitions, we recorded a loss of $400 million associated with options for 346 T-X TrainerT-7A Red Hawk aircraft and a loss of $291 million related to the MQ-25 Stingray Engineering, Manufacturing and Development (EMD) contract. The long term nature of many of our contracts makes the process of estimating costs and revenues on fixed-price contracts inherently risky. Fixed-price contracts often contain price incentives and penalties tied to performance which can be difficult to estimate and have significant impacts on margins. In addition, some of our contracts have specific provisions relating to cost, schedule and performance.
Fixed-price development contracts are generally subject to more uncertainty than fixed-price production contracts. Many of these development programs have highly complex designs. In addition, technical or quality issues that arise during development could lead to schedule delays and higher costs to complete, which could result in a material charge or otherwise adversely affect our financial condition. Examples of significant BDS fixed-price development contracts include Commercial Crew, Saudi F-15, USAF KC-46A Tanker,, T-X Trainer, T-7A Red Hawk, VC-25B Presidential Aircraft, MQ-25, Stingray, and commercial and military satellites.
We enter into cost-type contracts which also carry risks.
Our BDS and BGS defense businesses generated approximately 35%31% and 23%28% of their 20182020 revenues from cost-type contracting arrangements. Some of these are development programs that have complex design and technical challenges. These cost-type programs typically have award or incentive fees that are subject to uncertainty and may be earned over extended periods. In these cases the associated financial risks are primarily in reduced fees, lower profit rates or program cancellation if cost, schedule or technical
performance issues arise. Programs whose contracts are primarily cost-type include GMDGround-based Midcourse Defense (GMD), Proprietary and SLS programs.
We enter into contracts that include in-orbit incentive payments that subject us to risks.
Contracts in the commercial satellite industry and certain government satellite contracts include in-orbit incentive payments. These in-orbit payments may be paid over time after final satellite acceptance or paid in full prior to final satellite acceptance. In both cases, the in-orbit incentive payment is at risk if the satellite does not perform to specifications for up to 15 years after acceptance. The net present value of in-orbit incentive fees we ultimately expect to realize is recognized as revenue in the construction period. If the satellite fails to meet contractual performance criteria, customers will not be obligated to continue making in-orbit payments and/or we may be required to provide refunds to the customer and incur significant charges.
Our abilityRisks Related to deliver productsCybersecurity and services that satisfy customer requirements is heavily dependent on the performance and financial stability of our subcontractors and suppliers, as well as on the availability of raw materials and other components.
We rely on other companies including U.S. and non-U.S. subcontractors and suppliers to provide and produce raw materials, integrated components and sub-assemblies, and production commodities and to perform some of the services that we provide to our customers. If one or more of our suppliers or subcontractors experiences financial difficulties, delivery delays or other performance problems, we may be unable to meet commitments to our customers or incur additional costs. For example, the 737 program experienced supply chain disruptions in 2018 that impacted the timing of certain deliveries during the year. In addition, if one or more of the raw materials on which we depend (such as aluminum, titanium or composites) becomes unavailable or is available only at very high prices, we may be unable to deliver one or more of our products in a timely fashion or at budgeted costs. In some instances, we depend upon a single source of supply. Any service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geo-political developments, or as a result of performance problems or financial difficulties, could have a material adverse effect on our ability to meet commitments to our customers or increase our operating costs.
We use estimates in accounting for many contracts and programs. Changes in our estimates could adversely affect our future financial results.
Contract and program accounting require judgment relative to assessing risks, estimating revenues and costs and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts and programs, the estimation of total revenues and cost at completion is complicated and subject to many variables. Assumptions have to be made regarding the length of time to complete the contract or program because costs also include expected increases in wages and employee benefits, material prices and allocated fixed costs. Incentives or penalties related to performance on contracts are considered in estimating sales and profit rates, and are recorded when there is sufficient information for us to assess anticipated performance. Suppliers’ assertions are also assessed and considered in estimating costs and profit rates. Estimates of award fees are also used in sales and profit rates based on actual and anticipated awards.
With respect to each of our commercial aircraft programs, inventoriable production costs (including overhead), program tooling and other non-recurring costs and routine warranty costs are accumulated and charged as cost of sales by program instead of by individual units or contracts. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts limited by the ability to make reasonably dependable estimates. To establish the relationship of sales to cost of sales, program
accounting requires estimates of (a) the number of units to be produced and sold in a program, (b) the period over which the units can reasonably be expected to be produced and (c) the units’ expected sales prices, production costs, program tooling and other non-recurring costs, and routine warranty costs for the total program. Several factors determine accounting quantity, including firm orders, letters of intent from prospective customers and market studies. Changes to customer or model mix, production costs and rates, learning curve, changes to price escalation indices, costs of derivative aircraft, supplier performance, customer and supplier negotiations/settlements, supplier claims and/or certification issues can impact these estimates. Any such change in estimates relating to program accounting may adversely affect future financial performance.
Because of the significance of the judgments and estimation processes described above, materially different sales and profit amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial performance. For additional information on our accounting policies for recognizing sales and profits, see our discussion under “Management’s Discussion and Analysis – Critical Accounting Policies – Contract Accounting/Program Accounting” on pages 43 – 44 and Note 1 to our Consolidated Financial Statements on pages 54 – 66 of this Form 10-K.
Competition within our markets and with respect to the products we sell may reduce our future contracts and sales.
The markets in which we operate are highly competitive and one or more of our competitors may have more extensive or more specialized engineering, manufacturing and marketing capabilities than we do in some areas. In our Commercial Airplanes business, we anticipate increasing competition among non-U.S. aircraft manufacturers of commercial jet aircraft. In our BDS business, we anticipate that the effects of defense industry consolidation, fewer large and new programs and new priorities, including near and long-term cost competitiveness, of our U.S. DoD and non-U.S. customers will intensify competition for many of our BDS products. Our BGS segment faces competition from many of the same strong U.S. and non-U.S. competitors facing BCA and BDS. Furthermore, we are facing increased international competition and cross-border consolidation of competition. There can be no assurance that we will be able to compete successfully against our current or future competitors or that the competitive pressures we face will not result in reduced revenues and market share.
We derive a significant portion of our revenues from non-U.S. sales and are subject to the risks of doing business in other countries.
In 2018, non-U.S. customers, which includes FMS, accounted for approximately 56% of our revenues. We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are subject to risks of doing business internationally, including:
changes in regulatory requirements;
U.S. and non-U.S. government policies, including requirements to expend a portion of program funds locally and governmental industrial cooperation or participation requirements;
fluctuations in international currency exchange rates;
volatility in international political and economic environments and changes in non-U.S. national priorities and budgets, which can lead to delays or fluctuations in orders;
the complexity and necessity of using non-U.S. representatives and consultants;
the uncertainty of the ability of non-U.S. customers to finance purchases, including the availability of financing from the Export-Import Bank of the United States;
uncertainties and restrictions concerning the availability of funding credit or guarantees;
imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions and other trade restrictions;
the difficulty of management and operation of an enterprise spread over many countries;
compliance with a variety of non-U.S. laws, as well as U.S. laws affecting the activities of U.S. companies abroad; and
unforeseen developments and conditions, including terrorism, war, epidemics and international tensions and conflicts.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our operations in the future.Business Disruptions
Unauthorized access to our or our customers’ information and systems could negatively impact our business.
We face certain security threats, including threats to the confidentiality, availability and integrity of our data and systems. We maintain an extensive network of technical security controls, policy enforcement mechanisms, monitoring systems and management oversight in order to address these threats. While these measures are designed to prevent, detect and respond to unauthorized activity in our systems, certain types of attacks, including cyber-attacks, could result in significant financial or information losses and/or reputational harm. In addition, we manage information and information technology systems for certain customers. Many of these customers face similar security threats. If we cannot prevent the unauthorized access, release and/or corruption of our customers’ confidential, classified or personally identifiable information, our reputation could be damaged, and/or we could face financial losses.
Business disruptions could seriously affect our future sales and financial condition or increase our costs and expenses.
Our business may be impacted by disruptions including threats to physical security, information technology or cyber-attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises. Any of these disruptions could affect our internal operations or our ability to deliver products and services to our customers. Any significant production delays, or any destruction, manipulation or improper use of our data, information systems or networks could impact our sales, increase our expenses and/or have an adverse effect on the reputation of Boeing and of our products and services.
Risks Related to Legal and Regulatory Matters
The outcome of litigation and of government inquiries and investigations involving our business is unpredictable and an adverse decision in any such matter could have a material effect on our financial position and results of operations.
We are involved in a number of litigation matters. These matters may divert financial and management resources that would otherwise be used to benefit our operations. No assurances can be given that the results of these matters will be favorable to us. An adverse resolution of any of these lawsuits, or future lawsuits, could have a material impact on our financial position and results of operations. In addition, we are subject to extensive regulation under the laws of the United States and its various states, as well as other jurisdictions in which we operate. As a result, we are sometimes subject to government inquiries and investigations of our business due, among other things, to our business relationships with the U.S. government, the heavily regulated nature of our industry, and in the case of environmental proceedings, our current or past ownership of certain property. Any such inquiry or investigation could potentially result in an adverse ruling against us, which could have a material impact on our financial position and results of operations.
A significant portion of our customer financing portfolio is concentrated among certain customers and in certain types of Boeing aircraft, which exposes us to concentration risks.
A significant portion of our customer financing portfolio is concentrated among certain customers and in distinct geographic regions. Our portfolio is also concentrated by varying degrees across Boeing aircraft product types, most notably 717 and 747-8 aircraft, and among customers that we believe have less than investment-grade credit. If one or more customers holding a significant portion of our portfolio assets experiences financial difficulties or otherwise defaults on or does not renew its leases with us at their expiration, and we are unable to redeploy the aircraft on reasonable terms, or if the types of aircraft that are concentrated in our portfolio suffer greater than expected declines in value, our earnings, cash flows and/or financial position could be materially adversely affected.
We may be unable to obtain debt to fund our operations and contractual commitments at competitive rates, on commercially reasonable terms or in sufficient amounts.
We depend, in part, upon the issuance of debt to fund our operations and contractual commitments. As of December 31, 2018 and 2017, our airplane financing commitments totaled $19,462 million and $10,221 million. If we require additional funding in order to fund outstanding financing commitments or meet other business requirements, our market liquidity may not be sufficient. A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings. The occurrence of any or all of these events may adversely affect our ability to fund our operations and contractual or financing commitments.
We may not realize the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures.
As part of our business strategy, we may merge with or acquire businesses and/or form joint ventures and strategic alliances. For example, in 2018 we completed the acquisition of KLX Inc., a provider of aviation parts and services. Whether we realize the anticipated benefits from these acquisitions and related activities depends, in part, upon our ability to integrate the operations of the acquired business, the performance of the underlying product and service portfolio, and the performance of the management team and other personnel of the acquired operations. Accordingly, our financial results could be adversely affected by unanticipated performance issues, legacy liabilities, transaction-related charges, amortization of expenses related to intangibles, charges for impairment of long-term assets, credit guarantees, partner performance and indemnifications. Consolidations of joint ventures could also impact our reported results of operations or financial position. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful. We also may make strategic divestitures from time to time. These transactions may result in continued financial involvement in the divested businesses, such as through guarantees or other financial arrangements, following the transaction. Nonperformance by those divested businesses could affect our future financial results through additional payment obligations, higher costs or asset write-downs.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We are exposed to liabilities that are unique to the products and services we provide. We maintain insurance for certain risks and, in some circumstances, we may receive indemnification from the U.S. government. The amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs. For example, liabilities arising from the use of certain of our products, such as aircraft technologies, missile systems, border security systems, anti-terrorism technologies, and/or air traffic management systems may not be insurable on commercially reasonable terms. While some of these products are shielded from liability within the U.S. under the SAFETY Act provisions of the 2002 Homeland Security Act, no such protection is available outside the U.S., potentially resulting in significant liabilities. The amount of insurance coverage we maintain may be inadequate to cover these or other claims or liabilities.
Business disruptions could seriously affect our future sales and financial condition or increase our costs and expenses.
Our business may be impacted by disruptions including threats to physical security, information technology or cyber-attacks or failures, damaging weather or other acts of nature and pandemics or other public health crises. Any of these disruptions could affect our internal operations or our ability to deliver products and services to our customers. Any significant production delays, or any destruction, manipulation or improper
use of our data, information systems or networks could impact our sales, increase our expenses and/or have an adverse effect on the reputation of Boeing and of our products and services.
Some of our and our suppliers’ workforces are represented by labor unions, which may lead to work stoppages.
Approximately 54,000 employees, which constitute 35% of our total workforce, were union represented as of December 31, 2018. We experienced a work stoppage in 2008 when a labor strike halted commercial aircraft and certain BDS program production. We may experience additional work stoppages in the future, which could adversely affect our business. We cannot predict how stable our relationships, currently with 11 U.S. labor organizations and 13 non-U.S. labor organizations, will be or whether we will be able to meet the unions’ requirements without impacting our financial condition. The unions may also limit our flexibility in dealing with our workforce. Union actions at suppliers can also affect us. Work stoppages and instability in our union relationships could delay the production and/or development of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.
Substantial pension and other postretirement benefit obligations have a material impact on our earnings, shareholders’ equity and cash flows from operations, and could have significant adverse impacts in future periods.
The majority of our employees have earned benefits under defined benefit pension plans. Potential pension contributions include both mandatory amounts required under the Employee Retirement Income Security Act and discretionary contributions to improve the plans' funded status. The extent of future contributions depends heavily on market factors such as the discount rate and the actual return on plan assets. We estimate future contributions to these plans using assumptions with respect to these and other items. Changes to those assumptionscould have a significant effect on future contributions as well as on our annual pension costs and/or result in a significant change to shareholders' equity. For U.S. government contracts, we allocate pension costs to individual contracts based on U.S. Cost Accounting Standards which can also affect contract profitability. We also provide other postretirement benefits to certain of our employees, consisting principally of health care coverage for eligible retirees and qualifying dependents. Our estimates of future costs associated with these benefits are also subject to assumptions, including estimates of the level of medical cost increases. For a discussion regarding how our financial statements can be affected by pension and other postretirement plan accounting policies, see “Management's Discussion and Analysis-Critical Accounting Policies-Pension Plans” on page 45 of this Form 10-K. Although Generally Accepted Accounting Principles in the United States of America (GAAP) expense and pension or other postretirement benefit contributions are not directly related, the key economic factors that affect GAAP expense would also likely affect the amount of cash or stock we would contribute to our plans.
Our operations expose us to the risk of material environmental liabilities.
We are subject to various U.S. federal, state, local and non-U.S. laws and regulations related to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if we were to violate or become liable under environmental laws or regulations. In some cases, we may be subject to such costs due to environmental impacts attributable to our current or past manufacturing operations or the operations of companies we have acquired. In other cases, we may become subject to such costs due to an indemnification agreement between us and a third party relating to such environmental liabilities. In addition, new laws and regulations, more stringent enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new remediation requirements could result in additional costs. For additional information relating to environmental contingencies, see Note 1413 to our Consolidated Financial Statements.
Risks Related to Financing and Liquidity
We may be unable to obtain debt to fund our operations and contractual commitments at competitive rates, on commercially reasonable terms or in sufficient amounts.
We depend, in part, upon the issuance of debt to fund our operations and contractual commitments. In addition, our debt balances have increased significantly since 2019, driven primarily by impacts related to the 737 MAX grounding and the COVID-19 pandemic, and we expect to continue to actively manage our liquidity. Our increased debt balance has also resulted in downgrades to our credit ratings. As of December 31, 2020, our debt totaled $63.6 billion of which approximately $20.4 billion of principal payments on outstanding debt become due over the next three years. In addition, as of December 31, 2020, our airplane financing commitments totaled $11,512 million. If we require additional funding in order to pay off existing debt, address further impacts to our business related to the 737 MAX, COVID-19, or broader market developments, fund outstanding financing commitments or meet other business requirements, our market liquidity may not be sufficient. These risks will be particularly acute if we are subject to further credit rating downgrades. A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings, including impacts described above related to the
COVID-19 pandemic and/or associated changes in demand for our products and services. The occurrence of any or all of these events may adversely affect our ability to fund our operations and contractual or financing commitments.
Substantial pension and other postretirement benefit obligations have a material impact on our earnings, shareholders’ equity and cash flows from operations, and could have significant adverse impacts in future periods.
Many of our employees have earned benefits under defined benefit pension plans. Potential pension contributions include both mandatory amounts required under the Employee Retirement Income Security Act and discretionary contributions to improve the plans' funded status. The extent of future contributions depends heavily on market factors such as the discount rate and the actual return on plan assets. We estimate future contributions to these plans using assumptions with respect to these and other items. Changes to those assumptions could have a significant effect on future contributions as well as on our annual pension costs and/or result in a significant change to shareholders' equity. For U.S. government contracts, we allocate pension costs to individual contracts based on U.S. Cost Accounting Standards which can also affect contract profitability. We also provide other postretirement benefits to certain of our employees, consisting principally of health care coverage for eligible retirees and qualifying dependents. Our estimates of future costs associated with these benefits are also subject to assumptions, including estimates of the level of medical cost increases. For a discussion regarding how our financial statements can be affected by pension and other postretirement plan accounting policies, see “Management's Discussion and Analysis-Critical Accounting Policies-Pension Plans” on pages 57 - 58 of this Form 10-K. Although under Generally Accepted Accounting Principles in the United States of America (GAAP) the timing of periodic pension and other postretirement benefit expense and plan contributions are not directly related, the key economic factors that affect GAAP expense would also likely affect the amount of cash or stock we would contribute to our plans.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We are exposed to liabilities that are unique to the products and services we provide. We maintain insurance for certain risks and, in some circumstances, we may receive indemnification from the U.S. government. The amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs. For example, liabilities arising from the use of certain of our products, such as aircraft technologies, space systems, spacecraft, satellites, missile systems, weapons, cyber security, border security systems, anti-terrorism technologies, and/or air traffic management systems may not be insurable on commercially reasonable terms. While some of these products are shielded from liability within the U.S. under the SAFETY Act provisions of the 2002 Homeland Security Act, no such protection is available outside the U.S., potentially resulting in significant liabilities. The amount of insurance coverage we maintain may be inadequate to cover these or other claims or liabilities.
A significant portion of our customer financing portfolio is concentrated among certain customers and in certain types of Boeing aircraft, which exposes us to concentration risks.
A significant portion of our customer financing portfolio is concentrated among certain customers and in distinct geographic regions. Our portfolio is also concentrated by varying degrees across Boeing aircraft product types, most notably 717 and 747-8 aircraft, and among customers that we believe have less than investment-grade credit. If one or more customers holding a significant portion of our portfolio assets experiences financial difficulties or otherwise defaults on or does not renew its leases with us at their expiration, and we are unable to redeploy the aircraft on reasonable terms, or if the types of
aircraft that are concentrated in our portfolio suffer greater than expected declines in value, our earnings, cash flows and/or financial position could be materially adversely affected.
Risks Related to Labor
Some of our and our suppliers’ workforces are represented by labor unions, which may lead to work stoppages.
Approximately 47,000 employees, which constitute 33% of our total workforce, were union represented as of December 31, 2020. We experienced a work stoppage in 2008 when a labor strike halted commercial aircraft and certain BDS program production. We may experience additional work stoppages in the future, which could adversely affect our business. We cannot predict how stable our relationships, currently with 10 U.S. labor organizations and 12 non-U.S. labor organizations, will be or whether we will be able to meet the unions’ requirements without impacting our financial condition. The unions may also limit our flexibility in dealing with our workforce. Union actions at suppliers can also affect us. Work stoppages and instability in our union relationships could delay the production and/or development of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.
Item 1B. Unresolved Staff Comments
Not applicable
Item 2. Properties
We occupied approximately 8886 million square feet of floor space on December 31, 20182020 for manufacturing, warehousing, engineering, administration and other productive uses, of which approximately 95%93% was located in the United States. The following table provides a summary of the floor space by business as of December 31, 2018:2020:
| | | (Square feet in thousands) | Owned |
| | Leased |
| | Government Owned(1) |
| | Total |
| (Square feet in thousands) | Owned | | Leased | | Government Owned(1) | | Total |
| Commercial Airplanes | 40,822 |
| | 2,264 |
| |
|
| 43,086 |
| Commercial Airplanes | 40,444 | | | 2,303 | | | 42,747 | |
| Defense, Space & Security | 25,991 |
| | 5,315 |
| |
|
| | 31,306 |
| Defense, Space & Security | 23,109 | | | 6,335 | | | | | 29,444 | |
| Global Services | 684 |
| | 8,140 |
| | | | 8,824 |
| Global Services | 683 | | | 7,303 | | | 348 | | | 8,334 | |
Other(2) | 2,499 |
| | 1,777 |
| | 318 |
| | 4,594 |
| Other(2) | 2,385 | | | 2,343 | | | 318 | | | 5,046 | |
| Total | 69,996 |
| | 17,496 |
| | 318 |
| | 87,810 |
| Total | 66,621 | | | 18,284 | | | 666 | | | 85,571 | |
(1) Excludes rent-free space furnished by U.S. government landlord of 49 square feet.
(2) Other includes BCC, sites used for BCC, common internal services and our Corporate Headquarters.
At December 31, 2018,2020, we occupied in excess of 80.177.4 million square feet of floor space at the following major locations:
•Commercial Airplanes – Greater Seattle, WA; Greater Charleston, SC; Portland, OR; Greater Los Angeles, CA; Greater Salt Lake City, UT; Australia;Canada; and CanadaAustralia
•Defense, Space & Security – Greater St. Louis, MO; Greater Seattle, WA; Greater Los Angeles, CA; Greater Seattle, WA; Philadelphia, PA; Mesa, AZ; Huntsville, AL; Oklahoma City, OK; Heath, OH; Greater Washington, DC; Australia; and Houston, TX
•Global Services – San Antonio, TX; Greater Miami, FL; Dallas, TX; Germany; Jacksonville, FL; Germany; Mesa, AZ; and Greater Denver, CO; and Mesa, AZCO
•Other – Chicago, IL; Greater Seattle, WA; Greater Los Angeles, CA ; Greater Seattle, WA; Greater St. Louis, MO; and Greater Washington, DCDC.
Most runways and taxiways that we use are located on airport properties owned by others and are used jointly with others. Our rights to use such facilities are provided for under long-term leases with municipal,
county or other government authorities. In addition, the U.S. government furnishes us certain office space, installations and equipment at U.S. government bases for use in connection with various contract activities.
We believe that our major propertiesTo support business needs, property requirements are adequate for our present needsbeing evaluated to align with previously announced staffing reductions, utilization studies, and as supplemented by planned improvements and construction, expect themstrategic growth investments to remain adequate for the foreseeable future.optimize footprint.
Item 3. Legal Proceedings
Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 2221 to our Consolidated Financial Statements, which is hereby incorporated by reference.
Item 4. Mine Safety Disclosures
Not applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market for our common stock is the New York Stock Exchange where it trades under the symbol BA. As of February 1, 2019,January 25, 2021, there were 104,37699,383 shareholders of record.
Issuer Purchases of Equity Securities
The following table provides information about purchases we made during the quarter ended December 31, 20182020 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
(Dollars in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | (b) | | (c) | | (d) |
| Total Number of Shares Purchased(1) | | Average
Price Paid per
Share | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(2) |
| 10/1/2020 thru 10/31/2020 | 4,707 | | $168.15 | | | | | |
| 11/1/2020 thru 11/30/2020 | 3,072 | | 152.35 | | | | | |
| 12/1/2020 thru 12/31/2020 | 16,683 | | 212.42 | | | | | |
| Total | 24,462 | | $196.36 | | | | | |
(1)A total of 24,385 shares were transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock units during the period. We did not purchase any shares of our common stock in the open market pursuant to our repurchase program. We purchased 77 shares in swap transactions.
(2)On March 21, 2020, the Board of Directors terminated its prior authorization to repurchase shares of the Company's outstanding common stock. Share repurchases under this plan had been suspended since April 2019.
|
| | | | | | | | | | | | |
| | (a) | | (b) | | (c) | | (d) |
| | Total Number of Shares Purchased(1) | | Average Price Paid per Share |
| | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(2) |
|
| 10/1/2018 thru 10/31/2018 | 1,567,983 | |
| $374.79 |
| | 1,560,854 |
| |
| $9,000 |
|
| 11/1/2018 thru 11/30/2018 | 16,910 | | 334.84 |
| |
| | 9,000 |
|
| 12/1/2018 thru 12/31/2018 | 4,295 | | 328.26 |
| |
| | 20,000 |
|
| Total | 1,589,188 | |
| $374.24 |
| | 1,560,854 |
| | |
| |
(1)
| We purchased an aggregate of 1,560,854 shares of our common stock in the open market pursuant to our repurchase plan and 28,334 shares transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock units during the period. We did not purchase shares in swap transactions. |
| |
(2)
| On December 17, 2018, we announced a new repurchase plan for up to $20 billion of common stock, replacing the plan previously authorized in 2017. |
Item 6. Selected Financial Data
Five-Year Summary (Unaudited) | Five-Year Summary (Unaudited) | |
| | (Dollars in millions, except per share data) | 2018 |
| | 2017 |
| | 2016 |
| | 2015 |
| (2) | 2014 |
| (2) | (Dollars in millions, except per share data) | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | |
| Revenues |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
| |
| $96,114 |
| |
| $90,762 |
| | Revenues | $58,158 | | | $76,559 | | | $101,127 | | | $94,005 | | | $93,496 | | |
| Net earnings from continuing operations |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
| |
| $5,176 |
| |
| $5,446 |
| | |
| Net (loss)/earnings | | Net (loss)/earnings | ($11,941) | | | ($636) | | | $10,460 | | | $8,458 | | | $5,034 | | |
| | | | | | | | | | | | |
| Basic earnings per share from continuing operations |
| $18.05 |
| |
| $14.03 |
| |
| $7.92 |
| |
| $7.52 |
| |
| $7.47 |
| | |
| Diluted earnings per share from continuing operations | 17.85 |
| | 13.85 |
| | 7.83 |
| | 7.44 |
| | 7.38 |
| | |
| Basic (loss)/earnings per share | | Basic (loss)/earnings per share | ($20.88) | | | ($1.12) | | | $18.05 | | | $14.03 | | | $7.92 | | |
| Diluted (loss)/earnings per share | | Diluted (loss)/earnings per share | (20.88) | | | (1.12) | | | 17.85 | | | 13.85 | | | 7.83 | | |
Dividends declared per share(1) | 7.19 |
| | 5.97 |
| | 4.69 |
| | 3.82 |
| | 3.10 |
| | Dividends declared per share (1) | — | | | 8.22 | | | 7.19 | | | 5.97 | | | 4.69 | | |
| | | | | | | | | | | | |
| Cash and cash equivalents |
| $7,637 |
| |
| $8,813 |
| |
| $8,801 |
| |
| $11,302 |
| |
| $11,733 |
| | Cash and cash equivalents | $7,752 | | | $9,485 | | | $7,637 | | | $8,813 | | | $8,801 | | |
| Short-term and other investments | 927 |
| | 1,179 |
| | 1,228 |
| | 750 |
| | 1,359 |
| | Short-term and other investments | 17,838 | | | 545 | | | 927 | | | 1,179 | | | 1,228 | | |
| Total assets | 117,359 |
| | 112,362 |
| | 109,076 |
| | 94,408 |
| | 92,921 |
| | Total assets | 152,136 | | | 133,625 | | | 117,359 | | | 112,362 | | | 109,076 | | |
| Total debt | 13,847 |
| | 11,117 |
| | 9,952 |
| | 9,964 |
| | 9,070 |
| | Total debt | 63,583 | | | 27,302 | | | 13,847 | | | 11,117 | | | 9,952 | | |
| | | | | | | | | | | | |
| Operating cash flow |
| $15,322 |
| |
| $13,346 |
| |
| $10,496 |
| |
| $9,363 |
| |
| $8,858 |
| | Operating cash flow | ($18,410) | | | ($2,446) | | | $15,322 | | | $13,346 | | | $10,496 | | |
| Investing cash flow | | Investing cash flow | ($18,366) | | | ($1,530) | | | ($4,621) | | | ($2,058) | | | ($3,378) | | |
| Financing cash flow | | Financing cash flow | $34,955 | | | $5,739 | | | ($11,722) | | | ($11,350) | | | ($9,587) | | |
| | | | | | | | | | | | |
| Total backlog |
| $490,481 |
| |
| $474,640 |
| |
| $473,492 |
| (2) |
| $489,299 |
| |
| $502,391 |
| | Total backlog | $363,404 | | | $463,403 | | | $490,481 | | | $474,640 | | | $473,492 | | (2) |
| | | | | | | | | | | | |
| Year-end workforce | 153,000 |
| | 140,800 |
| | 150,500 |
| | 161,400 |
| | 165,500 |
| | Year-end workforce | 141,000 | | | 161,100 | | | 153,000 | | | 140,800 | | | 150,500 | | |
(1) CashIn March 2020, the Board of Directors suspended the declaration and/or payment of cash dividends have been paid on common stock every year since 1942.until further notice.
(2) Amounts prior to 2016, along with 2016 Backlog dodoes not reflect impact of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; ASU 2016-18 Statement of Cash Flows (Topic 230) Restricted Cash; in the first quarter of 2018. See Note 2 to our Consolidated Financial Statements for additional information..
17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Results of Operations and Financial Condition
Overview
We are a global market leader in the design, development, manufacture, sale, service and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services. We are one of the two major manufacturers of 100+ seat airplanes for the worldwide commercial airline industry and one of the largest defense contractors in the U.S. While our principal operations are in the U.S., we conduct operations in an expanding number of countries and rely on an extensive network of non-U.S. partners, key suppliers and subcontractors.
Our strategy is centered on successful execution in healthy core businesses – Commercial Airplanes (BCA)(BCA), Defense, Space & Security (BDS) (BDS), and Global Services (BGS)(BGS) – supplemented and supported by Boeing Capital (BCC) (BCC). Taken together, these core businesses have historically generated substantial earnings and cash flow that permit us to invest in new products and services. We focus on producing the products and providing the services that the market demands, and continue to find new ways to improve efficiency and quality to provide a fair return for our shareholders. BCA is committed to being the leader in commercial aviation by offering airplanes and services that deliver superior design, safety, efficiency and value to customers around the world. BDS integrates its resources in defense, intelligence, communications, security, space and services to deliver capability-driven solutions to customers at reduced costs. Our BDS strategy is to leverage our core businesses to capture key next-generation programs while expanding our presence in adjacent and international markets, underscored by an intense focus on growth and productivity. BGS provides support for commercial and defense through innovative, comprehensive, and cost-competitive product and service solutions. BCC facilitates, arranges, structures and provides selective financing solutions for our Boeing customers.
Business Environment and Trends
The global outbreak of COVID-19 and the residual impacts of the 737 MAX grounding continue to have significant adverse impacts on our business and are expected to continue to negatively impact revenue, earnings and operating cash flow in future quarters. They are also having a significant impact on our liquidity - see Liquidity Matters in Note 1 to our Consolidated Financial Statements for a further discussion of liquidity and additional actions we are taking in response to these challenges.
The COVID-19 pandemic has caused an unprecedented shock to demand for air travel, creating a tremendous challenge for our customers, our business and the entire commercial aerospace manufacturing and services sector. Global economic growth, a primary driver for air travel, is expected to have declined to between -4% and -5% in 2020. The latest International Air Transport Association (IATA) forecast projected full-year 2020 passenger traffic to be down more than 60% compared to 2019 as global economic activity slows due to COVID-19, and governments severely restricted travel to contain the spread of the virus. The recovery remains slow and uneven as travel restrictions and varying regional travel protocols continue to impact air travel. Generally, we expect domestic travel to recover faster than international travel. As a result, we expect the narrow-body market to recover faster than the wide-body market. Also, the pace of the commercial market recovery will be heavily dependent on COVID-19 infection rates, progress on testing, government travel restrictions, and timing and availability of a vaccine. Air cargo traffic levels contracted this year due to weak global trade growth and capacity limitations given the large impact that COVID-19 has had on international passenger operations, which also carry cargo. Demand for dedicated freighters is developing better relative to cargo traffic trends.
Airline financial performance, which also plays a role in the demand for new capacity, has been adversely impacted by the COVID-19 pandemic. According to IATA, net losses in 2020 for the airline industry are expected to be approximately $118 billion, compared to net profits of $26 billion in 2019. Our customers are taking actions to combat the effects of the COVID-19 pandemic on the market by preserving liquidity. This comes in many forms such as deferrals of advances and other payments to suppliers, deferrals of deliveries, reduced spending on services, and, in some cases, cancellation of orders. We face a challenging environment in the near to medium term as airlines adjust to reduced traffic which in turn will lower demand for commercial aerospace products and services. The current environment is also affecting the financial viability of some airlines.
We currently expect it will take approximately three years for world-wide travel to return to 2019 levels and a few years beyond that for the industry to return to long-term trend growth of approximately 5%. To balance the supply and demand given the COVID-19 shock and to preserve our long-term potential and competitiveness, we have reduced the production rates of several of our BCA programs. These rate decisions are based on our ongoing assessments of the demand environment and availability of aircraft financing. There is significant uncertainty with respect to when commercial air traffic levels will recover, and whether, and at what point, capacity will return to and/or exceed pre-COVID-19 levels. During the fourth quarter of 2020, we made adjustments to our estimates regarding timing of 777X entry into service and market demand. We now anticipate that the first 777X delivery will occur in late 2023. We will closely monitor the key factors that affect backlog and future demand including customers’ evolving fleet plans, the wide-body replacement cycle and the cargo market. We will maintain a disciplined rate management process, and make adjustments as appropriate in the future. Notwithstanding the changes we have made to production rates, risk remains that further reductions will be required. Additionally, if we are unable to make timely deliveries of the large number of aircraft in inventory as of December 31, 2020, future revenues, earnings and cash flows will be adversely impacted.
The long-term outlook for the industry remains positive due to the fundamental drivers of air travel demand: economic growth, increasing propensity to travel due to increased trade, globalization, and improved airline services driven by liberalization of air traffic rights between countries. The shock from COVID-19 has reduced the near to medium term demand, but our Commercial Market Outlook forecast projects a 4% growth rate for passenger and cargo traffic over a 20 year period. Based on long-term global economic growth projections of 2.5% average annual GDP growth, we project demand for approximately 43,000 new airplanes over the next 20 years. The industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics and increased global environmental regulations.
Deliveries of the 737 MAX resumed in the fourth quarter of 2020, when the FAA rescinded the order that grounded 737 MAX aircraft in the U.S. Orders to suspend operations of 737 MAX aircraft from certain non-U.S. civil aviation authorities, including the Civil Aviation Administration of China, are still in effect. The grounding has had a significant adverse impact on our operations and creates significant uncertainty. We are focused on safely returning the 737 MAX to service for all of our customers.
At BGS, we are seeing a direct impact on our commercial supply chain business as fewer flights and more aircraft retirements result in a decreased demand for our parts and logistics offerings. Additionally, our commercial customers are curtailing discretionary spending, such as modifications and upgrades and focusing on required maintenance. Similar to BCA, we expect a multi-year recovery period for the commercial services business. The demand outlook for our government services business, which in 2019 accounted for just under half of BGS revenue, remains stable.
At BDS, we continue to see a healthy market with solid demand for our major platforms and programs both domestically and internationally. However, we experienced near-term production impacts associated with our temporary suspension of operations at various locations in 2020 .
In March and April of 2020, as a result of COVID-19, we temporarily suspended operations at multiple locations including the Puget Sound area, South Carolina and Philadelphia. Operations in Puget Sound and Philadelphia resumed during the week of April 20, while operations in South Carolina resumed beginning on May 3. We have implemented procedures to promote employee safety in our facilities, including more frequent and enhanced cleaning and adjusted schedules and work flows to support physical distancing. These actions have resulted, and will continue to result, in increased operating costs. In addition, a number of our suppliers have suspended or otherwise reduced their operations, and we are experiencing some supply chain shortages. Our suppliers are also experiencing liquidity pressures and disruptions to their operations as a result of COVID-19. We also continue to have large numbers of employees working from home. These measures and disruptions have reduced overall productivity and adversely impacted our financial position, results of operations, and cash flows in 2020. We expect further adverse impacts in future quarters.
In July 2020, we announced our business transformation efforts to assess our business across five key pillars – infrastructure, overhead and organization, portfolio and investments, supply chain health and operational excellence. We continue to make progress across all five key pillars as we utilize a lower production rate environment to transform and improve our business processes.Within the infrastructure pillar we are assessing our overall facility requirements in light of reduced demand in our commercial businesses and remote and virtual work opportunities for large numbers of our workforce. The consolidation of the 787 production in South Carolina is an example of this. We also anticipate a reduction of approximately 30% in office space needs compared to our current capacity. During 2020, we made certain reductions to our footprint and are planning to implement further reductions over the next few years. However, as we consolidate our footprint, we may incur near term adverse impacts to earnings. The overhead and organization pillar is focused on our cost structure and how we are organized so we can right size our workforce and simplify and reduce management layers and bureaucracy. During 2020, we recorded severance costs for approximately 26,000 employees, of which approximately 18,000 have left the Company as of December 31, 2020, and the remainder are expected to leave in 2021. The portfolio and investments pillar includes aligning our portfolio and investments to focus on our core business and the changes in market conditions. Through our portfolio and investment prioritization, we reduced research and development and capital expenditures during 2020 by $1.3 billion from the prior year.The supply chain pillar is focused on supply chain health and stability, reducing indirect procurement spend and streamlining our transportation, logistics and warehousing approach. We reduced indirect spend in 2020, by reducing expenditures in areas such as freight and logistics, purchased services and others. The operational excellence pillar is focused on improving performance, enhancing quality and reducing rework. For example, our information technology teams are evaluating opportunities to form or expand strategic partnerships with vendors that allow us to simplify and optimize our operations, and reduce overall costs.These activities are not intended to constrain our capacity, but to enable the Company to emerge stronger and be more resilient when the market recovers. We expect that successful execution of these measures will improve near term liquidity and long term cost competitiveness.
Consolidated Results of Operations
The following table summarizes key indicators of consolidated results of operations:
| | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues | $58,158 | | | $76,559 | | | $101,127 | |
| | | | | |
| GAAP | | | | | |
| (Loss)/earnings from operations | ($12,767) | | | ($1,975) | | | $11,987 | |
| Operating margins | (22.0) | % | | (2.6) | % | | 11.9 | % |
| Effective income tax rate | 17.5 | % | | 71.8 | % | | 9.9 | % |
| Net (loss)/earnings attributable to Boeing Shareholders | ($11,873) | | | ($636) | | | $10,460 | |
| Diluted (loss)/earnings per share | ($20.88) | | | ($1.12) | | | $17.85 | |
| | | | | |
Non-GAAP (1) | | | | | |
| Core operating (loss)/earnings | ($14,150) | | | ($3,390) | | | $10,660 | |
| Core operating margins | (24.3 | %) | | (4.4 | %) | | 10.5 | % |
| Core (loss)/earnings per share | ($23.25) | | | ($3.47) | | | $16.01 | |
|
| | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Revenues |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
|
| | | | | | |
| GAAP | | | | | |
| Earnings from operations | 11,987 |
| | 10,344 |
| | 6,527 |
|
| Operating margins | 11.9 | % | | 11.0 | % | | 7.0 | % |
| Effective income tax rate | 9.9 | % | | 16.3 | % | | 13.0 | % |
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
| Diluted earnings per share |
| $17.85 |
| |
| $13.85 |
| |
| $7.83 |
|
| | | | | | |
Non-GAAP (1) | | | | | |
| Core operating earnings |
| $10,660 |
| |
| $8,906 |
| |
| $5,170 |
|
| Core operating margins | 10.5 | % | | 9.5 | % | | 5.5 | % |
| Core earnings per share |
| $16.01 |
| |
| $12.33 |
| |
| $6.94 |
|
| |
(1) | These measures exclude certain components of pension and other postretirement benefit expense. See page 40 - 42 for important information about these non-GAAP measures and reconciliations to the most comparable GAAP measures. |
Revenues
The following table summarizes Revenues:
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Commercial Airplanes | $16,162 | | | $32,255 | | | $57,499 | |
| Defense, Space & Security | 26,257 | | | 26,095 | | | 26,300 | |
| Global Services | 15,543 | | | 18,468 | | | 17,056 | |
| Boeing Capital | 261 | | | 244 | | | 274 | |
| Unallocated items, eliminations and other | (65) | | | (503) | | | (2) | |
| Total | $58,158 | | | $76,559 | | | $101,127 | |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Commercial Airplanes |
| $60,715 |
| |
| $58,014 |
| |
| $59,378 |
|
| Defense, Space & Security | 23,195 |
| | 20,561 |
| | 20,180 |
|
| Global Services | 17,018 |
| | 14,581 |
| | 13,819 |
|
| Boeing Capital | 274 |
| | 307 |
| | 298 |
|
| Unallocated items, eliminations and other | (75 | ) | | 542 |
| | (179 | ) |
| Total |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
|
Revenues decreased by $18,401 million in 2018 increased by $7,122 million or 8%2020 compared with 2017 due to higher revenues at BCA, BDS, and BGS. BCA revenues increased by $2,701 million due tohigher 737 and 787 deliveries and favorable 737 and 787 model mix, which more than offset lower 777 and 747 deliveries. BDS revenues increased by $2,634 million2019 primarily due to non-US contract awardslower revenues in our commercial airplanes and commercial services businesses. Revenues for fighters, higher weapons revenue, the final C-17 aircraft sale and higher satellites revenue. BGSeach of our segments have been adversely impacted by COVID-19. BCA revenues increaseddecreased by $2,437$16,093 million due to growth across our services portfolio, primarilylower deliveries driven by higher parts revenue including the acquisitionimpacts of KLX Inc. (KLX). The increases at BCA, BDS,the COVID-19 pandemic, 787 production issues, and BGS were partiallythe 737 MAX grounding, offset by lower unallocated revenue.
Revenues in 2017 increased by $509 million or 1% compared with 2016.charges related to estimated potential concessions and other considerations to 737 MAX customers. BDS revenues increased by $381$162 million primarily due to higher weapons revenue.fighter aircraft and other volume, partially offset by the impact of higher unfavorable cumulative contract catch-up adjustments, largely due to the KC-46A Tanker charges in 2020. BGS revenues increaseddecreased by $762$2,925 million primarily due to higherlower commercial parts revenue. The increases at BDS and BGS were partially offsetservices revenue driven by lower BCA revenues, primarily due to delivery mix, with fewer twin aisle deliveries more than offsettingimpacts of the impact of higher single aisle deliveries.
COVID-19 pandemic. The changes in Unallocated items, eliminations and other primarily reflect the timing of eliminations for intercompany aircraft deliveries, as well as reserves related to cost accounting litigation recorded in 2019. We expect the impacts of the COVID-19 pandemic to continue to significantly impact revenues in future quarters until the commercial airline industry recovers.
Revenues decreased by $24,568 million in 2019 compared with 2018 2017primarily due to lower revenues at BCA, partially offset by higher revenues at BGS. Lower BCA revenues are primarily driven by lower 737 MAX deliveries and 2016a revenue reduction of $8,259 million recorded in 2019 for estimated potential concessions and other considerations to customers for disruptions and associated delivery delays related to the 737 MAX grounding, net of insurance recoveries. The changes in Unallocated items, eliminations and other primarily reflect the timing of eliminations for intercompany aircraft deliveries and the sale of aircraft previously leased to customers.
Loss/Earnings From Operations
The following table summarizes Earnings(Loss)/earnings from operations:
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Commercial Airplanes | ($13,847) | | | ($6,657) | | | $7,830 | |
| Defense, Space & Security | 1,539 | | | 2,615 | | | 1,692 | |
| Global Services | 450 | | | 2,697 | | | 2,536 | |
| Boeing Capital | 63 | | | 28 | | | 79 | |
| Segment operating (loss)/profit | (11,795) | | | (1,317) | | | 12,137 | |
| Pension FAS/CAS service cost adjustment | 1,024 | | | 1,071 | | | 1,005 | |
| Postretirement FAS/CAS service cost adjustment | 359 | | | 344 | | | 322 | |
| Unallocated items, eliminations and other | (2,355) | | | (2,073) | | | (1,477) | |
| (Loss)/earnings from operations (GAAP) | ($12,767) | | | ($1,975) | | | $11,987 | |
| FAS/CAS service cost adjustment * | (1,383) | | | (1,415) | | | (1,327) | |
| Core operating (loss)/earnings (Non-GAAP) ** | ($14,150) | | | ($3,390) | | | $10,660 | |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Commercial Airplanes |
| $7,879 |
| |
| $5,452 |
| |
| $1,981 |
|
| Defense, Space & Security | 1,594 |
| | 2,193 |
| | 1,678 |
|
| Global Services | 2,522 |
| | 2,246 |
| | 2,159 |
|
| Boeing Capital | 79 |
| | 114 |
| | 59 |
|
| Segment Operating Profit | 12,074 |
| | 10,005 |
| | 5,877 |
|
| Pension FAS/CAS service cost adjustment | 1,005 |
| | 1,127 |
| | 1,029 |
|
| Postretirement FAS/CAS service cost adjustment | 322 |
| | 311 |
| | 328 |
|
Unallocated items, eliminations and other
| (1,414 | ) | | (1,099 | ) | | (707 | ) |
| Earnings from operations (GAAP) |
| $11,987 |
| |
| $10,344 |
| |
| $6,527 |
|
| FAS/CAS service cost adjustment * | (1,327 | ) | | (1,438 | ) | | (1,357 | ) |
| Core operating earnings (Non-GAAP) ** |
| $10,660 |
| |
| $8,906 |
| |
| $5,170 |
|
| |
* | The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. |
| |
** | Core operating earnings is a Non-GAAP measure that excludes the FAS/CAS service cost adjustment. See page 40. |
Earnings** Core operating earnings is a Non-GAAP measure that excludes the FAS/CAS service cost adjustment. See pages 51 - 52.
Loss from operations in 2018 increased by $1,643$10,792 million in 2020 compared with 2017,2019 primarily due to increased losses at BCA and decreased earnings at BGS and BDS. BCA loss from operations increased by $7,190 million. The loss in 2020 primarily reflects a reach-forward loss recorded in the fourth quarter of $6,493 million on the 777X program. The reach-forward loss reflects a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and resulting in a management decision to make modifications to the aircraft’s design, an updated assessment of COVID-19 impacts on market demand, and discussions with our customers with respect to aircraft delivery timing. These factors resulted in adjustments to production rates and the program accounting quantity, increased change incorporation costs, and associated customer and supply chain impacts. The loss in 2020 also reflects the absence of MAX deliveries during the first three quarters of the year, lower wide-body deliveries and lower program margins resulting from the COVID-19 pandemic and 787 production issues, abnormal production costs, 737NG frame fitting component repair costs, severance costs and 737 MAX customer considerations.
The loss in 2019 primarily reflects the absence of 737 MAX deliveries in the second, third and fourth quarters, and charges of $8,259 million for estimated 737 MAX customer considerations. BDS earnings decreased by $1,076 million in 2020 compared with 2019, primarily due to higher unfavorable cumulative contract catch-up adjustments, including charges of $1,320 million on KC-46A Tanker and $168 million on VC-25B in 2020, offset by $489 million of charges on Commercial Crew in 2019. The
lower earnings were also driven by lower gains on property sales compared to 2019. BGS earnings from operations decreased by $2,247 million in 2020 compared with 2019 primarily due to lower commercial services revenue, as well as asset impairments and severance costs resulting from the COVID-19 market environment. We expect the impacts of the COVID-19 pandemic to continue to reduce earnings in future quarters until the commercial airline industry recovers.
Loss from operations was $1,975 million in 2019 compared with earnings from operations of $11,987 million in 2018. The decrease of $13,962 million is primarily due to a loss from operations at BCA and BGS, which more thanof $6,657 million in 2019 compared to earnings from operations of $7,830 million in 2018, partially offset the decreaseby higher earnings at BDS and BGS in 2019 compared with 2018. BCA results decreased by $14,487 million due to lower 737 deliveries and the change in Unallocated items, eliminations and other. BCAearnings charges for estimated 737 MAX grounding customer considerations of $8,259 million, net of insurance recoveries. BDS earnings from operations increased by $2,427$923 million in 2018 due to higher revenues and improved operating margins. The increase in operating margins is primarily due to higher 787 margins, improved cost performance and favorable delivery mix.lower charges in 2019 for development programs. BGS earnings from operations increased by $276$161 million in 2018 primarily due to higher revenues, which was partially offset by higher period costs. BDS earnings from operations in 2018 decreased by $599 million compared with 2017 as earnings’ growth from higher revenues was more than offset by charges of $691 million related to winning the T-X Trainerless favorable performance and MQ-25 competitions, as well as $199 million of higher KC-46A Tanker reach-forward losses.
Earnings from operations in 2017 increased by $3,817 million compared with 2016 due to higher earnings at BCA and BDS, partially offset by the change in Unallocated items, eliminations and other. BCA earnings from operations increased by $3,471 million in 2017 primarily due to lower reach-forward losses, lower research and development costs, and improved margins reflecting favorable cost performance. In 2016, BCA recorded reach-forward losses of $1,258 million on the 747 program and reclassified $1,235 million of 787 flight test aircraft inventory costs to research and development. The reclassification of flight test aircraft costs was recorded in the second quarter of 2016 as a result of our determination that two 787 flight test aircraft were no longer commercially saleable. BDS earnings from operations increased by $515 million in 2017 primarily due to lower charges on the KC-46A Tanker and Commercial Crew programs.mix.
During 2018, 20172020, 2019 and 2016,2018, we recorded reach-forward losses on the KC-46A Tanker program. In 2018, we recorded chargesprogram of $1,320 million, $148 million, and $736 million, of which $500respectively.
Core operating loss increased by $10,760 million was recorded at BCA, $222 million at BDS, and $14 million at BGS. During 2017, we recorded charges of $445 million: $378 million at BCA, $44 million at BGS, and $23 million at BDS. During 2016, we recorded charges of $1,127 million: $772 millionin 2020 compared with 2019 primarily due to higher losses at BCA and $351 millionlower earnings at BGS and BDS.
Core operating earnings for 2018 increaseddecreased by $1,754$14,050 million in 2019 compared with 20172018 primarily due to higher earningsa loss from operations at BCA and BGS,in 2019, partially offset by lowerhigher earnings at BDS and higher unallocated expenses.
Core operating earnings in 2017 increased by $3,736 million compared with 2016 primarily due to higher earnings at BCA and BDS.BGS.
Unallocated Items, Eliminations and Other The most significant items included in Unallocated items, eliminations and other are shown in the following table:
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Share-based plans | ($120) | | | ($65) | | | ($76) | |
| Deferred compensation | (93) | | | (174) | | | (19) | |
| Amortization of previously capitalized interest | (95) | | | (89) | | | (92) | |
| Research and development expense, net | (240) | | | (401) | | | (144) | |
| Customer financing impairment | | | (250) | | | |
| Litigation | | | (109) | | | (148) | |
| Eliminations and other unallocated items | (1,807) | | | (985) | | | (998) | |
| Unallocated items, eliminations and other | ($2,355) | | | ($2,073) | | | ($1,477) | |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Share-based plans |
| ($76 | ) | |
| ($77 | ) | |
| ($66 | ) |
| Deferred compensation | (19 | ) | | (240 | ) | | (46 | ) |
| Eliminations and other unallocated items | (1,319 | ) | | (782 | ) | | (595 | ) |
| Unallocated items, eliminations and other |
| ($1,414 | ) | |
| ($1,099 | ) | |
| ($707 | ) |
Deferred compensation expense decreased by $221$81 million in 20182020 and increased by $194$155 million in 2017,2019, primarily driven by changes in broad stock market conditions and our stock price.
EliminationsResearch and other unallocateddevelopment expense decreased by $161 million in 2020 and increased by $537$257 million in 20182019 primarily due to timingspending by Boeing NeXt on product development.
In 2019, we recorded a $250 million charge related to the impairment of expense allocations, higher researchlease incentives with one customer that experienced liquidity issues, and development expense anda $109 million charge related to ongoing litigation associated with recoverable costs on U.S. government contracts. In 2018, we recorded a $148 million charge incurred related to the outcome of the Spirit litigation. See the discussion in Note 13 to our Consolidated Financial Statements.
Eliminations and other unallocated expense increased by $187$822 million in 20172020 primarily due to earnings charges of $744 million in the fourth quarter of 2020 related to an agreement between Boeing and the U.S. Department of Justice in January 2021. See Note 13.Eliminations and other unallocated expense decreased by $13 million in 2019 primarily due to timing of expense allocations.
A portion of service cost is recognized in Earnings from operations in the period incurred and the remainder is included in inventory at the end of the reporting period and recorded in Earnings from operations in subsequent periods.
Net periodic pension benefit costs included in Earnings(Loss)/earnings from operations were as follows:
| | | (Dollars in millions) | Pension | (Dollars in millions) | Pension |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Allocated to business segments |
| ($1,318 | ) | |
| ($1,637 | ) | |
| ($2,286 | ) | Allocated to business segments | ($1,027) | | | ($1,384) | | | ($1,318) | |
| Pension FAS/CAS service cost adjustment | 1,005 |
| | 1,127 |
| | 1,029 |
| Pension FAS/CAS service cost adjustment | 1,024 | | | 1,071 | | | 1,005 | |
| Net periodic benefit cost included in Earnings from operations |
| ($313 | ) | |
| ($510 | ) | |
| ($1,257 | ) | |
| Net periodic benefit cost included in (Loss)/earnings from operations | | Net periodic benefit cost included in (Loss)/earnings from operations | ($3) | | | ($313) | | | ($313) | |
The pension FAS/CAS service cost adjustment recognized in (Loss)/earnings from operations in 2020, 2019, and 2018 2017, and 2016 werewas largely consistent across all periods. The decrease in net periodic benefit costscost included in Earnings(Loss)/earnings from operations in 20172020 was primarily due to lowerprior year service costs reflecting the transitioncost that was included in earnings in 2019. The net periodic benefit cost included in (Loss)/earnings from operations in 2019 was consistent with 2018, as reductions in current year service cost were offset by higher amortization of employees in 2016 to defined contribution retirement savings plans.prior year service costs.
For additional discussion related to Postretirement Plans, see Note 1716 to our Consolidated Financial Statements.
Other Earnings Items
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| (Loss)/earnings from operations | ($12,767) | | | ($1,975) | | | $11,987 | |
| Other income, net | 447 | | | 438 | | | 92 | |
| Interest and debt expense | (2,156) | | | (722) | | | (475) | |
| (Loss)/earnings before income taxes | (14,476) | | | (2,259) | | | 11,604 | |
| Income tax benefit/(expense) | 2,535 | | | 1,623 | | | (1,144) | |
| Net loss from continuing operations | (11,941) | | | (636) | | | 10,460 | |
| Less: net loss attributable to noncontrolling interest | (68) | | | | | |
| Net (loss)/earnings attributable to Boeing Shareholders | ($11,873) | | | ($636) | | | $10,460 | |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Earnings from operations |
| $11,987 |
| |
| $10,344 |
| |
| $6,527 |
|
| Other income/(loss), net | 92 |
| | 123 |
| | (438 | ) |
| Interest and debt expense | (475 | ) | | (360 | ) | | (306 | ) |
| Earnings before income taxes | 11,604 |
| | 10,107 |
| | 5,783 |
|
| Income tax expense | (1,144 | ) | | (1,649 | ) | | (749 | ) |
| Net earnings from continuing operations |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
Other income/(loss),income, net decreased increased by $31$9 million in 20182020 primarily due to lower gains from foreign exchange,non-operating postretirement expense, partially offset by lower non-operating pension income, lower interest income and higher interest income. foreign exchange losses. Other income/(loss),income, net increased by $561$346 million in 20172019 primarily due to a decrease inhigher non-operating pension and postretirement costs and higher gains from foreign exchange. The non-operatingincome.
Non-operating pension expenseincome included in Other income/(loss),income, net was a benefit of$340 million in 2020, $374 million in 2019, and $143 million in 2018 and $117 million2018. The decreased income in 2017,2020 compared with an expense of$327 million in 2016. The benefits in 2018 and 2017 reflect expected returns in excess of interest cost and amortization of actuarial losses. The expense in 2016 reflects the amortization of non-service costs previously capitalized as inventory in prior years, primarily interest cost andto 2019 was due to higher amortization of actuarial losses and lower asset returns, partially offset by lower interest cost. The increased income in excess2019 compared to 2018 was due to lower amortization of expected returns.actuarial losses, partially offset by lower asset returns and higher interest cost.
Non-operating postretirement expense included in Other income, net was $16 million in 2020, $107 million in 2019, and $101 million in 2018. The decreased expense in 2020 compared to 2019 was due to lower interest cost. The expense in 2019 was largely consistent with 2018.
Interest and debt expense increased by $115$1,434 million in 20182020 and increased by $247 million in 2019 as a result of higher debt balances and lower capitalized interest and increased by $54 million in 2017 as a result of lower capitalized interest.balances.
For additional discussion related to Income Taxes, see Note 64 to our Consolidated Financial Statements.
Total Costs and Expenses (“Cost of Sales”)
Cost of sales, for both products and services, consists primarily of raw materials, parts, sub-assemblies, labor, overhead and subcontracting costs. Our BCA segment predominantly uses program accounting to account for cost of sales. Under program accounting, cost of sales for each commercial airplane program equals the product of (i) revenue recognized in connection with customer deliveries and (ii) the estimated cost of sales percentage applicable to the total remaining program. For long-term contracts, the amount reported as cost of sales is recognized as incurred. Substantially all contracts at our BDS segment certain military derivative aircraft contracts at BCAand certain contracts at our BGS segment are long-term contracts with the U.S. government and other customers that generally extend over several years. Costs on these contracts areCost of sales for commercial spare parts is recorded as incurred.
The following table summarizes cost of sales:
| | | (Dollars in millions) | | | | | | (Dollars in millions) | | | | |
| Years ended December 31 | 2018 |
| | 2017 |
| Change |
| | 2017 | | 2016 | Change |
| Years ended December 31 | 2020 | | 2019 | Change | | 2019 | | 2018 | Change |
| Cost of sales |
| $81,490 |
| |
| $76,612 |
|
| $4,878 |
| |
| $76,612 |
| |
| $79,026 |
|
| ($2,414 | ) | Cost of sales | $63,843 | | | $72,093 | | ($8,250) | | | $72,093 | | | $81,490 | | ($9,397) | |
| Cost of sales as a % of revenues | 80.6 | % | | 81.5 | % | (0.9 | %) | | 81.5 | % | | 84.5 | % | (3.0 | )% | Cost of sales as a % of revenues | 109.8 | % | | 94.2 | % | 15.6 | % | | 94.2 | % | | 80.6 | % | 13.6 | % |
Cost of sales decreased by $8,250 million in 2018 increased by $4,878 million, or 6%,2020 compared with 2017,2019, primarily due to lower revenue in 2020, partially offset by higher revenue and higher reach-forward lossescharges in 2020 related to the 777X program, COVID-19 impacts, KC-46A Tanker program, abnormal production costs at BCA and BDS.severance costs. Cost of sales as a percentage of Revenues increased in 2020 compared to 2019 primarily due to the reach-forward loss on the 777X program, impacts of the 737 MAX grounding and the COVID-19 pandemic, as well as severance costs.
Cost of sales in 2017 decreased by $2,414$9,397 million or 3%,in 2019 compared with 2016,2018, primarily due to lower revenue and lower reach-forward losses at BCA and BDS.
Research and Development The following table summarizes our Research and development expense:
| | | (Dollars in millions) | | | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Commercial Airplanes |
| $2,188 |
| |
| $2,247 |
| |
| $3,706 |
| Commercial Airplanes | $1,385 | | | $1,956 | | | $2,188 | |
| Defense, Space & Security | 788 |
| | 834 |
| | 816 |
| Defense, Space & Security | 713 | | | 741 | | | 776 | |
| Global Services | 161 |
| | 140 |
| | 152 |
| Global Services | 138 | | | 121 | | | 161 | |
| Other | 132 |
| | (42 | ) | | (48 | ) | Other | 240 | | | 401 | | | 144 | |
| Total |
| $3,269 |
| |
| $3,179 |
| |
| $4,626 |
| Total | $2,476 | | | $3,219 | | | $3,269 | |
Research and development expense decreased by $743 million in 2018 increased by $90 million2020 compared with 20172019 primarily due to investmentlower spending at BCA and at Boeing NeXt on product development.
Research and development expense decreased by $50 million in product development, partially offset by2019 compared with 2018 primarily due to lower spending on 777X and 787-10.
Research and development expense in 2017 decreased737 MAX, partially offset by $1,447 million compared with 2016 primarily due to the reclassification of $1,235 million of costs from inventory in the second quarter of 2016 related to the fourth and fifth 787 flight test aircraft as well as lowerhigher spending on the 737 MAX, 787-10,product development at BCA and 777X.Boeing NeXt.
Backlog
Our backlog at December 31 was as follows:
| | | (Dollars in millions) | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| Years ended December 31, | 2020 | | 2019 |
| Commercial Airplanes |
| $412,307 |
| |
| $410,986 |
| Commercial Airplanes | $281,588 | | | $376,593 | |
| Defense, Space & Security | 57,166 |
| | 44,049 |
| Defense, Space & Security | 60,847 | | | 63,691 | |
| Global Services | 21,008 |
| | 19,605 |
| Global Services | 20,632 | | | 22,902 | |
| Unallocated items, eliminations and other | | Unallocated items, eliminations and other | 337 | | | 217 | |
| Total Backlog |
| $490,481 |
| |
| $474,640 |
| Total Backlog | $363,404 | | | $463,403 | |
| | | | | |
| Contractual backlog | 462,070 |
| | 456,984 |
| Contractual backlog | $339,309 | | | $436,473 | |
| Unobligated backlog | 28,411 |
| |
| $17,656 |
| Unobligated backlog | 24,095 | | | 26,930 | |
| Total Backlog |
| $490,481 |
| |
| $474,640 |
| Total Backlog | $363,404 | | | $463,403 | |
Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed, and unobligated U.S. and non-U.S. government contract funding. The increasedecrease in contractual backlog during 20182020 was primarily due to BDSa reduction for orders that in our assessment no longer meet the accounting requirements of Accounting Standards Codification (ASC) 606 for inclusion in backlog primarily due to 737 MAX and funding for contract awards777X, deliveries in excess of revenue recognized.new orders, aircraft order cancellations and changes in projected price escalation. We are experiencing fewer new 737 MAX orders than we were receiving prior to the grounding. If 737 MAX aircraft remain grounded in certain jurisdictions for an extended period of time and/or if entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may continue to experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand.
Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has not been authorized. The increasedecrease in unobligated backlog in 20182020 was primarily due to contract awards, partially offset by reclassifications to contractual backlog related to BGS and BDS and BGS contracts.contracts, partially offset by contract awards.
Additional Considerations
KC-46A Tanker In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. The KC-46A Tanker is a derivative of our 767 commercial aircraft. This Engineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. In 2016, following our achievement of key flight testing milestones, the USAF authorized two LRIP lots for 7 and 12 aircraft valued at $2.8 billion, and in 2017, the USAF authorized an additional LRIP lot for 15 aircraft valued at $2.1 billion. On September 10, 2018, the USAF authorized an additional LRIP lot for 18 aircraft valued at $2.9 billion. The contract contains production options for both LRIP aircraft and
full rate production aircraft. If all options under the contract are exercised, we expect to deliver 179 aircraft for a total expected contract value of approximately $30 billion. In January 2019, we delivered the first KC-46A Tanker to the USAF.
During 2016, we recorded reach-forward losses of $1,127 million related to the EMD contract and LRIP aircraft. During 2017, we recorded reach-forward losses of $445 million related to this program, primarily reflecting higher estimated costs associated with certification and incorporating changes into LRIP aircraft. During 2018, we recorded additional reach-forward losses of $736 million primarily reflecting higher estimated costs associated with certification, flight testing and change incorporation on aircraft, as well as higher than expected effort to meet customer requirements in order to support delivery of the initial aircraft. As with any development program, this program remains subject to additional reach-forward losses and/or delivery delays if we experience further production, technical or quality issues, and delays in flight testing, certification and/or delivery.
Export-Import Bank of the United States Many of our non-U.S. customers finance purchases through the Export-Import Bank of the United States. Following the expiration of the bank’s charter on June 30, 2015, the bank’s charter was reauthorized in December 2015. The bank is now authorized through September 30, 2019. However, until the U.S. Senate confirms members sufficient to reconstitute a quorum of the bank’s board of directors, the bank will not be able to approve any transaction totaling more than $10 million. As a result, we may fund additional commitments and/or enter into new financing arrangements with customers. Certain of our non-U.S. customers also may seek to delay purchases if they cannot obtain financing at reasonable costs, and there may be further impacts with respect to future sales campaigns involving non-U.S. customers. We continue to work with our customers to mitigate risks associated with the lack of a quorum of the bank’s board of directors and assist with alternative third party financing sources.
Global Trade OnWe continually monitor the global trade environment in response to geopolitical economic developments, as well as changes in tariffs, trade agreements, or sanctions that may impact the company.
The global economy is currently experiencing significant adverse impacts due to the COVID-19 pandemic, including a decline in overall trade in general and in aerospace in particular. There is a great deal of uncertainty regarding the duration, scale, and localization of these impacts to the global economy and governments are enacting a wide range of responses to mitigate the unfolding economic impacts. We are closely monitoring the current impact and potential future economic consequences of COVID-19 to the global economy, the aerospace sector, and our Company. These adverse economic impacts have resulted in fewer orders than previously anticipated for our commercial aircraft.
China is a very significant market for commercial airplanes and represents a significant component of our commercial airplanes backlog.Since 2018, the U.S. and China imposed an escalating series of tariffs on each other’s imports. Certain aircraft parts and components that Boeing procures are subject to these tariffs. The U.S. and China entered into a Phase I agreement in January 2020. However, implementation of this agreement is incomplete and overall diplomatic relations between the U.S. and China have deteriorated. We continue monitoring developments for potential adverse impacts to the Company.
Beginning in June 1, 2018, the U.S. Government began imposinghas imposed tariffs on steel and aluminum imports. In response to these tariffs, several major U.S. trading partners have imposed, or announced their intention to impose, tariffs on U.S. goods. In May 2019, the U.S. Government, Mexico and Canada reached an agreement to end the steel and aluminum tariffs between these countries. Implementation of the U.S./Mexico/Canada Free Trade Agreement (USMCA) will also result in lower tariffs. We continue to monitor the potential for any extra costs that may result from these actions.
On July 6, 2018, the U.S. and China began imposing tariffs on approximately $34 billion of each other's exports. Certain aircraft parts and components that Boeing procures are subject to theseremaining global tariffs. Subsequently, the U.S. imposed tariffs on an additional $216 billion in Chinese goods, and China imposed tariffs on an additional $76 billion worth of U.S goods. On December 1, 2018, the U.S. and China agreed to a 90-day timetable to negotiate a resolution to the trade dispute. We continue to monitor the potential for any disruption and adverse revenue and/or cost impacts that may result from these actions or future geopolitical economic developments.
The U.S. Government continues to impose and/or threaten to imposeconsider imposing sanctions on certain businesses and individuals in Russia. Although our operations or sales in Russia have not been impacted to date, we continue to monitor additional sanctions that may be imposed by the U.S. Government and any responses from Russia that could affect our supply chain, business partners or customers.
The U.S. and European Union (EU) have been engaged in two long-running disputes at the World Trade Organization (WTO) relating to large civil aircraft. As part of those disputes, in October 2019, the WTO authorized the U.S. to impose approximately $7.50 billion in annual tariffs on EU products in connection with the EU’s provision of eight instances of launch aid subsidies to Airbus. The U.S. is currently imposing 15% tariffs on new Airbus airplanes imported into the U.S. as well as fuselages that Airbus manufactures in Europe and imports into the U.S. In October 2020, the WTO authorized the EU to impose approximately $3.99 billion in annual tariffs on U.S. products in connection with a tax incentive used by Boeing in Washington state that has since been repealed. The EU is currently imposing 15% tariffs on Boeing airplanes imported into the EU. We will continue to assess and work with our customers on the possible impact of these tariffs, as deliveries to European customers are expected to increase in 2021.
24
Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment Global economic growth,See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a primary driver for air travel, was abovediscussion of the long-term averageimpacts of approximately 3% in 2018. Passenger traffic is estimated to grow by 6.5% in 2018, exceedingCOVID-19 on the long-term average of approximately 5%. While growth was strong across all major world regions, there continues to be variation between regions and airline business models. Airlines operating in Asia Pacific, Europe and North America, as well as low-cost-carriers globally, are currently leading the growth in passenger traffic. Air cargo traffic growth is expected to be between 4.0% and 4.5% in 2018, around the long-term average.
Airline financial performance also plays a role in the demand for new capacity. Airlines continue to focus on increasing revenue through alliances, partnerships, new marketing initiatives, and effective leveraging of ancillary services and related revenues. Airlines are also focusing on reducing costs and renewing fleets to leverage more efficient airplanes. Net profits in 2018 are expected to approximate $32 billion.
The long-term outlook for the industry continues to remain positive due to the fundamental drivers of air travel demand: economic growth and the increasing propensity to travel due to increased trade, globalization, and improved airline services driven by liberalization of air traffic rights between countries. Our 20-year forecast projects a long-term average growth rate of 4.7% per year for passenger traffic and 4.2% for cargo traffic. Based on long-term global economic growth projections of 2.8% average annual GDP growth, we project a $6.3 trillion market for approximately 42,700 new airplanes over the next 20 years. The industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics and increased global environmental regulations.environment.
Industry Competitiveness The industry continues to adjust to the unprecedented COVID-19 shock and subsequent economic impact, government restrictions, and new regulations. The commercial jet airplane market and the airline industry both remain extremely competitive. Market liberalizationWhile the impacts and responses have varied globally, the reduction of demand and disruption in Europe,production has adversely impacted most manufacturers in the Middle East and Asia is enabling low-cost airlines to continue gaining market share. These airlines are increasing the pressure on airfares. This results in continued cost pressures for all airlines and price pressure on our products. Major productivity gains are essential to ensure a favorable market position at acceptable profit margins.commercial airplane industry.
Continued access to global markets remains vital to our ability to fully realize our sales potential and long-term investment returns. Approximately 88%80% of Commercial Airplanes’ total backlog, in dollar terms, is with non-U.S. airlines.
We face aggressive international competitors who are intent on increasing their market share. They offer competitive products and have access to most of the same customers and suppliers. The grounding of the 737 MAX and the associated suspension of 737 MAX deliveries significantly reduced our market share with respect to deliveries of single aisle aircraft in 2019 and 2020 and may provide competitors with an opportunity to obtain more orders and increase market share. With government support, Airbus has historically invested heavily to create a family of products to compete with ours. Regional jet makers, Embraer and Bombardier, continue to develop and market larger and increasingly more capable airplanes. During 2018, Airbus acquiredAfter the acquisition of a majority share of Bombardier’s C Series (now A220) and isin 2018, Airbus continues to expand in the 100-150 seat transcontinental market, while Embraer’s first E195-E2 deliveredmarket. Other competitors are also in 2018. Additionally, other competitors from Russia, China and Japan aredifferent phases of developing commercial jet aircraft. Some of these competitors have historically enjoyed access to government-provided financial support, including “launch aid,” which greatly reduces the cost and commercial risks associated with airplane development activities. This has enabled the development of airplanes without broad commercial viability; others to be brought to market more quickly than otherwise possible; and many offered for sale below market-based prices. Many competitors have continuedCompetitors continue to make improvements in efficiency, which may result in funding product development, gaining market share and improving earnings. This market environment has resulted in intense pressures on pricing and other competitive factors, and we expect these pressures to continue or intensify in the coming years.
We are focused on improving our products and services and continuing our cost-reductionbusiness transformation efforts, which enhances our ability to compete.compete and positions us for market recovery. We are also focused on taking actions to ensure that Boeing is not harmed by unfair subsidization of competitors.
Results of Operations
| | | (Dollars in millions) | | | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues |
| $60,715 |
| |
| $58,014 |
| |
| $59,378 |
| Revenues | $16,162 | | | $32,255 | | | $57,499 | |
| % of total company revenues | 60 | % | | 62 | % | | 64 | % | % of total company revenues | 28 | % | | 42 | % | | 57 | % |
| Earnings from operations |
| $7,879 |
| |
| $5,452 |
| |
| $1,981 |
| |
| (Loss)/earnings from operations | | (Loss)/earnings from operations | ($13,847) | | | ($6,657) | | | $7,830 | |
| Operating margins | 13.0 | % | | 9.4 | % | | 3.3 | % | Operating margins | (85.7) | % | | (20.6) | % | | 13.6 | % |
| Research and development |
| $2,188 |
| |
| $2,247 |
| |
| $3,706 |
| Research and development | $1,385 | | | $1,956 | | | $2,188 | |
|
Revenues
BCA revenues increased by $2,701 million or 5% in 2018 compared with 2017 due to higher 737 and 787 deliveries and favorable 737 and 787 model mix, which more than offset lower 777 and 747 deliveries. BCA revenues decreased by $1,364$16,093 million or 2% in 20172020 compared with 20162019 due to lower deliveries primarily duedriven by the impacts of the COVID-19 pandemic, 787 production issues and the 737 MAX grounding. This was partially offset by lower charges related to delivery mix, estimated potential concessions and other considerations to 737 MAX customers of $498 million in 2020 compared with fewer twin aisle$8,259 million in 2019.
BCA revenues decreased by $25,244 million in 2019 compared with 2018 driven by lower 737 MAX deliveries more than offsettingand a revenue reduction of $8,259 million that was recorded in 2019 for estimated potential concessions and other considerations to customers related to the 737 MAX grounding, net of $500 million of insurance recoveries.
While we resumed deliveries of 737 MAX aircraft in December 2020, the 737 MAX grounding is still in effect in certain non-U.S. jurisdictions. The 737 MAX grounding will continue to have a significant impact of higher single aisleon future revenues until deliveries. ramp up, and COVID-19 will continue to have a significant impact on future revenues until the commercial airline industry recovers.
Commercial Airplanes deliveries as of December 31 were as follows:
| | | | | | | | | | | | | | | | | 737 | | * | 747 | | | 767 | | * | 777 | | † | 787 | | | Total |
| | 737 |
| * | 747 |
| † | 767 |
| * | 777 |
| | 787 |
| Total | |
| 2020 | | 2020 | | | |
| Cumulative deliveries | | Cumulative deliveries | 7,482 | | 1,560 | | 1,206 | | 1,653 | | 992 | | |
| Deliveries | | Deliveries | 43 | (14) | 5 | | 30 | (11) | 26 | | 53 | | 157 |
| 2019 | | 2019 | | | |
| Cumulative deliveries | | Cumulative deliveries | 7,439 | | 1,555 | | 1,176 | | 1,627 | | 939 | | |
| Deliveries | | Deliveries | 127 | (19) | 7 | | 43 | (23) | 45 | (2) | 158 | | 380 |
| 2018 | | | | | | | | | | | 2018 | | | |
| Cumulative deliveries | 7,312 |
| | 1,548 |
| | 1,133 |
| | 1,582 |
| | 781 |
| | Cumulative deliveries | 7,312 | | 1,548 | | 1,133 | | 1,582 | | 781 | | |
| Deliveries | 580 |
| (18) | 6 |
| | 27 |
| (10) | 48 |
| | 145 |
| 806 | Deliveries | 580 | (18) | 6 |
| 27 | (10) | 48 | | 145 | | 806 |
| 2017 | | | | | | | | | | | |
| Cumulative deliveries | 6,732 | | 1,542 | | 1,106 | | 1,534 | | 636 | | |
| Deliveries | 529 | (17) | 14 | (1) | 10 | | 74 | | 136 | 763 | |
| 2016 | | | | | | | | | | | |
| Cumulative deliveries | 6,203 | | 1,528 | | 1,096 | | 1,460 | | 500 | | |
| Deliveries | 490 | (19) | 9 | (3) | 13 | | 99 | | 137 | 748 | |
* Intercompany deliveries identified by parentheses
† Aircraft accounted for as revenues by BCA and as operating leases in consolidation identified by parentheses
Loss/Earnings From Operations
EarningsBCA loss from operations was $13,847 million in 2018 increased by $2,427 million2020 compared with 2017.loss from operations of $6,657 million in 2019. The increase2020 loss reflects the reach-forward loss on 777X of $6,493 million, lower deliveries and lower program margins resulting from the COVID-19 pandemic and 787 production issues and associated rework, $2,567 million of abnormal production costs related to 737 MAX, $623 million of
severance cost, $498 million of 737 MAX customer considerations, $336 million related to 737NG frame fitting component repair costs and $270 million of abnormal production costs in operating earnings reflects higher revenuesthe first half of 2020 from the temporary suspension of operations in response to COVID-19, partially offset by lower research and improved operating margins. The increase in operating margins is primarily due to higherdevelopment spending. Lower 787 margins improved cost performancereflecting a reduction in the accounting quantity in the first quarter of 2020 also contributed to lower earnings. The 2019 loss primarily reflects the absence of 737 MAX deliveries in the second, third and favorable delivery mix.fourth quarters of 2019 and charges of $8,259 million for estimated 737 MAX customer considerations.
EarningsBCA loss from operations was $6,657 million in 2017 increased by $3,471 million2019 compared with 2016.earnings from operations of $7,830 million in 2018. The increase in operating earnings and operating marginsdecrease of $14,487 million is primarily due to lower reach-forward losses, lower research737 deliveries and development costs, and improved margins reflecting favorable cost performance, which more than offset the impact of lower revenues. Research and development expense in 2016 reflects the reclassification from inventory to research and development expense of $1,235 millionearnings charges related to the fourth737 MAX.
The 737 MAX grounding and fifth 787 flight test aircraftthe COVID-19 pandemic will continue to have a significant adverse impact on future earnings and higher planned spending relatedmargins until 737 MAX deliveries ramp up and wide-body deliveries return to the 777X program.
Reach-forward losses of $500 million, $378 million and $772 million were recorded related to the KC-46A Tanker in 2018, 2017 and 2016, respectively. During 2016, we recorded reach-forward losses on the 747 program of $1,258 million.historical levels.
Backlog
Our total backlog represents the estimated transaction prices on unsatisfied and partially satisfied performance obligations to our customers where we believe it is probable that we will collect the consideration due and where no contingencies remain before we and the customer are required to perform. Backlog does not include prospective orders where customer controlled contingencies remain, such as the customer receiving approval from its board of directors, shareholders or government or completing financing arrangements. All such contingencies must be satisfied or have expired prior to recording a new firm order even if satisfying such conditions is highly certain. Backlog excludes options and BCC orders. A number of our customers may have contractual remedies, that may be implicated by program delays.including rights to reject individual airplane deliveries if the actual delivery date is significantly later than the contractual delivery date. We address customer claims and requests for other contractual relief as they arise. The value of orders in backlog is adjusted as changes to price and schedule are agreed to with customers and is reported in accordance with the requirements of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).Topic 606.
BCA total backlog of $412,307$281,588 million at December 31, 2018 increased2020 decreased from $410,986$376,593 million at December 31, 2017, primarily due to net2019, reflecting a reduction for orders that in our assessment no longer meet the accounting requirements of ASC 606 for inclusion in backlog, aircraft order cancellations, changes in projected price escalation and deliveries in excess of deliveries.new orders. Aircraft order cancellations during the year ended December 31, 2020 totaled $34,618 million and primarily relate to 737 MAX aircraft. The ASC 606 adjustments for the year ended December 31, 2020 totaled $54,450 million and primarily relate to 737 MAX aircraft and 777X aircraft. The ASC 606 adjustments include aircraft orders where a customer controlled contingency now exists, as well as orders where we can no longer assert that the customer is committed to perform or that it is probable that the customer will pay the full amount of consideration when it is due. If 737 MAX aircraft remain grounded in certain jurisdictions for an extended period of time and/or if entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10 is further delayed, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may continue to experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result the COVID-19 pandemic and associated impacts on demand.
Accounting Quantity The accounting quantity is our estimate of the quantity of airplanes that will be produced for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates of the revenue and cost of existing and anticipated contracts. It is a key determinant of the gross margins we recognize on sales of individual airplanes throughout a program’s life. Estimation of each program’s accounting quantity takes into account several factors that are indicative of the demand for that program, including firm orders,
letters of intent from prospective customers and market studies. We review our program accounting quantities quarterly.
The accounting quantity for each program may include units that have been delivered, undelivered units under contract, and units anticipated to be under contract in the reasonable future (anticipated orders). In developing total program estimates, all of these items within the accounting quantity must be considered.
The following table provides details of the accounting quantities and firm orders by program as of December 31. Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders. Firm orders include military derivative aircraft that are not included in program accounting quantities. All revenues and costs associated with military derivative aircraft production are reported in the BDS segment.
| | | | | | | | | | | | | | | | | | Program | |
| | Program | | | 737 | | † | 747* | | 767 | | | 777 | | † | 777X | | 787 | | † |
| | 737 |
| † | 747* | | 767 |
| | 777 |
| † | 777X | | 787 |
| † | |
| 2020 | | 2020 | |
| Program accounting quantities | | Program accounting quantities | 10,000 | | 1,574 | | 1,207 | | 1,700 | | 350 | | | 1,500 | |
| Undelivered units under firm orders | | Undelivered units under firm orders | 3,282 | | 8 | | 75 | | 41 | | 191 | | 458 | (22) |
| Cumulative firm orders | | Cumulative firm orders | 10,764 | | 1,568 | | 1,281 | | 1,694 | | 191 | | 1,450 | |
| 2019 | | 2019 | |
| |
|
| Program accounting quantities | | Program accounting quantities | 10,400 | | 1,574 | | 1,195 | | 1,690 | | ** | | 1,600 | |
| Undelivered units under firm orders | | Undelivered units under firm orders | 4,398 | | 17 | | 94 | | 68 | | 309 | | 520 | (29) |
| Cumulative firm orders | | Cumulative firm orders | 11,837 | | 1,572 | | 1,270 | | 1,695 | | 309 | | 1,459 | |
| 2018 | | | | | | | | | 2018 | |
| Program accounting quantities | 10,400 |
| | 1,574 | | 1,195 |
| | 1,680 |
| | ** | | 1,600 |
| | Program accounting quantities | 10,400 | | 1,574 | | 1,195 | | 1,680 | | ** | | 1,600 | |
| Undelivered units under firm orders | 4,708 |
| (75) | 24 | | 111 |
| | 100 |
| (2) | 326 | | 604 |
| (30) | Undelivered units under firm orders | 4,708 | (75) | 24 | | 111 | | 100 | (2) | | 326 | | 604 | (30) | |
| Cumulative firm orders | 12,020 |
| (75) | 1,572 | | 1,244 |
| | 1,682 |
| (2) | 326 | | 1,385 |
| (30) | Cumulative firm orders | 12,020 | | 1,572 | | 1,244 | | 1,682 | | 326 | | 1,385 | |
| 2017 | |
| | | | |
|
|
| |
| Program accounting quantities | 9,800 |
| | 1,570 | | 1,171 |
| | 1,625 |
| | ** | | 1,400 |
| | |
| Undelivered units under firm orders*** | 4,613 |
| | 12 | | 98 |
| | 97 |
| | 326 | | 640 |
| | |
| Cumulative firm orders*** | 11,345 |
| | 1,554 | | 1,204 |
| | 1,631 |
| | 326 | | 1,276 |
| | |
| 2016 |
| |
| |
| |
| |
| |
| | |
| Program accounting quantities | 9,000 |
| | 1,555 | | 1,159 |
| | 1,625 |
| | ** | | 1,300 |
| | |
| Undelivered units under firm orders*** | 4,452 |
| | 28 | | 93 |
| | 136 |
| | 306 | | 700 |
| | |
| Cumulative firm orders*** | 10,655 |
| | 1,556 | | 1,189 |
| | 1,596 |
| | 306 | | 1,200 |
| | |
† Aircraft ordered by BCC are identified in parentheses.
* At December 31, 2018,2020, the 747 accounting quantity includes one already completed aircraft that has not been sold and is being remarketed.
** The accounting quantitySee 777 and 777X Programs for discussion of the 777X will be determined in the year of first airplane delivery, targeted for 2020.accounting quantity.
*** Cumulative firm orders adjusted to reflect the adoption of Topic 606 in the first quarter of 2018.
Program Highlights
737 Program TheWe reduced the program accounting quantity for the 737 program increasedfrom 10,400 at December 31, 2019 to 10,000 at March 31, 2020. This reflects a slower than previously planned production rate ramp-up caused by 600 units during 2018commercial airline industry uncertainty due to the program’s normal progressimpact of obtaining additional orders and delivering airplanes. We delivered the first 737 MAX 8 in May 2017, announced the launchCOVID-19. See further discussion of the 737 MAX 10Grounding and COVID-19 Impacts and Product Warranties in June 2017 and delivered the first 737 MAX 9 in March 2018. The production rate increased from 47 per monthNote 13 to 52 per month in the second quarter of 2018, however the timing of deliveries in 2018 was adversely affected by delays in the supply chain. We continue to plan to increase the production rate to 57 per month in 2019.our Consolidated Financial Statements.
747 Program During the fourth quarter of 2018, we received a firm order for 4 new aircraft and increased the accounting quantity by 4 units to 1,574 aircraft. The program accounting quantity now includes aircraft scheduled to be produced through 2022. We are currently producing at a rate of 0.5 aircraft per month having reduced the rate from 1.0 per month in September 2016. In 2016, we recorded reach-forward losses of $1,258 million as lower than expected demand for large commercial passenger and freighter aircraft and slower than expected growth of global freight traffic resulted in lower anticipated revenues from future sales and higher costs to produce fewer airplanes.month. We continue to evaluate the viability of the 747 program. We believe that a decision to endwill complete production of the 747 at the endin 2022. We believe that ending production of the current accounting quantity would747 will not have a material impact on our financial position, results of operations or cash flows.
767 Program The accounting quantity for the 767 program increased by 2412 units during the first quarter of 20182020 due to the program's normal progress of obtaining additional orders and delivering airplanes. The 767 assembly line includes the commercial program and a 767 derivative to support the tanker program. We are currently producing at a rate of 2.53 aircraft per month and plan to increase to 3 per month in 2020.month.
777 Programand 777X Programs The accounting quantity for the 777 program increased by 5510 units during 20182020 due to the program’s normal progress of obtaining additional orders and delivering airplanes. We are currently producingThe production rate expectation for the combined 777/777X program remains at a rate of 52 per month. month in 2021.
In 2013, we launched the 777X,777X-8 and 777X-9, which features afeature new composite wing,wings, new engines and folding wing-tips. The first flight of the 777X willwas completed during the first quarter of 2020.
During the first three quarters of 2020, we made adjustments to our estimates regarding timing of 777X entry into service and market demand. As previously disclosed, market uncertainties driven primarily by the impacts of COVID-19 resulted in lower planned production rates and created significant pressure on the 777X program’s revenue and cost estimates. While the 777X program did not have a separatereach-forward loss as of the third quarter of 2020 based on our assessment of the probable range of initial accounting quantities and other factors at that time, we noted that future levels of 777X profitability would be subject to a number of factors, including continued market uncertainty, the impacts of COVID-19 on our production system as well as on our supply chain and customers, subsequent production rate reductions for both 777X and other commercial programs, and potential risks associated with the testing program and the timing of 777X certification.
We now anticipate that the first 777X delivery will occur in late 2023. We also recorded a $6.5 billion reach-forward loss on the 777X program in the fourth quarter of 2020. The revised schedule and the reach-forward loss reflect a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and resulting in a management decision to make modifications to the aircraft’s design, an updated assessment of COVID-19 impacts on market demand, and discussions with our customers with respect to aircraft delivery timing. These factors resulted in adjustments to production rates and the program accounting quantity, whichincreased change incorporation costs, and associated customer and supply chain impacts.
The timing of the certification will ultimately be determined by the regulators, and further determinations with respect to anticipated certification requirements could result in additional delays in entry into service and/or additional cost increases.
The level of profitability on the 777X program will be determinedsubject to a number of factors. These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification. One or more of these factors could result in additional reach-forward losses on the year of first airplane delivery, targeted for 2020.777X program in future periods.
787 Program During 2020, we experienced significant reductions in deliveries due to the impacts of COVID-19 on our customers as well as production issues and associated rework. The 787 program delivered four airplanes during the fourth quarter of 2020 and has a large number of undelivered airplanes in inventory at December 31, 2020. We expanded the scope of production inspections during the fourth quarter of 2020, and those inspections and associated rework are delaying scheduled deliveries and resulting in additional 787 aircraft in inventory. At December 31, 2020, we had approximately 80 787 aircraft in inventory. We expect deliveries to resume at a slow pace in early 2021, with the majority of the aircraft in inventory expected to be delivered by the end of 2021. We continue to work with customers to facilitate deliveries. We are implementing changes in the production process designed to ensure that newly-built airplanes meet our specifications and do not require further inspections. Pre-COVID-19, we were producing at a rate of 14 per month and had planned to adjust the 787 production rate to 12 per month in late 2020 and to 10 per month in early 2021. Due to the impacts of COVID-19 on customer demand, we now plan to reduce to 5 per month in 2021. As a result of the planned production rate changes, we reduced the accounting quantity for the 787 program increased by 200100 units during 2018the first quarter of 2020. The 787 program has near breakeven gross margins due to the program’s normal progress
reductions in the production rates and delivering airplanes.the reduction in the program accounting quantity. If we are required to further reduce the accounting quantity and/or production rates, experience further delivery delays, or experience other factors that could result in lower margins, the program could record a reach-forward loss in future periods. We are currently producing atmade the decision during the third quarter of 2020 to consolidate 787 production in South Carolina in 2021, which did not have a rate of 12 per month and plan to increase to 14 per month in 2019. We deliveredsignificant financial impact on the first 787-10 in March 2018.program.
Fleet Support We provide the operators of our commercial airplanes with assistance and services to facilitate efficient and safe airplane operation. Collectively known as fleet support services, these activities and services begin prior to airplane delivery and continue throughout the operational life of the airplane. They include flight and maintenance training, field service support, engineering services, information services and systems and technical data and documents. The costs for fleet support are expensed as incurred and have historically been approximately 1.0%1% of total consolidated costs of products and services.
Program Development The following chart summarizes the time horizon between go-ahead and planned initial delivery for major Commercial Airplanes derivatives and programs.
| | | Go-ahead and Initial Delivery | Go-ahead and Initial Delivery | | | Go-ahead and Initial Delivery | | | |
| | | | | | | |
| 737 MAX 7 | 2011 | | 2019 | | 737 MAX 7 | 2011 | | 2021 | | | |
| | | | | | | |
| 737 MAX 8 | 2011 | | 2017 | | | |
| | | | |
| 737 MAX 9 | 2011 | | 2018 | | | |
| | | | | |
| 737 MAX 10 | | 2017 | | 2020 | 737 MAX 10 | | 2017 | | 2023 | | |
| | | | | | | |
| 787-10 | | 2013 | | 2018 | | | |
| | | | | |
| 777X | | 2013 | | 2020 | 777X | | 2013 | | 2023 | | |
| | | | |
| |
Reflects models in development during 20182020
We launched the 737 MAX 7 8 and 9 in August 2011 and the 737 MAX 10 in June 2017. We launched the 787-10 in June 2013 and the 777X in November 2013. We now anticipate that the first 737 MAX 10 and 777X delivery will occur in 2023. This schedule reflects a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and resulting in a management decision to make modifications to the aircraft’s design.
Additional Considerations
The development and ongoing production of commercial aircraft is extremely complex, involving extensive coordination and integration with suppliers and highly-skilled labor from employees and other partners. Meeting or exceeding our performance and reliability standards, as well as those of customers and regulators, can be costly and technologically challenging. In addition, the introduction of new aircraft and derivatives, such as the 777X and 737 MAX derivatives, involves increased risks associated with meeting development, production and certification schedules. These challenges include increased global regulatory scrutiny of all development aircraft in the wake of the 737 MAX accidents. As a result, our ability to deliver aircraft on time, satisfy performance and reliability standards and achieve or maintain, as applicable, program profitability is subject to significant risks. Factors that could result in lower margins (or a material charge if an airplane program has or is determined to have reach-forward losses) include the following: changes to the program accounting quantity, customer and model mix, production costs and rates, changes to price escalation factors due to changes in the inflation rate or other economic indicators, performance or reliability issues involving completed aircraft, capital expenditures and other costs associated with increasing or adding new
production capacity, learning curve, additional change incorporation, achieving anticipated cost reductions, the addition of regulatory requirements in connection with certification in one or more jurisdictions, flight test and certification schedules, costs, schedule and demand for new airplanes and derivatives and status of customer claims, supplier claims or assertions and other contractual negotiations. While we believe the cost and revenue estimates incorporated in the consolidated financial statements are appropriate, the technical complexity of our airplane programs creates financial risk as additional completion costs may become
necessary or scheduled delivery dates could be extended, which could trigger termination provisions, order cancellations or other financially significant exposure.
Defense, Space & Security
Business Environment and Trends
United States Government Defense Environment Overview
The Bipartisan Budget Act of 2018, passedOmnibus appropriations acts for FY21, enacted in February 2018, raised the 2011 Budget Control Act spending caps for fiscal years 2018 and 2019 (FY18 and FY19). The consolidated spending bills signed into law in September 2018 provide defense funding for FY19, in compliance with the revised caps. These bills also provide FY19December 2020, provided FY21 appropriations for most of the federal government. Full year funding for thegovernment departments and agencies, not covered by enacted FY19 appropriations, including the United States Department of Defense (U.S. DoD), the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA), remains uncertain. Administration.
The unfunded departments and agencies affected by the partial government shutdown (December 22, 2018 through January 25, 2019) are now covered by a Continuing Resolution that extendsenacted FY21 appropriations included funding at FY18 levels through February 15, 2019. Congress and the President must agree to FY19 appropriations or an additional Continuing Resolution to fund affected departments and agencies beyond the February 15 deadline in order to prevent a second partial government shutdown. The impact of a partial government shutdown to the Company’s operations would increasefor Boeing’s major programs, such as the shutdown continues.
ThereF/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, there continues to be uncertainty with respect to future program-level appropriations for the U.S. DoD and other government agencies, including NASA. The 2011 Budget Control Act continues to mandate limits on U.S. government discretionary spending for fiscal years 2020 and 2021 (FY20 and FY21). The lower budget caps will take effect again in FY20 and FY21 unless Congress acts to raise the spending caps or to repeal or suspend the law. As a result, continued budget uncertainty and the risk of future sequestration cuts remain. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on theour results of the Company’s operations, financial position and/or cash flows.
Non-U.S. Defense Environment Overview The non-U.S. market continues to be driven by complex and evolving security challenges and the need to modernize aging equipment and inventories. BDS expects that it will continue to have a wide range of opportunities across Asia, Europe and the Middle East given the diverse regional threats. At the end of 2018, 30%2020, 31.8% of BDS backlog was attributable to non-U.S. customers.
Results of Operations
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Revenues |
| $23,195 |
| |
| $20,561 |
| |
| $20,180 |
|
| % of total company revenues | 23 | % | | 22 | % | | 22 | % |
| Earnings from operations |
| $1,594 |
| |
| $2,193 |
| |
| $1,678 |
|
| Operating margins | 6.9 | % | | 10.7 | % | | 8.3 | % |
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues | $26,257 | | | $26,095 | | | $26,300 | |
| % of total company revenues | 45 | % | | 34 | % | | 26 | % |
| Earnings from operations | $1,539 | | | $2,615 | | | $1,692 | |
| Operating margins | 5.9 | % | | 10.0 | % | | 6.4 | % |
| | | | | |
| | | | | |
Since our operating cycle is long-term and involves many different types of development and production contracts with varying delivery and milestone schedules, the operating results of a particular year, or year-to-year comparisons of revenues, earnings and backlogperiod, may not be indicative of future operating results. In addition, depending on the customer and their funding sources, our orders might be structured as annual follow-on contracts, or as one large multi-year order or long-term award. As a result, period-to-period comparisons of backlog are not necessarily indicative of future workloads. The following discussions of comparative results among periods should be viewed in this context.
Deliveries of units for new-build production aircraft, including remanufactures and modifications were as follows:
|
| | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| F/A-18 Models | 17 |
| | 23 |
| | 25 |
|
| F-15 Models | 10 |
| | 16 |
| | 15 |
|
| C-17 Globemaster III |
|
| |
|
| | 4 |
|
| CH-47 Chinook (New) | 13 |
| | 9 |
| | 25 |
|
| CH-47 Chinook (Renewed) | 17 |
| | 35 |
| | 25 |
|
| AH-64 Apache (New) |
|
| | 11 |
| | 31 |
|
| AH-64 Apache (Remanufactured) | 23 |
| | 57 |
| | 34 |
|
| P-8 Models | 16 |
| | 19 |
| | 18 |
|
| C-40A |
|
| |
|
| | 1 |
|
| Total | 96 |
| | 170 |
| | 178 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| F/A-18 Models | 20 | | | 23 | | | 17 | |
| F-15 Models | 4 | | | 11 | | | 10 | |
| C-17 Globemaster III | | | 1 | | | |
| CH-47 Chinook (New) | 27 | | | 13 | | | 13 | |
| CH-47 Chinook (Renewed) | 3 | | | 22 | | | 17 | |
| AH-64 Apache (New) | 19 | | | 37 | | | |
| AH-64 Apache (Remanufactured) | 52 | | | 74 | | | 23 | |
| KC-46A Tanker | 14 | | | 28 | | | |
| P-8 Models | 15 | | | 18 | | | 16 | |
| | | | | |
| | | | | |
| C-40A | | | 2 | | | |
| Total | 154 | | | 229 | | | 96 | |
New-build satellite deliveries were as follows:
| | Years ended December 31, | | Years ended December 31, | 2020 | | 2019 | | 2018 |
| | | Years ended December 31, | 2018 | | 2017 | | 2016 | |
| Commercial and civil satellites | 1 | | 3 | | 5 | Commercial and civil satellites | | 2 | | 1 |
| Military satellites | 1 | | 1 | | 2 | Military satellites | | 1 |
Revenues
BDS revenues in 20182020 increased by $2,634$162 million compared with 2017 primarily due to non-US contract awards for fighters,2019 reflecting higher weapons revenue,revenues from fighter aircraft, Space Launch System, B-52 upgrades, proprietary and MQ-25, partially offset by reduced volume in missile defense. These net increases were offset by the final C-17 aircraft sale and higher satellites revenue. Net favorableunfavorable impact of cumulative contract catch-up adjustments, to revenue for 2018 were $214 million lower than the comparable period in the prior year, reflecting increased unfavorable adjustments on the KC-46A Tanker recorded in 2018.
BDS revenues in 2017 increased by $381 million compared with 2016 primarily due to higher weapons revenue. Net favorable cumulative contract catch-up adjustments to revenue for 2017 were $81which was $312 million higher than the comparable period in the prior year, largely due to the KC-46A Tanker charges during 2020.
BDS revenues in 2019 decreased by $205 million compared with 2018 primarily due to timing associated with non-U.S. contract awards for fighters and the final C-17 sale occurring in 2018; in addition, the unfavorable impact of cumulative contract catch-up adjustments was $163 million higher than the prior year, reflecting decreasedincreased unfavorable adjustments on the KC-46A Tanker recorded in 2017.
Earnings From Operations
BDS earnings from operations in 20182020 decreased by $599$1,076 million compared with 2017 as earnings’ growth from2019 primarily due to the unfavorable impact of cumulative contract catch-up adjustments, which was $828 million higher revenues was more than the prior year, largely due to charges of $1,320 million on KC-46A Tanker and $168 million on VC-25B, offset by $489 million in charges on Commercial Crew in the prior period. The lower earnings in 2020 also reflect lower gains on property sales compared to the same period in 2019. These current period decreases were partially offset by the volume increases described above.
The KC-46A Tanker reach-forward loss of $1,320 million reflects $551 million of costs associated with the agreement signed in April 2020 with the U.S. Air Force to develop and integrate a new Remote Vision System, and the remaining costs reflect production inefficiencies including impacts of COVID-19 disruption. The $168 million reach-forward loss on VC-25B recorded in the first quarter was associated
with engineering inefficiencies from the COVID-19 environment. We believe these inefficiencies will result in staffing challenges, schedule inefficiencies, and higher costs in the upcoming phases of the program.
BDS earnings from operations in 2019 increased by $923 million compared with 2018 primarily due to the absence of $691 million related to winninglosses on the T-X TrainerT-7A Red Hawk and MQ-25 competitions, as well as $199 millioncontracts. The unfavorable impact of higher KC-46A Tanker reach-forward losses. Net favorable cumulative contract catch-up adjustments to earnings for 2018 were $315in 2019 was $62 million lower than the comparable period in the prior year, driven by higheryear. In 2019, BDS recorded charges on development programs in 2018.
BDS earnings from operations in 2017 increased by $515$489 million related to Commercial Crew and $148 million related to KC-46A Tanker compared with 2016 primarily due to lower charges on the KC-46A Tanker and Commercial Crew programs. Higher earnings reflect the favorable impact of cumulative catch-up adjustments which were $374$736 million higher in 2017 than in 2016, primarily driven by lower charges on development programs in 2017.2018.
BDS earnings from operations include equity earnings of $147$141 million, $183$128 million and $249$147 million primarily from our ULA and non-U.S. joint ventures in 2018, 20172020, 2019 and 2016, respectively.
During 2018, 2017 and 2016, BDS recorded charges related to the KC-46A Tanker contract of $222 million, $23 million and $351 million, respectively.
Backlog
Total backlog of $57,166$60,847 million at December 31, 2018 increased by 30% from $44,0492020 was $2,844 million atlower than December 31, 2017, primarily2019 due to current year contractthe timing of awards in many of our programs greater thanand revenue recognized. Significant orders included Satellites, F/A-18 fighters, Ground-based Midcourse Defense, weapons, VC-25B Presidential Aircraft, V-22 Osprey, CH-47 Chinook, MQ-25 Stingray and T-X Trainer.
Additional Considerations
Our BDS business includes a variety of development programs which have complex design and technical challenges. Many of these programs have cost-type contracting arrangements. In these cases, the associated financial risks are primarily in reduced fees, lower profit rates or program cancellation if cost, schedule or technical performance issues arise. Examples of these programs include Ground-based Midcourse Defense,, Proprietary and Space Launch System programs.
Some of our development programs are contracted on a fixed-price basis, and BDS customers are increasingly seeking fixed pricedfixed-price proposals for new programs. Examples of significant fixed-price development programs include Commercial Crew, Saudi F-15, USAF KC-46A Tanker, T-X Trainer,MQ-25, T-7A Red Hawk, VC-25B, Presidential Aircraft, MQ-25 Stingray, and commercial and military satellites. New programs could also have risk for reach-forward loss upon contract award and during the period of contract performance. In the third quarter, we were awarded contracts to develop the T-X Trainer aircraft with complementary devices and the MQ-25 Stingray. We recorded orders of $1,618 million and recognized losses of $691 million associated with these contracts. Many development programs have highly complex designs. As technical or quality issues arise during development, we may experience schedule delays and cost impacts, which could increase our estimated cost to perform the work or reduce our estimated price, either of which could result in a material charge or otherwise adversely affect our financial condition. These programs are ongoing, and while we believe the cost and fee estimates incorporated in the financial statements are appropriate, the technical complexity of these programs creates financial risk as additional completion costs may become necessary or scheduled delivery dates could be extended, which could trigger termination provisions, the loss of satellite in-orbit incentive payments, or other financially significant exposure. These programs have risk for reach-forward losses if our estimated costs exceed our estimated contract revenues.
KC-46A Tanker See the discussion of the KC-46A Tanker program on page 23.
United Launch Alliance See the discussion of Indemnifications to ULA and Financing Commitments in Notes 8 and 15 to our Consolidated Financial Statements.
Sea Launch See the discussion of the Sea Launch receivables in Note 13 to our Consolidated Financial Statements.
Commercial Crew See the discussion of Fixed-Price Development Contracts in Note 14 to our Consolidated Financial Statements.
T-X Trainer In September 2018, we were selected by the U.S. Air Force to build the next generation training capability, known as T-X. The program includes aircraft and simulators as well as support and ground equipment. The contract is structured as an indefinite delivery/indefinite quantity (IDIQ) fixed-price contract with a minimum of 206 aircraft and a maximum of 475 aircraft. The EMD contract is a fixed-price contract valued at $813 million and includes five aircraft and seven simulators, with a period of performance that runs through 2022. The production and support contracts are structured as options that begin with authorization from fiscal year 2022 to 2034. In connection with winning this competition, we recorded a reach-forward loss of $400 million associated with anticipated losses on the options for 346 aircraft that we believe are probable of being exercised. We believe that our investment in this contract positions us for additional market opportunities for both trainer and light attack aircraft.
MQ-25 Stingray In August 2018, we were awarded an EMD contract to build the MQ-25 Stingray for the U.S. Navy. The EMD contract is a fixed-price contract that includes development and delivery of four aircraft and test articles at a contract price of $805 million. In connection with winning this competition, we recognized a reach-forward loss of $291 million. The period of performance runs from 2018 through 2024. The MQ-25 Stingray is the U.S. Navy’s first operational carrier-based unmanned aircraft, and we believe that our investment in this contract positions us for long-term leadership in autonomy and artificial intelligence technologies along with additional market opportunities.
Global Services
Business Environment and Trends
The aerospace markets we serve include parts distribution, logistics, and other inventory services; maintenance, engineering, and upgrades; training and professional services; and information services. We expectPrior to COVID-19, we had expected the market to grow by around 3.5% annually.annually, however the pandemic is having a direct impact on our commercial services business. See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment.
AsOver the long-term, as the size of the worldwide commercial airline fleet continues to grow, so does demand for aftermarket services designed to increase efficiency and extend the economic lives of
airplanes. Airlines are using data analytics to plan flight operations and predictive maintenance to improve their productivity and efficiency. Airlines continue to look for opportunities to reduce the size and cost of their spare parts inventory, frequently outsourcing spares management to third parties.
The demand outlook for our government services business has remained stable in 2020. Government services market segments are growing on pace with related fleets, but vary based on the utilization and age of the aircraft. The U.S. government services market is the single largest individual market, comprising over 50 percent of the government services markets served. Over the next decade, we expect U.S. growth to remain flat and non-U.S. fleets, led by Middle East and Asia Pacific customers, to add rotorcraft and commercial derivative aircraft at the fastest rates. We expect less than 20 percent of the worldwide fleet of military aircraft to be retired and replaced over the next ten years, driving increased demand for services to maintain aging aircraft and enhance aircraft capability.
BGS’ major customer, the U.S. government, remains subject to the spending limits and uncertainty described on page 30,40, which could restrict the execution of certain program activities and delay new programs or competitions.
Industry Competitiveness Aviation services is a competitive market with many domestic and international competitors. This market environment has resulted in intense pressures on pricing, and we expect these pressures to continue or intensify in the coming years. Continued access to global markets remains vital to our ability to fully realize our sales growth potential and long-term investment returns.
Results of Operations
| | | (Dollars in millions) | | | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues |
| $17,018 |
| |
| $14,581 |
| |
| $13,819 |
| Revenues | $15,543 | | | $18,468 | | | $17,056 | |
| % of total company revenues | 17 | % | | 16 | % | | 15 | % | % of total company revenues | 27 | % | | 24 | % | | 17 | % |
| Earnings from operations |
| $2,522 |
| |
| $2,246 |
| |
| $2,159 |
| Earnings from operations | $450 | | | $2,697 | | | $2,536 | |
| Operating margins | 14.8 | % | | 15.4 | % | | 15.6 | % | Operating margins | 2.9 | % | | 14.6 | % | | 14.9 | % |
|
Revenues
BGS revenues in 2018 increased2020 decreased by $2,437$2,925 million compared with 20172019 due to lower commercial services revenue driven by impacts of the COVID-19 pandemic. The favorable impact of cumulative contract catch-up adjustments in 2020 was $101 million lower than the comparable period in the prior year. We expect the impacts of the COVID-19 pandemic to continue to reduce BGS commercial revenues in future quarters until the commercial airline industry environment recovers.
BGS revenues in 2019 increased by $1,412 million compared with 2018 due to growth across our services portfolio, primarily driven by higher parts revenue, including the acquisition of KLX. Net in the fourth quarter of 2018 and government services revenue, partially offset by lower commercial services revenue. The favorable impact of cumulative contract catch-up adjustments to revenue were $63in 2019 was $80 million lowerhigher than the comparable period in 2018 than in 2017the prior year.
BGSTable of Contents revenues in 2017 increased by $762 million compared with 2016 primarily due to higher commercial parts revenues. Net favorable cumulative contract catch-up adjustments to revenue were $19 million higher in 2017 than in 2016.Earnings From Operations
BGS earnings from operations in 2018 increased2020 decreased by $276$2,247 million compared with 20172019, primarily due to lower commercial services revenue as well as earnings charges in 2020, including $531 million of inventory write-downs, $178 million of related impairments of distribution rights primarily driven by airlines' decisions to retire certain aircraft, $398 million for higher revenues, partially offsetexpected credit losses primarily driven by higher period costs. Netcustomer liquidity issues, $115 million of contract termination and facility impairment charges, as well as $72 million of severance costs. These charges reflect the significant impacts of the COVID-19 pandemic on commercial airline customers’ liquidity and demand for certain products as customers' fleet plans evolve to adapt to the sharp reduction in demand for air travel. The favorable impact of cumulative contract catch-up adjustments were $25 million lower in 2018 than in 20172020 was consistent with the prior year.
BGS earnings from operations in 20172019 increased by $87$161 million compared with 20162018 primarily due to higher revenues, partially offset by commercial servicesless favorable performance and mix. NetEarnings from operations for 2019 also includes a divestiture gain of $395 million and a charge of $293 million related to our decision in the fourth quarter to retire the Aviall brand and trade name. The favorable impact of cumulative contract catch-up adjustments were $51in 2019 was $21 million lowerhigher than the comparable period in 2017 than in 2016the prior year.
Backlog
BGS total backlog of $21,008$20,632 million at December 31, 2018 increased2020 decreased by 7%10% from $19,605$22,902 million at December 31, 2017,2019, primarily due to current year contract awards, partially offset by revenue recognized on contracts awardeda reduction for commercial orders that, in prior years.our assessment, no longer meet the accounting requirements of ASC 606 for inclusion in backlog.
Additional Considerations
KLX See the discussion of the KLX acquisition in Note 3 to our Consolidated Financial Statements.
Boeing Capital
Business Environment and Trends
BCC’s gross customer financing and investment portfolio at December 31, 20182020 totaled $2,792$1,974 million. A substantial portion of BCC’s portfolio is related to customers that we believe have less than investment-grade credit. BCC’s portfolio is also concentrated by varying degrees across Boeing aircraft product types, most notably 717 and 747-8 aircraft.
BCC provided customer financing of $601$14 million and $480$419 million during 20182020 and 2017.2019. While we may be required to fund a number of new aircraft deliveries in 20192021 and/or provide refinancing for existing bridge debt, we expect alternative financing will be available at reasonable prices from broad and globally diverse sources. However, a number of factors could cause BCC’s new business volume to increase further, including if the Export-Import Bank of the United States continues to be unable to, or does not, approve new financing transactions.
Aircraft values and lease rates are impacted by the number and type of aircraft that are currently out of service. Approximately 1,7007,300 western-built commercial jet aircraft (6.7%(29.4% of current world fleet) were parked at the end of 2018,2020, including both in-production and out-of-production aircraft types. Of these parked aircraft, approximately 2%a larger portion are not expected to returnbe retired compared to service.the pre-COVID-19 period, which directly impacts the Company in terms of number of new aircraft deliveries and financing opportunities, the ability of existing customers to meet current payment obligations and the value of aircraft in its portfolio. We continue to work closely with our customers to mitigate the risk. At the end of 20172019 and 2016, 8.3%2018, 8.5% and 8.8%6.7% of the western-built commercial jet aircraft were parked. Aircraft valuations could decline if significant numbers of additional aircraft, particularly types with relatively few operators, are placed out of service. See Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the impacts of COVID-19 on the airline industry environment.
Results of Operations
| | | (Dollars in millions) | | | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues |
| $274 |
| |
| $307 |
| |
| $298 |
| Revenues | $261 | | | $244 | | | $274 | |
| Earnings from operations |
| $79 |
| |
| $114 |
| |
| $59 |
| Earnings from operations | $63 | | | $28 | | | $79 | |
| Operating margins | 29 | % | | 37 | % | | 20 | % | Operating margins | 24 | % | | 11 | % | | 29 | % |
Revenues
BCC segment revenues consist principally of lease income from equipment under operating lease, interest income from financing receivables and notes, and other income. BCC’s revenues in 2018 decreased2020 increased by $33$17 million compared with 20172019 primarily due to lower lease income driven by a smaller portfolio, partially offset by gaingains on salere-lease of assets. BCC’s revenues in 2017 were consistent2019 decreased by $30 million compared with 2016.2018 primarily due to lower gains on the sale of assets.
Earnings From Operations
BCC’s earnings from operations are presented net of interest expense, provision for (recovery of) losses, asset impairment expense, depreciation on leased equipment and other operating expenses. Earnings from operations in 20182020 increased by $35 million compared with 2019 primarily due to higher revenues, lower asset impairment expenses and lower interest expenses. Earnings from operations in 2019 decreased by $35$51 million compared with 2018 primarily due to lower revenues. Earnings from operations in 2017 increased by $55 million primarily due to lowerrevenues and higher asset impairment and depreciation expenses.
Financial Position
The following table presents selected financial data for BCC as of December 31: |
| | | | | | | |
| (Dollars in millions) | 2018 |
| | 2017 |
|
| Customer financing and investment portfolio, net |
| $2,790 |
| |
| $3,003 |
|
| Other assets, primarily cash and short-term investments | 717 |
| | 677 |
|
| Total assets |
| $3,507 |
| |
| $3,680 |
|
| | | | |
| Other liabilities, primarily deferred income taxes |
| $523 |
| |
| $653 |
|
| Debt, including intercompany loans | 2,487 |
| | 2,523 |
|
| Equity | 497 |
| | 504 |
|
| Total liabilities and equity |
| $3,507 |
| |
| $3,680 |
|
| | | | |
| Debt-to-equity ratio | 5.0-to-1 |
| | 5.0-to-1 |
|
| | | | | | | | | | | |
| (Dollars in millions) | 2020 | | 2019 |
| Customer financing and investment portfolio, net | $1,961 | | | $2,251 | |
| Other assets, primarily cash and short-term investments | 402 | | | 535 | |
| Total assets | $2,363 | | | $2,786 | |
| | | |
| Other liabilities, primarily deferred income taxes | $392 | | | $432 | |
| Debt, including intercompany loans | 1,640 | | | 1,960 | |
| Equity | 331 | | | 394 | |
| Total liabilities and equity | $2,363 | | | $2,786 | |
| | | |
| Debt-to-equity ratio | 5-to-1 | | 5-to-1 |
BCC’s customer financing and investment portfolio at December 31, 20182020 decreased from December 31, 2017,2019, primarily due to $812$321 million of note payoffs asset sales and portfolio run-off, partially offset by new volume.
Aircraft subject to leases with a carrying value of approximately $84 million are scheduled to be returned off lease during 2019. We are seeking to remarket these aircraft or have the leases extended.run-off.
BCC enters into certain transactions with Boeing, reflected in Unallocated items, eliminations and other, in the form of intercompany guarantees and other subsidies that mitigate the effects of certain credit quality or asset impairment issues on the BCC segment.
Leased aircraft with a carrying value of approximately $57 million are scheduled to be returned off lease during 2021. We are seeking to remarket these aircraft or have the leases extended.
Liquidity and Capital Resources
Cash Flow Summary
| | | (Dollars in millions) | | | | | | (Dollars in millions) | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
| |
| Net (loss)/earnings | | Net (loss)/earnings | ($11,941) | | | ($636) | | | $10,460 | |
| Non-cash items | 2,578 |
| | 2,636 |
| | 2,540 |
| Non-cash items | 10,866 | | | 2,819 | | | 2,578 | |
| Changes in working capital | 2,284 |
| | 2,252 |
| | 2,922 |
| Changes in working capital | (17,335) | | | (4,629) | | | 2,284 | |
| Net cash provided by operating activities | 15,322 |
| | 13,346 |
| | 10,496 |
| |
| Net cash (used)/provided by operating activities | | Net cash (used)/provided by operating activities | (18,410) | | | (2,446) | | | 15,322 | |
| Net cash used by investing activities | (4,621 | ) | | (2,058 | ) | | (3,378 | ) | Net cash used by investing activities | (18,366) | | | (1,530) | | | (4,621) | |
| Net cash used by financing activities | (11,722 | ) | | (11,350 | ) | | (9,587 | ) | |
| Net cash provided/(used) by financing activities | | Net cash provided/(used) by financing activities | 34,955 | | | 5,739 | | | (11,722) | |
| Effect of exchange rate changes on cash and cash equivalents | (53 | ) | | 80 |
| | (33 | ) | Effect of exchange rate changes on cash and cash equivalents | 85 | | | (5) | | | (53) | |
| Net (decrease) / increase in cash & cash equivalents, including restricted | (1,074 | ) | | 18 |
| | (2,502 | ) | |
| Net (decrease)/increase in cash & cash equivalents, including restricted | | Net (decrease)/increase in cash & cash equivalents, including restricted | (1,736) | | | 1,758 | | | (1,074) | |
| Cash & cash equivalents, including restricted, at beginning of year | 8,887 |
| | 8,869 |
| | 11,371 |
| Cash & cash equivalents, including restricted, at beginning of year | 9,571 | | | 7,813 | | | 8,887 | |
| Cash & cash equivalents, including restricted, at end of year |
| $7,813 |
| |
| $8,887 |
| |
| $8,869 |
| Cash & cash equivalents, including restricted, at end of year | $7,835 | | | $9,571 | | | $7,813 | |
Operating Activities Net cash used by operating activities was $18.4 billion during 2020, compared with net cash used by operating activities of $2.4 billion during 2019 and net cash provided by operating activities wasof $15.3 billion during 2018, compared with $13.3 billion during 2017 and $10.5 billion in 2016.2018. The increase of $2.0 billiondecrease in 2018 wasoperating cash flows in 2020 is primarily driven by higher earningsour net loss in 2020 and lower spending on inventory,changes in working capital, partially offset by lower advances.an increase in non-cash items. Non-cash items include the $6.5 billion reach-forward loss on the 777X program in 2020, which was recorded as a reduction to inventory. The year-over-year increase in non-cash items also reflects higher inventory write-downs and higher allowances for expected credit losses in 2020. The changes in working capital reflect increases in commercial airplane inventory due to the large number of $2.9 billionundelivered aircraft in 2017 was primarily driven2019 resulting from the 737 MAX grounding, and in 2020 due to the 737 MAX grounding, 787 production issues and COVID-19 impacts. Cash used by higher advances more than offsetting inventory increases.
Advances and progress billings was $1.1 billion in 2020, as compared with $0.7 billion provided by Advances and progress billings in 2019. The changes in working capital in 2020 also reflect lower accounts payable due to reductions in commercial purchases from suppliers and lower supply chain financing. Compensation payments to 737 MAX customers totaled $2.2 billion during 2020 and $1.2 billion during 2019. The accrued liability for 737 MAX customer considerations at December 31, 2019 resulted in a $7.4 billion favorable change to working capital in 2019. The impacts of the COVID-19 pandemic and the 737 MAX grounding are expected to continue to have a significant negative impact on our operating cash flows during 2021.
The decrease in operating cash flows in 2019 compared to 2018 primarily reflected the impacts of the 737 MAX grounding resulting in lower earnings, higher inventory and lower advances and progress payments. In addition, compensation payments to 737 MAX customers of $1.2 billion for disruption to their operations also reduced 2019 cash from operating activities. Cash used to fund inventory was $12.4 billion during 2019 as we continued to produce aircraft while deliveries were suspended. Cash provided by Advances and progress billings was $0.7 billion in 2019, compared with $2.6 billion in 2018.
Payables to suppliers who elected to participate in supply chain financing programs declined by $1.9 billion for the year ended December 31, 2020, and increased by $2.6 billion and $0.6 billion for the same period in 2018, increased by $4.7 billion in 20172019 and decreased by $1.3 billion in 2016. During 2017, our discretionary contributions2018. Supply chain financing is not material to our pension plans included $14.4 million sharesoverall liquidity. The decline for the year ended December 31, 2020 was primarily due to reductions in commercial purchases from suppliers. The increase for the years ended December 31, 2019 and 2018 reflects a combination of higher purchases, an extension of payment terms with certain suppliers, and increased utilization of our common stock with an aggregate valuesupply chain financing programs.
Investing Activities Cash used by investing activities during 2020, 2019 and 2018 2017 and 2016 was $4.6$18.4 billion, $2.1$1.5 billion and $3.4$4.6 billion. The increase in cash outflows in 2020 compared to 2019 is primarily due to $17.4 billion of higher net contributions to investments. The reduction in cash outflows in 2019 compared with 2018 is primarily due to acquisitions duringcompleted in the second half of 2018 and the timing of investments. Acquisitions net of cash acquired were $3.2$0.5 billion in 2018, compared with $0.32019, primarily related to the acquisition of KLX. Proceeds from dispositions was $0.5 billion in 2017 and 2016.2019 as a result of the divestiture of two businesses. Capital expenditures totaled $1.3 billion in 2020, compared with $1.8 billion in 2019 and $1.7 billion in both 2018 and 2017, down from $2.6 billion in 2016.2018. We expect capital expenditures in 20192021 to be higher than 2018.relatively consistent with 2020. Net contributions to investments were $17.3 billion in 2020, compared with net proceeds from investments wasof $0.1 billion in 2019 and $0.3 billion in 2018 and insignificant in 2017, compared with net contributions to investments of $0.5 billion in 2016.2018.
Financing Activities Cash provided by financing activities was $35.0 billion during 2020, compared with cash provided by financing activities of $5.7 billion in 2019 and cash used by financing activities wasof $11.7 billion during 2018, anin 2018. The increase of $0.4$29.3 billion compared with 20172019 primarily reflects higher net borrowings, lower share repurchases, and lower dividend payments. Cash provided by financing activities increased $17.5 billion compared with 2018 primarily due to higher dividend paymentsnet borrowings and lower share repurchases, partially offset by higher dividend payments in 2019. During the twelve months ended December 31, 2020, new borrowings net borrowings. Cash used by financing activities was $11.4 billion during 2017, an increase of $1.8repayments were $36.3 billion compared with 2016,$13.2 billion and $1.4 billion in the same period in 2019 and 2018. The increase in 2020 is primarily due to higher share repurchases$29.9 billion of fixed rate senior notes issued in 2020 and dividend payments. Net$13.8 billion of new borrowings were $1.4 billionunder a two-year delayed draw term loan agreement entered into in 2018, $1.1 billionthe first quarter of 2020. For further discussion see Liquidity Matters in 2017 and insignificant in 2016.Note 1 to our Consolidated Financial Statements.
At December 31, 20182020 and 20172019 the recorded balance of debt was $13.8$63.6 billion and $11.1$27.3 billion, of which $3.2$1.7 billion and $1.3$7.3 billion waswere classified as short-term. At December 31, 2018This included $1.6 billion and 2017 this included $2.5$2.0 billion of debt attributable to BCC, at December 31, 2020 and 2019, of which $0.5$0.9 billion and $0.9$0.5 billion were classified as short-term.
During 2018 and 2017the year ended December 31, 2020, we repurchased 26.1 million and 46.1 milliondid not repurchase any shares totaling $9.0 billion and $9.2 billion through our open market share repurchase program.program compared to repurchases of 6.9 million and 26.1 million shares in 2019 and 2018 totaling $2.7 billion and $9.0 billion. Share repurchases under this plan had been suspended since April 2019. In 2018March 2020, the Board of Directors terminated its prior authorization to repurchase shares of the Company's outstanding common stock. We had 0.6 million, 0.6 million, and 2017, we had 0.7 million shares transferred to us from employees foremployee tax withholdings. Atwithholdings in 2020, 2019, and 2018, respectively. During the twelve months ended December 31, 2020 we paid dividends of $1.2 billion compared with $4.6 billion and $3.9 billion in the same period in 2019 and 2018. In March 2020, the Company announced that our dividend will be suspended until further notice. In December 2018 the amount available under the share repurchase plan, announced on December 17, 2018, totaled $20 billion.we increased our quarterly dividend from $1.71 to $2.055, which resulted in $684 million of higher dividend payments in 2019 compared with 2018.
Capital Resources The impacts of the COVID-19 pandemic and 737 MAX grounding are having a significant negative impact on our liquidity and ongoing operations and creating significant uncertainty. We have substantial borrowing capacity. Any future borrowings may affect our credit ratings and are subjectcontinuing to various debt covenants as described below. We have a commercial paper program that serves as a source of short-termtake significant actions to manage and preserve our liquidity.For further discussion see Liquidity Matters in Note 1 to our Consolidated Financial Statements.
At December 31, 2018and2017, commercial paper borrowings totaling $1,895 million2020, we had $7.8 billion of cash and $600 million, which were supported by unused commitments under the revolving credit agreement. We had no commercial paper borrowings in 2016.$17.8 billion of short term investments. At December 31, 2018,2020, we had $5.1$9.5 billion of unused borrowing capacity on revolving credit line agreements. We anticipate that these credit lines will primarily serve as backup liquidity to support our general corporate borrowing needs.
Financing commitments totaled $19.5 The $9.5 billion of unused borrowing capacity includes a $3.1 billion 364-day revolving credit facility, which expires in October 2021. We had no commercial paper borrowings at December 31, 2020, compared to commercial paper borrowings of $6.1 billion and $10.2$1.9 billion at December 31, 2019 and 2018, which were supported by unused commitments under the revolving credit agreement.
Our debt balances have increased significantly since 2019, and 2017. The increase primarily relateswe are continuing to commercial airplane orders receivedactively manage our liquidity.Scheduled principal payments for debt for the next five years are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
| | | | | | | | | |
| | | | | | | | | |
| Debt | $1,630 | | | $14,976 | | | $3,776 | | | $2,001 | | | $4,301 | |
Our increased debt balance has also resulted in 2018.downgrades to our credit ratings. We anticipate that we will not be requiredexpect to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. Historically, we have not been required to fund significant amounts of outstanding commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required. In addition, many of our non-U.S. customers finance aircraft purchases through the Export-Import Bank of the United States. Following the expiration of the bank’s charter on June 30, 2015, the bank’s charter was reauthorized in December 2015. The bank is now authorized through September 30, 2019. However, until the U.S. Senate confirms members sufficient to reconstitute a quorum of the bank’s board of directors, the bank will not be able to approve any transaction totaling more than $10 million. As a result, we may fund additional commitments and/or enter into new financing arrangements with customers.
In the eventaccess capital markets when we require additional funding in order to support strategicpay off existing debt, address further impacts to our business opportunities, our commercial aircraftrelated to market developments, fund outstanding financing commitments, unfavorable resolution of litigation or other loss contingencies, ormeet other business requirements,requirements. A number of factors could cause us to incur increased borrowing costs and to have greater difficulty accessing public and private markets for debt. These factors include disruptions or declines in the global capital markets and/or a decline in our financial performance, outlook or credit ratings, including impacts described above related to the COVID-19 pandemic and/or associated changes in demand for our products and services. These risks will be particularly acute if we expectare subject to meet increased funding requirements by issuing commercial paperfurther credit rating downgrades. The occurrence of any or term debt. We believeall of these events may adversely affect our ability to access external capital resources should be sufficient to satisfy existing short-termfund our operations and long-term commitments and plans, and also to provide adequate financial flexibilityfinancing or contractual commitments.
to take advantage of potential strategic business opportunities should they arise within the next year. However, there can be no assurance of the cost or availability ofAny future borrowings undermay affect our commercial paper program or in thecredit ratings and are subject to various debt markets.
covenants. At December 31, 2018 and 2017, our pension plans were $15.3 billion and $16.4 billion underfunded as measured under GAAP. On an Employee Retirement Income Security Act (ERISA) basis our plans are 96% funded at December 31, 2018 with minimal required contributions in 2019. We do not expect to make contributions to our pension plans in 2019. We may be required to make higher contributions to our pension plans in future years.
At December 31, 2018,2020, we were in compliance with the covenants for our debt and credit facilities. The most restrictive covenants include a limitation on mortgage debt and sale and leaseback transactions as a percentage of consolidated net tangible assets (as defined in the credit agreements), and a limitation on consolidated debt as a percentage of total capital (as defined). When considering debt covenants, we continue to have substantial borrowing capacity.
Customer financing commitments totaled $11.5 billion and $13.4 billion at December 31, 2020 and 2019. The decrease primarily relates to financing commitment amendments and expirations. We anticipate that we will not be required to fund a significant portion of our financing commitments as we continue to work with third party financiers to provide alternative financing to customers. Historically, we have not been required to fund significant amounts of outstanding commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required.
At December 31, 2020 and 2019, our pension plans were $13.7 billion and $15.9 billion underfunded as measured under GAAP. On an Employee Retirement Income Security Act (ERISA) basis our plans are more than 100% funded at December 31, 2020. We do not expect to make significant contributions to our pension plans in 2021. We may be required to make higher contributions to our pension plans in future years.
In the fourth quarter of 2020, we contributed $3 billion of our common stock to our pension fund. In the fourth quarter of 2020, we also began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans for the foreseeable future, which we estimate will conserve approximately $1 billion of cash over the next 12 months. Under this approach, common stock is contributed to our 401(k) plans following each pay period. We expect this measure to further enable the Company to conserve cash. We have retained an independent fiduciary to manage and liquidate stock contributed to these plans at its discretion.
Contractual Obligations
The following table summarizes our known obligations to make future payments pursuant to certain contracts as of December 31, 2018,2020, and the estimated timing thereof.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Total | | Less
than 1
year | | 1-3
years | | 3-5
years | | After 5
years |
| Long-term debt (including current portion) | $63,963 | | | $1,630 | | | $18,752 | | | $6,302 | | | $37,279 | |
| Interest on debt | 37,614 | | | 2,271 | | | 4,274 | | | 3,852 | | | 27,217 | |
| Pension and other postretirement cash requirements | 5,077 | | | 610 | | | 1,163 | | | 1,073 | | | 2,231 | |
| Finance lease obligations | 228 | | | 68 | | | 84 | | | 20 | | | 56 | |
| Operating lease obligations | 1,781 | | | 307 | | | 432 | | | 240 | | | 802 | |
| Purchase obligations not recorded on the Consolidated Statements of Financial Position | 93,928 | | | 36,540 | | | 29,933 | | | 16,367 | | | 11,088 | |
| Purchase obligations recorded on the Consolidated Statements of Financial Position | 19,621 | | | 19,502 | | | 99 | | | 7 | | | 13 | |
| | | | | | | | | |
Total contractual obligations (1) | $222,212 | | | $60,928 | | | $54,737 | | | $27,861 | | | $78,686 | |
|
| | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Total |
| | Less than 1 year |
| | 1-3 years |
| | 3-5 years |
| | After 5 years |
|
| Long-term debt (including current portion) |
| $13,932 |
| |
| $3,137 |
| |
| $1,927 |
| |
| $1,326 |
| |
| $7,542 |
|
| Interest on debt | 6,458 |
| | 523 |
| | 891 |
| | 752 |
| | 4,292 |
|
| Pension and other postretirement cash requirements | 14,379 |
| | 606 |
| | 1,627 |
| | 5,050 |
| | 7,096 |
|
| Capital lease obligations | 164 |
| | 58 |
| | 75 |
| | 20 |
| | 11 |
|
| Operating lease obligations | 1,850 |
| | 278 |
| | 432 |
| | 291 |
| | 849 |
|
| Purchase obligations not recorded on the Consolidated Statements of Financial Position | 126,693 |
| | 51,784 |
| | 41,470 |
| | 22,649 |
| | 10,790 |
|
| Purchase obligations recorded on the Consolidated Statements of Financial Position | 19,900 |
| | 19,076 |
| | 716 |
| | 80 |
| | 28 |
|
Total contractual obligations (1) |
| $183,376 |
| |
| $75,462 |
| |
| $47,138 |
| |
| $30,168 |
| |
| $30,608 |
|
| |
(1)(1) Excludes income tax matters. As of December 31, 2020, we have uncertain tax positions of $966 million. We are not able to reasonably estimate the timing of future cash flows related to uncertain tax positions. For further discussion of income taxes, see Note 4 to our Consolidated Financial Statements.
| Excludes income tax matters. As of December 31, 2018, our net liability for income taxes payable, including uncertain tax positions of $2,412 million, was $2,392 million. For further discussion of income taxes, see Note 6 to our Consolidated Financial Statements. We are not able to reasonably estimate the timing of future cash flows related to uncertain tax positions. |
Pension and Other Postretirement Benefits Pension cash requirements are based on an estimate of our minimum funding requirements, pursuant to ERISA regulations, although we may make additional discretionary contributions. Estimates of other postretirement benefits are based on both our estimated future benefit payments and the estimated contributions to plans that are funded through trusts.
Purchase Obligations Purchase obligations represent contractual agreements to purchase goods or services that are legally binding; specify a fixed, minimum or range of quantities; specify a fixed, minimum, variable, or indexed price provision; and specify approximate timing of the transaction. Purchase obligations include amounts recorded as well as amounts that are not recorded on the Consolidated Statements of Financial Position.
Purchase Obligations Not Recorded on the Consolidated Statements of Financial Position Purchase obligations not recorded on the Consolidated Statements of Financial Position include agreements for inventory procurement, tooling costs, electricity and natural gas contracts, property, plant and equipment, customer financing equipment, and other miscellaneous production related obligations. The most significant obligation relates to inventory procurement contracts. We have entered into certain significant inventory procurement contracts that specify determinable prices and quantities, and long-term delivery timeframes. In addition, we purchase raw materials on behalf of our suppliers. These agreements require suppliers and vendors to be prepared to build and deliver items in sufficient time to meet our production schedules. The need for such arrangements with suppliers and vendors arises from the extended production planning horizon for many of our products. A significant portion of these inventory commitments is supported by firm contracts and/or has historically resulted in settlement through reimbursement from customers for penalty payments to the supplier should the customer not take delivery. These amounts are also included in our forecasts of costs for program and contract accounting. Some inventory procurement contracts may include escalation adjustments. In these limited cases, we have included our best estimate of the effect of the escalation adjustment in the amounts disclosed in the table above.
Purchase Obligations Recorded on the Consolidated Statements of Financial Position Purchase obligations recorded on the Consolidated Statements of Financial Position primarily include accounts payable and certain other current and long-term liabilities including accrued compensation.
Industrial Participation Agreements We have entered into various industrial participation agreements with certain customers outside of the U.S. to facilitate economic flow back and/or technology or skills transfer to their businesses or government agencies as the result of their procurement of goods and/or services from us. These commitments may be satisfied by our local operations there, placement of direct work or vendor orders for supplies, opportunities to bid on supply contracts, transfer of technology or other forms of assistance. However, in certain cases, our commitments may be satisfied through other parties (such as our vendors) who purchase supplies from our non-U.S. customers. In certain cases, penalties could be imposed if we do not meet our industrial participation commitments. During 2018,2020, we incurred no such penalties. As of December 31, 2018,2020, we have outstanding industrial participation agreements totaling $18.4$26.4 billion that extend through 2030.2034. Purchase order commitments associated with industrial participation agreements are included in purchase obligations in the table above. To be eligible for such a purchase order commitment from us, a non-U.S. supplier must have sufficient capability to meet our requirements and must be competitive in cost, quality and schedule.
Commercial Commitments
The following table summarizes our commercial commitments outstanding as of December 31, 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Total Amounts
Committed/Maximum
Amount of Loss | | Less than
1 year | | 1-3
years | | 4-5
years | | After 5
years |
| Standby letters of credit and surety bonds | $4,238 | | | $1,680 | | | $1,621 | | | $735 | | | $202 | |
| Commercial aircraft financing commitments | 11,512 | | | 2,329 | | | 4,061 | | | 3,504 | | | 1,618 | |
| Total commercial commitments | $15,750 | | | $4,009 | | | $5,682 | | | $4,239 | | | $1,820 | |
|
| | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | Total Amounts Committed/Maximum Amount of Loss |
| | Less than 1 year |
| | 1-3 years |
| | 4-5 years |
| | After 5 years |
|
| Standby letters of credit and surety bonds |
| $3,761 |
| |
| $1,274 |
| |
| $1,703 |
| |
| $1 |
| |
| $783 |
|
| Commercial aircraft financing commitments | 19,462 |
| | 2,331 |
| | 6,216 |
| | 5,189 |
| | 5,726 |
|
| Total commercial commitments |
| $23,223 |
| |
| $3,605 |
| |
| $7,919 |
| |
| $5,190 |
| |
| $6,509 |
|
Commercial aircraft financing commitments include commitments to provide financing related to aircraft on order, under option for deliveries or proposed as part of sales campaigns or refinancing with respect to delivered aircraft, based on estimated earliest potential funding dates. Based on historical experience, we anticipate that we will not be required to fund a significant portion of our financing commitments. However, there can be no assurances that we will not be required to fund greater amounts than historically required, particularly if the Export-Import Bank of the United States continues to be unable to, or does not, provide new financing support.required. See Note 1413 to our Consolidated Financial Statements.
Contingent Obligations
We have significant contingent obligations that arise in the ordinary course of business, which include the following:
Legal Various legal proceedings, claims and investigations are pending against us. Legal contingencies are discussed in Note 2221 to our Consolidated Financial Statements.
Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $555$565 million at December 31, 2018.2020. For additional information, see Note 1413 to our Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 1514 to our Consolidated Financial Statements.
Non-GAAP Measures
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Our Consolidated Financial Statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) (GAAP) which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Core operating earnings, core operating margin and core earnings per share exclude the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core earnings per share excludes both the FAS/CAS service cost adjustment and non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated
to BCA and certain BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid.
The Pension FAS/CAS service cost adjustment recognized in (loss)/earnings from operations during 20182020 was a benefit of $1,005$1,024 million, largely consistent with a benefit of $1,127$1,071 million in 20172019 and $1,029$1,005 million in 2016.2018. The non-operating pension expense included in Other income/(loss),income, net was a benefit of $340 million in 2020, $374 million in 2019 and $143 million in 2018 and $117 million in 2017, compared with an expense of$327 million in 2016.2018. The benefits in 20182020, 2019, and 20172018 reflect expected returns in excess of interest cost and amortization of actuarial losses. The expense in 2016 reflects the amortization of non-service costs previously capitalized as inventory in prior years, primarily interest cost and amortization of actuarial losses in excess of expected returns.
For further discussion of pension and other postretirement costs see the Management’s Discussion and Analysis on page 21pages 30 - 31 of this Form 10-K and see Note 2322 to our Consolidated Financial Statements. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as unallocated pension and other postretirement benefit cost, primarily represent costs driven by market factors and costs not allocable to U.S. government contracts.
Reconciliation of GAAP Measures to Non-GAAP Measures
The table below reconciles the non-GAAP financial measures of core operating earnings, core operating margin and core earnings per share with the most directly comparable GAAP financial measures of earnings from operations, operating margins and diluted earnings per share.
| | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | |
Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues | $58,158 | | | $76,559 | | | $101,127 | |
| (Loss)/earnings from operations, as reported | ($12,767) | | | ($1,975) | | | $11,987 | |
| Operating margins | (22.0) | % | | (2.6) | % | | 11.9 | % |
| | | | | |
Pension FAS/CAS service cost adjustment(1) | ($1,024) | | | ($1,071) | | | ($1,005) | |
Postretirement FAS/CAS service cost adjustment(1) | ($359) | | | ($344) | | | ($322) | |
FAS/CAS service cost adjustment(1) | ($1,383) | | | ($1,415) | | | ($1,327) | |
| Core operating (loss)/earnings (non-GAAP) | ($14,150) | | | ($3,390) | | | $10,660 | |
| Core operating margins (non-GAAP) | (24.3) | % | | (4.4) | % | | 10.5 | % |
| | | | | |
| Diluted (loss)/earnings per share, as reported | ($20.88) | | | ($1.12) | | | $17.85 | |
Pension FAS/CAS service cost adjustment(1) | ($1.80) | | | ($1.89) | | | ($1.71) | |
Postretirement FAS/CAS service cost adjustment(1) | ($0.63) | | | ($0.61) | | | ($0.55) | |
Non-operating pension expense(2) | ($0.60) | | | ($0.66) | | | ($0.24) | |
Non-operating postretirement expense(2) | $0.03 | | | $0.19 | | | $0.17 | |
Provision for deferred income taxes on adjustments (3) | $0.63 | | | $0.62 | | | $0.49 | |
| Core (loss)/earnings per share (non-GAAP) | ($23.25) | | | ($3.47) | | | $16.01 | |
| | | | | |
| Weighted average diluted shares (in millions) | 569.0 | | | 566.0 | | | 586.2 | |
(1)FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. This adjustment is excluded from Core operating (loss)/earnings (non-GAAP).
(2)Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. These expenses are included in Other income, net and are excluded from Core (loss)/earnings per share (non-GAAP).
(3)The income tax impact is calculated using the U.S. corporate statutory tax rate.
|
| | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Revenues |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
|
| Earnings from operations, as reported |
| $11,987 |
| |
| $10,344 |
| |
| $6,527 |
|
| Operating margins | 11.9 | % | | 11.0 | % | | 7.0 | % |
| | | | | | |
Pension FAS/CAS service cost adjustment(1) |
| ($1,005 | ) | |
| ($1,127 | ) | |
| ($1,029 | ) |
Postretirement FAS/CAS service cost adjustment(1) |
| ($322 | ) | |
| ($311 | ) | |
| ($328 | ) |
FAS/CAS service cost adjustment(1) |
| ($1,327 | ) | |
| ($1,438 | ) | |
| ($1,357 | ) |
| Core operating earnings (non-GAAP) |
| $10,660 |
| |
| $8,906 |
| |
| $5,170 |
|
| Core operating margins (non-GAAP) | 10.5 | % | | 9.5 | % | | 5.5 | % |
| | | | | | |
| Diluted earnings per share, as reported |
| $17.85 |
| |
| $13.85 |
| |
| $7.83 |
|
Pension FAS/CAS service cost adjustment(1) |
| ($1.71 | ) | |
| ($1.84 | ) | |
| ($1.60 | ) |
Postretirement FAS/CAS service cost adjustment(1) |
| ($0.55 | ) | |
| ($0.51 | ) | |
| ($0.51 | ) |
Non-operating pension expense(2) |
| ($0.24 | ) |
|
| ($0.19 | ) |
|
| $0.51 |
|
Non-operating postretirement expense(2) |
| $0.17 |
|
|
| $0.20 |
|
|
| $0.23 |
|
Provision for deferred income taxes on adjustments (3) |
| $0.49 |
| |
| $0.82 |
| |
| $0.48 |
|
| Core earnings per share (non-GAAP) |
| $16.01 |
| |
| $12.33 |
| |
| $6.94 |
|
| | | | | | |
| Weighted average diluted shares (in millions) | 586.2 |
| | 610.7 |
| | 643.8 |
|
| |
(1)
| FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. This adjustment is excluded from Core operating earnings (non-GAAP). |
| |
(2)
| Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. These expenses are included in Other income/(loss), net and are excluded from Core earnings per share (non-GAAP).
|
| |
(3)
| The income tax impact is calculated using the U.S. corporate statutory tax rate. |
Other
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities Exchange Act of 1934, as amended, require disclosure of certain activities, transactions or dealings relating to Iran that occurred during the period covered by this report. Disclosure is required even if the activities, transactions or dealings were conducted in compliance with applicable law. In connection with the U.S. withdrawal from the Joint Comprehensive Plan of Action (Iran Nuclear Agreement), we engaged in activities during the third quarter that were required to unwind and terminate all agreements with Iranian airlines entered into prior to the withdrawal. These activities were authorized by a license from the U.S. Office of Foreign Assets Control (OFAC), and generated no revenues or profits. In addition, during the fourth quarter Iran Aseman Airlines requested Boeing support, and we replied that the current laws of the United States do not permit Boeing to provide any services, parts, or aircraft without a license from OFAC.
Critical Accounting Policies & Estimates
Accounting for long-term contracts
Substantially all contracts at BDS certain military derivative aircraft contracts at BCA and certain contracts at BGS are long-term contracts. Our long-term contracts typically represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods and/or services and the significant service of integration that we provide.
Accounting for long-term contracts involves a judgmental process of estimating the total sales, costs, and profit for each performance obligation. Cost of sales is recognized as incurred and revenue is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales.
Due to the size, duration and nature of many of our long-term contracts, the estimation of total sales and costs through completion is complicated and subject to many variables. Total sales estimates are based on negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, incentive and award provisions associated with technical performance, and price adjustment clauses (such as inflation or index-based clauses). The majority of these long-term contracts are with the U.S. government where the price is generally based on estimated cost to produce the product or service plus profit. Federal Acquisition Regulations provide guidance on the types of cost that will be reimbursed in establishing contract price. Total cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, COVID-19 disruptions, asset utilization, and anticipated labor agreements.
Revenue and cost estimates for all significant long-term contract performance obligations are reviewed and reassessed quarterly. Changes in these estimates could result in recognition of cumulative catch-up adjustments to the performance obligation’s inception to date revenues, cost of sales and profit, in the period in which such changes are made. Changes in revenue and cost estimates could also result in a reach-forward loss or an adjustment to a reach-forward loss, which would be recorded immediately in earnings. For the years ended December 31, 20182020, 2019 and 20162018 net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all long-term contracts decreased Earnings from operations by $942 million, $111 million and $190 million, and $263 million. For the year ended December 31, 2017, net favorablerespectively. The cumulative catch-up adjustments includingin 2020 were primarily due to reach-forward losses across all long-term contracts increased Earnings from operations by $250 million.incurred on the KC-46A Tanker program.
Due to the significance of judgment in the estimation process described above, it is likely that materially different earnings could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, supplier performance, or circumstances
may adversely or positively affect financial performance in future periods. If the combined gross margin for all long-term contract performance obligations for all of 20182020 had been estimated to be higher or lower by 1%, it would have increased or decreased pre-tax income for the year by approximately $297 million.$330 million. In addition, a number of our fixed price development contracts are in a reach-forward loss position. Changes to estimated losses are recorded immediately in earnings.
Program Accounting
Program accounting requires the demonstrated ability to reliably estimate the relationship of sales to costs for the defined program accounting quantity. A program consists of the estimated number of units (accounting quantity) of a product to be produced in a continuing, long-term production effort for delivery under existing and anticipated contracts. The determination of the accounting quantity is limited by the ability to make reasonably dependable estimates of the revenue and cost of existing and
anticipated contracts. For each program, the amount reported as cost of sales is determined by applying the estimated cost of sales percentage for the total remaining program to the amount of sales recognized for airplanes delivered and accepted by the customer.
Factors that must be estimated include program accounting quantity, sales price, labor and employee benefit costs, material costs, procured part costs, major component costs, overhead costs, program tooling and other non-recurring costs, and warranty costs. Estimation of the accounting quantity for each program takes into account several factors that are indicative of the demand for the particular program, such as firm orders, letters of intent from prospective customers, and market studies. Total estimated program sales are determined by estimating the model mix and sales price for all unsold units within the accounting quantity, added together with the sales prices for all undelivered units under contract. The sales prices for all undelivered units within the accounting quantity include an escalation adjustment for inflation that is updated quarterly. Cost estimates are based largely on negotiated and anticipated contracts with suppliers, historical performance trends, and business base and other economic projections. Factors that influence these estimates include production rates, internal and subcontractor performance trends, customer and/or supplier claims or assertions, asset utilization, anticipated labor agreements, COVID-19 disruptions, and inflationary or deflationary trends.
To ensure reliability in our estimates, we employ a rigorous estimating process that is reviewed and updated on a quarterly basis. This includes reassessing the accounting quantity. Changes in estimates of program margins are normally recognized on a prospective basis; however, when estimated costs to complete a program exceed estimated revenues from undelivered units in the accounting quantity, a loss provision is recorded in the current period for the estimated loss on all undelivered units in the accounting quantity. For example, in 2016, we recorded a reach-forward loss of $1,258 million on the 747 program.
The program method of accounting allocates tooling and other non-recurring and production costs over the accounting quantity for each program. Because of the higher unit production costs experienced at the beginning of a new program and substantial investment required for initial tooling and other non-recurring costs, new commercial aircraft programs, such as the 787 and 777X programs, typically have lower initial margins than established programs. In addition, actualprograms and a higher risk for reach-forward loss. Actual costs incurred for earlier units in excess of the estimated average cost of all units in the program accounting quantity are included within program inventory as deferred production costs. Deferred production, unamortized tooling and other non-recurring costs are expected to be fully recovered when all units in the accounting quantity are delivered as the expected unit cost for later deliveries is below the estimated average cost as learning curve and other improvements are realized.
Wenow anticipate that the first 777X delivery will occur in late 2023. We also recorded a $6.5 billion reach-forward loss on the 777X program in the fourth quarter of 2020. The revised schedule and the reach-forward loss reflect a number of factors, including an updated assessment of global certification requirements informed by continued discussions with regulators and resulting in a management decision to make modifications to the aircraft’s design, an updated assessment of COVID-19 impacts on market demand, and discussions with our customers with respect to aircraft delivery timing. These factors resulted in adjustments to production rates and the program accounting quantity, increased change incorporation costs, and associated customer and supply chain impacts.
Absent changes in the estimated revenues or costs, deliveries which are expected to begin in 2023 will be recorded at zero margin. Reductions to the estimated loss in subsequent periods are spread over all undelivered units in the accounting quantity, whereas increases to the estimated loss are recorded immediately. The level of profitability on the 777X program will be subject to a number of factors. These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification. One or more of these factors
could result in additional reach-forward losses on the 777X program in future periods which may be material.
Due to the significanceimpacts of judgmentCOVID-19 on our customers as well as production issues and associated rework, the 787 program has near breakeven gross margins at December 31, 2020. The margins reflect reductions in the estimation process described above, it isproduction rate and program accounting quantity during 2020. If we are required to further reduce the accounting quantity and/or production rates or experience higher than anticipated costs or delays addressing production issues and associated rework, or other factors that could result in lower margins, the program could record a reach-forward loss in future periods which may be material.
The 747 and 767 programs also have near breakeven gross margins at December 31, 2020. If we are unable to mitigate risks associated with these programs, or if our assumptions with respect to items such as pricing, cost, accounting quantity or future production rates were to change, we could be required to record reach-forward losses in future periods which may be material.
737 MAX Grounding
In 2019, following two fatal 737 MAX accidents, the Federal Aviation Administration (FAA) and non-U.S. civil aviation authorities issued orders suspending commercial operations of 737 MAX aircraft. Deliveries of the 737 MAX were suspended following these orders. Deliveries resumed in late 2020 following rescission by the FAA of its grounding order.
Multiple legal actions have been filed against us as a result of the accidents. In addition, we are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including an investigation by the Securities and Exchange Commission, the outcome of which may be material. On January 6, 2021, we entered into a Deferred Prosecution Agreement with the U.S. Department of Justice that resolves the Department of Justice’s previously disclosed investigation into us regarding the evaluation of the 737 MAX airplane by the FAA. Other than with respect to the U.S. Department of Justice, we cannot reasonably possibleestimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations and inquiries related to the 737 MAX.
In the preparation of our financial statements, we have made assumptions regarding outcomes of accident investigations and other government inquiries, timing and conditions of return to service, the timing of future 737 production rate increases, supplier readiness to support production rate changes, in underlying circumstances ortiming and sequence of future customer deliveries as well as outcomes of negotiations with customers impacted by the grounding. We have also made significant assumptions could have a material effect on program gross margins. If the combined gross margin percentages for our commercial airplane programs had beenregarding estimated costs expected to be 1% higherincurred in 2021 that should be included in program inventory and those costs that should be expensed when incurred as abnormal production costs. While these assumptions reflect our best estimate at this time, they are highly uncertain and significantly affect the estimates inherent in our financial statements.
In December 2020, we delivered 27 aircraft, in compliance with the FAA regulatory requirements. We have assumed that the remaining non-U.S. regulatory approvals will occur and enable deliveries during the first half of 2021. We have approximately 425 airplanes in inventory as of December 31, 2020. A number of customers have requested to defer deliveries or lower it would have a similar effect onto cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory. We now expect to deliver about half of the Commercial Airplane segment’s737 MAX aircraft in inventory by the end of 2021. In the event that we are unable to resume aircraft deliveries in non-U.S. jurisdictions consistent with our assumptions of regulatory approval timing, our expectation of delivery timing could be impacted.
operating margins. ForIn addition, we reduced the number of aircraft included in the accounting quantity by 400 units in the first quarter of 2020 as a result of reductions to planned production rates due to COVID-19 driven market uncertainties.As we are producing at abnormally low production rates in 2020 and 2021, we expect to incur approximately $5.0 billion of abnormal production costs that are being expensed as incurred. The slowdown in the planned production rate ramp-up increased expected abnormal costs however this increase was offset by adjustments to the determination of the normal production level due to COVID-19 impacts on customer demand, as well as cost reduction activities, including significant reductions in employment levels. We expensed approximately $2.6 billion of abnormal production costs during the year ended December 31, 2018,2020.
In addition to impacts related to the 737 MAX accidents and subsequent grounding, the 737 program continues to be significantly impacted by the COVID-19 pandemic and its effect on aircraft demand. These impacts have resulted in lower production and delivery rate assumptions. We currently expect to gradually increase the production rate to 31 per month by early 2022. We currently assume that we will implement further gradual production rate increases in subsequent periods based on market demand. The ongoing impacts of COVID-19 on market demand have also created significant uncertainty around the timing of deliveries of 737 MAX aircraft in inventory. We may need to recognize additional costs associated with remarketing and/or reconfiguring aircraft in inventory, which may reduce revenue and/or earnings in future periods.
We are working with our customers to minimize the impact to their operations from grounded and undelivered aircraft. We continue to reassess the liability for estimated potential concessions and other considerations to customers on a 1% increasequarterly basis. This reassessment includes updating estimates to reflect revisions to return to service, delivery and production rate assumptions driven by timing of regulatory approvals, as well as latest information based on engagements with 737 MAX customers. The remaining liability of $5.5 billion at December 31, 2020 represents our current best estimate of future concessions and other considerations to customers, and is necessarily based on a series of assumptions. It is subject to change in future quarters as negotiations with customers mature and timing and conditions of return to service are better understood.
Our assumptions reflect our current best estimate, but actual timing and conditions of return to service and resumption of deliveries could differ from this estimate, the effect of which could be material. We are unable at this time to reasonably estimate potential future additional financial impacts or decreasea range of loss, if any, due to continued uncertainties related to the timing and conditions of return to service, uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to the production rate, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in operating margins for our Commercial Airplane segment wouldestimates, could have a $607 millionmaterial adverse effect on our financial position, results of operations, and/or cash flows. For example, we expect that, in the event that we are unable to resume aircraft deliveries in non-U.S. jurisdictions consistent with our assumptions, the continued absence of revenue, earnings, and cash flows associated with 737 MAX deliveries would continue to have a material impact on our operating earnings.results. In the event that future production rate increases occur at a slower rate or take longer than we are currently assuming we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged production suspension or delays in planned production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce 737 program margins and/or increase abnormal production costs in the future.
Goodwill and Indefinite-Lived Intangible Impairments
We test goodwill for impairment by performing a qualitative assessment or using a two-step impairment process.quantitative test. If we choose to perform a qualitative assessment, we evaluate economic, industry and company-specific factors as an initial step in assessing the fair value of operations. If we determine it is more likely than
not that the carrying value of the net assets is more than the fair value of the related operations, the two-step impairment processthen a quantitative test is then performed; otherwise, no further testing is required. For operations where the two-step impairment processquantitative test is used, we first compare the bookcarrying value of net assets to the estimated fair value of the related operations. If the fair value is determined to be less than bookcarrying value, a second step is performedthe shortfall up to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the faircarrying value of the operations, and is compared to its carrying value. The shortfall of the fair value below carrying valuegoodwill represents the amount of goodwill impairment.
We generally estimate the fair values of the related operations using a combination of discounted cash flows.flows and market-based valuation methodologies such as comparable public company trading values. Forecasts of future cash flows are based on our best estimate of future sales, and operating costs, based primarily onand changes in working capital. These forecasts reflect existing firm orders, expected future orders, expected production rates and delivery profiles, contracts with suppliers, labor agreements, and general market conditions. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
The cash flow forecasts are adjusted by an appropriate discount rate derived from our market capitalization plus a suitable control premium at the date of evaluation. Therefore, changes in the stock price may also affect the amount of impairment recorded, if any.
We completed our annual assessment of goodwill as of April 1, 20182020 and determined that there iswas no impairment of goodwill.
As a result of the continuing significant adverse impacts of the COVID-19 pandemic on our Commercial Airplanes and Commercial Services businesses, we concluded it is a triggering event for testing whether goodwill recorded by our Commercial Airplanes and Commercial Services reporting units is impaired. At December 31, 2020, Commercial Airplanes has $1,316 million of goodwill and Commercial Services has $3,087 million. We performed a quantitative test and determined the fair values of our Commercial Airplane and Commercial Services reporting units substantially exceeded their carrying values as of December 31, 2020. As of December 31, 2018,2020, we also estimated that the fair valuevalues of eachour other reporting unitunits significantly exceeded itstheir corresponding carrying value.values.
We will continue to monitor the impacts of the COVID-19 pandemic in future quarters. Changes in our forecasts, discount rates, or decreases in the value of our common stock could cause book values of certain operations to exceed their fair values which may result in goodwill impairment charges in future periods.
As of December 31, 2018 and 2017, we had $490 million of indefinite-lived intangible assets related to the Jeppesen and Aviall brand and trade names acquired in business combinations. We test these intangibles for impairment by comparing their carrying value to current projections of discounted cash flows attributable to the brand and trade names. Any excess carrying value over the amount of discounted cash flows represents the amount of the impairment. A 10% decrease in the discounted cash flows would not impact the carrying value of these indefinite-lived intangible assets.
Pension Plans
The majorityMany of our employees have earned benefits under defined benefit pension plans. Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016. Additional union employees transitioned to company-funded defined contribution retirement savings plans effective January 1, 2019. Accounting rules require an annual measurement of our projected obligation and plan assets. These measurements are based upon several assumptions, including the discount rate and the expected long-term rate of asset return. Future changes in assumptions or differences between actual and expected outcomes can significantly affect our future annual expense, projected benefit obligation and Shareholders’ equity.
The following table showsprojected benefit obligation is sensitive to discount rates. The projected benefit obligation would decrease by $2,591 million or increase by $2,930 million if the sensitivity of our pension plan liability and net periodic cost to adiscount rate increased or decreased by 25 basis points. A 25 basis point change in the discount rate as of December 31, 2018.
|
| | | | | | | |
| (Dollars in millions) | Change in discount rate Increase 25 bps |
| | Change in discount rate Decrease 25 bps |
|
| Pension plans | | | |
| Projected benefit obligation |
| ($1,947 | ) | |
| $2,408 |
|
| Net periodic pension cost | (30 | ) | | 29 |
|
Pensionwould not have a significant impact on pension cost. However, net periodic pension cost is also sensitive to changes in the expected long-term rate of asset return. A decrease or increase of 25 basis points in the expected long-term rate of asset return would have increased or decreased 20182020 net periodic pension cost by $145 million.
Deferred Income Taxes – Valuation Allowance
The Company has deferred income tax assets of $11,600 million at December 31, 2020, that can be used in future years to offset taxable income and reduce income taxes payable. The Company has deferred income tax liabilities of $9,430 million at December 31, 2020, that will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable. Tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years. The particular years in which temporary differences result in taxable or deductible amounts generally are determined by the timing of the recovery of the related asset or settlement of the related liability. The deferred income tax assets and liabilities relate primarily to U.S. federal and state tax jurisdictions.
On a quarterly basis, we assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of such assets will not be realized.
This assessment, which is completed on a taxing jurisdiction basis, takes into account both positive and negative evidence. A recent history of financial reporting losses is heavily weighted as a source of objectively verifiable negative evidence. Cumulative pre-tax losses in the three-year period ending with the current quarter is considered to be significant negative evidence regarding future profitability. If cumulative pre-tax losses adjusted for non-recurring items result in positive normalized earnings that would be considered an objectively verifiable source of positive evidence of the ability of the company to generate positive earnings in the future. When there is a recent history of operating losses and negative normalized earnings and a return to operating profitability has not yet been demonstrated, we cannot rely on projections of future earnings for purposes of assessing recoverability of our deferred tax assets. In such cases, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. The selection of methodologies and assessment of when temporary differences will result in taxable or deductible amounts involves significant management judgment and is inherently complex and subjective. We believe that the methodologies we use are reasonable and can be replicated on a consistent basis in future periods.
As described above, a recent history of financial reporting losses is heavily weighted as a source of objectively verifiable negative evidence of the Company’s ability to generate future taxable income to recover deferred tax assets. During 2019 and 2020 the Company generated significant losses and in the fourth quarter of 2020 the Company reached a three-year cumulative pre-tax loss position. We expect cumulative three-year losses to grow in 2021 as record earnings in 2018 are replaced by 2021 results. We also normalized earnings and other comprehensive income for certain non-recurring items and expect to reach a three-year cumulative loss position in 2021 as record earnings in 2018 are replaced with 2021 results. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses.
Deferred tax liabilities represent the assumed source of future taxable income and the majority are assumed to generate taxable amounts during the next five years.$154Deferred tax assets include amounts
related to pension and other postretirement benefits that are assumed to generate significant deductible amounts beyond five years.The Company’s valuation allowance of $3,094 million at December 31, 2020 primarily relates to pension and other postretirement benefit obligation deferred tax assets that are assumed to reverse beyond the period in which reversals of deferred tax liabilities are assumed to occur.Because the pension and other postretirement benefit obligations are recorded to both continuing operations and other comprehensive income (OCI), the Company recorded a portion of the fourth quarter increase in the valuation allowance to income tax expense in continuing operations ($2,513 million) and a portion to OCI ($196 million).
If the Company continues to generate losses and negative normalized earnings in future periods, additional valuation allowances may have to be recorded with corresponding adverse impacts on earnings and/or OCI. When income generation returns to more normal levels we can expect to see the allowance reverse and increase reported earnings and/or OCI. For additional information regarding income taxes, see Note 4 of the Notes to the Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have financial instruments that are subject to interest rate risk, principally fixed-ratefixed- and floating-rate debt obligations, and customer financing assets and liabilities. Additionally, BCC uses interest rate swaps with certain debt obligations to manage exposure to interest rate changes. Historically, we have not experienced material gains or losses on our customer financing assets and liabilities due to interest rate changes. As of December 31, 2018, the impact over the next 12 months of a 100 basis point rise in interest rates to our pre-tax earnings would not be significant. The investors in our fixed-rate debt obligations do not generally have the right to demand we pay off these obligations prior to maturity. Therefore, exposure to interest rate risk is not believed to be material for our fixed-rate debt. In the first quarter of 2020, we entered into a $13.8 billion two-year delayed draw floating-rate term loan credit agreement. An increase or decrease of 100 basis points in interest rates on this floating-rate debt would increase or decrease our pre-tax earnings by $138 million over the next 12 months. Historically, we have not experienced material gains or losses on our customer financing assets and liabilities due to interest rate changes.
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. We use foreign currency forward contracts to hedge the price risk associated with firmly committed and forecasted foreign denominated payments and receipts related to our ongoing business. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2018,2020, a 10% increase or decrease in the exchange rate in our portfolio of foreign currency contracts would have increased or decreased our unrealized losses by $262$245 million. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the offsetting underlying commitments do not create material market risk.
We are subject to commodity price risk relating to commodity purchase contracts for items used in production that are subject to changes in the market price. We use commodity swaps and commodity purchase contracts to hedge against these potentially unfavorable price changes. Our commodity purchase contracts and derivatives are both sensitive to changes in the market price. At December 31, 2020, a 10% increase or decrease in the market price in our commodity derivatives would have increased or decreased our unrealized losses by $38 million. Consistent with the use of these contracts
to neutralize the effect of market price fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these commodity purchase contracts and the offsetting swaps do not create material market risk.
Item 8. Financial Statements and Supplementary Data
Index to the Consolidated Financial Statements
The Boeing Company and Subsidiaries
Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Sales of products | $47,142 | | | $66,094 | | | $90,229 | |
| Sales of services | 11,016 | | | 10,465 | | | 10,898 | |
| Total revenues | 58,158 | | | 76,559 | | | 101,127 | |
| | | | | |
| Cost of products | (54,568) | | | (62,877) | | | (72,922) | |
| Cost of services | (9,232) | | | (9,154) | | | (8,499) | |
| Boeing Capital interest expense | (43) | | | (62) | | | (69) | |
| Total costs and expenses | (63,843) | | | (72,093) | | | (81,490) | |
| (5,685) | | | 4,466 | | | 19,637 | |
| Income/(loss) from operating investments, net | 9 | | | (4) | | | 111 | |
| General and administrative expense | (4,817) | | | (3,909) | | | (4,567) | |
| Research and development expense, net | (2,476) | | | (3,219) | | | (3,269) | |
| Gain on dispositions, net | 202 | | | 691 | | | 75 | |
| (Loss)/earnings from operations | (12,767) | | | (1,975) | | | 11,987 | |
| Other income, net | 447 | | | 438 | | | 92 | |
| Interest and debt expense | (2,156) | | | (722) | | | (475) | |
| (Loss)/earnings before income taxes | (14,476) | | | (2,259) | | | 11,604 | |
| Income tax benefit/(expense) | 2,535 | | | 1,623 | | | (1,144) | |
| | | | | |
| | | | | |
| Net (loss)/earnings | (11,941) | | | (636) | | | 10,460 | |
| Less: net loss attributable to noncontrolling interest | (68) | | | 0 | | 0 |
| Net (loss)/earnings attributable to Boeing Shareholders | ($11,873) | | | ($636) | | | $10,460 | |
| | | | | |
| | | | | |
| | | | | |
| Basic (loss)/earnings per share | ($20.88) | | | ($1.12) | | | $18.05 | |
| | | | | |
| | | | | |
| | | | | |
| Diluted (loss)/earnings per share | ($20.88) | | | ($1.12) | | | $17.85 | |
|
| | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Sales of products |
| $90,229 |
| |
| $83,740 |
| |
| $83,198 |
|
| Sales of services | 10,898 |
| | 10,265 |
| | 10,298 |
|
| Total revenues | 101,127 |
| | 94,005 |
| | 93,496 |
|
| | | | | | |
| Cost of products | (72,922 | ) | | (68,879 | ) | | (71,013 | ) |
| Cost of services | (8,499 | ) | | (7,663 | ) | | (7,954 | ) |
| Boeing Capital interest expense | (69 | ) | | (70 | ) | | (59 | ) |
| Total costs and expenses | (81,490 | ) | | (76,612 | ) | | (79,026 | ) |
| | 19,637 |
| | 17,393 |
| | 14,470 |
|
| Income from operating investments, net | 111 |
| | 204 |
| | 303 |
|
| General and administrative expense | (4,567 | ) | | (4,095 | ) | | (3,613 | ) |
| Research and development expense, net | (3,269 | ) | | (3,179 | ) | | (4,626 | ) |
| Gain/(loss) on dispositions, net | 75 |
| | 21 |
| | (7 | ) |
| Earnings from operations | 11,987 |
| | 10,344 |
| | 6,527 |
|
| Other income/(loss), net | 92 |
| | 123 |
| | (438 | ) |
| Interest and debt expense | (475 | ) | | (360 | ) | | (306 | ) |
| Earnings before income taxes | 11,604 |
| | 10,107 |
| | 5,783 |
|
| Income tax expense | (1,144 | ) | | (1,649 | ) | | (749 | ) |
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
| | | | | | |
| Basic earnings per share |
| $18.05 |
| |
| $14.03 |
| |
| $7.92 |
|
| | | | | | |
| Diluted earnings per share |
| $17.85 |
| |
| $13.85 |
| |
| $7.83 |
|
See Notes to the Consolidated Financial Statements on pages 5467 – 131.
113.
The Boeing Company and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2020 | | | 2019 | | | 2018 | |
| Net (loss)/earnings | ($11,941) | | | ($636) | | | $10,460 | |
| Other comprehensive income/(loss), net of tax: | | | | | |
| Currency translation adjustments | 98 | | | (27) | | | (86) | |
| Unrealized gain on certain investments, net of tax of $0, $0 and ($1) | 0 | | 1 | | | 2 | |
| Derivative instruments: | | | | | |
| Unrealized gain/(loss) arising during period, net of tax of ($4), $13, and $40 | 14 | | | (48) | | | (146) | |
| Reclassification adjustment for loss included in net earnings, net of tax of ($7), ($7), and ($8) | 27 | | | 26 | | | 30 | |
| Total unrealized gain/(loss) on derivative instruments, net of tax | 41 | | | (22) | | | (116) | |
| Defined benefit pension plans & other postretirement benefits: | | | | | |
| Net actuarial (loss)/gain arising during the period, net of tax of $111, $405, and ($105) | (1,956) | | | (1,413) | | | 384 | |
| Amortization of actuarial losses included in net periodic pension cost, net of tax of ($52), ($133), and ($242) | 917 | | | 464 | | | 878 | |
| Settlements and curtailments included in net income, net of tax of $0, $0, and ($2) | 5 | | | 0 | | 8 | |
| Pension and postretirement benefit related to our equity method investments, net of tax $0, ($5), and ($6) | 0 | | 17 | | | 22 | |
| Amortization of prior service credits included in net periodic pension cost, net of tax of $6, $25, and $39 | (112) | | | (89) | | | (143) | |
| Prior service cost/(credit) arising during the period, net of tax of ($2), $0, and ($94) | 27 | | | (1) | | | 341 | |
| Total defined benefit pension plans & other postretirement benefits, net of tax | (1,119) | | | (1,022) | | | 1,490 | |
| Other comprehensive (loss)/income, net of tax | (980) | | | (1,070) | | | 1,290 | |
| Comprehensive loss related to noncontrolling interests | | | (41) | | | (21) | |
| Comprehensive (loss)/income, net of tax | (12,921) | | | (1,747) | | | 11,729 | |
| Less: Comprehensive loss related to noncontrolling interest | (68) | | | (41) | | | (21) | |
| Comprehensive (loss)/income attributable to Boeing Shareholders, net of tax | ($12,853) | | | ($1,706) | | | $11,750 | |
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
| Other comprehensive income/(loss), net of tax: | | | | | |
| Currency translation adjustments | (86 | ) | | 128 |
| | (104 | ) |
| Unrealized gain/(loss) on certain investments, net of tax of ($1), ($1) and $1 | 2 |
| | 1 |
| | (2 | ) |
| Derivative instruments: | | | | | |
| Unrealized (loss)/gain arising during period, net of tax of $40, ($66), and $4 | (146 | ) | | 119 |
| | (8 | ) |
| Reclassification adjustment for loss included in net earnings, net of tax of ($8), ($28), and ($43) | 30 |
| | 52 |
| | 78 |
|
| Total derivative instruments, net of tax | (116 | ) | | 171 |
| | 70 |
|
| Defined benefit pension plans & other postretirement benefits: | | | | | |
| Net actuarial gain/(loss) arising during the period, net of tax of ($105), $248, and $752 | 384 |
| | (495 | ) | | (1,365 | ) |
| Amortization of actuarial losses included in net periodic pension cost, net of tax of ($242), ($272), and ($288) | 878 |
| | 542 |
| | 524 |
|
| Settlements and curtailments included in net income, net of tax of ($2), $0, and ($7) | 8 |
| |
| | 14 |
|
| Pension and postretirement benefit/(cost) related to our equity method investments, net of tax ($6), $5, and ($7) | 22 |
| | (11 | ) | | 12 |
|
| Amortization of prior service credits included in net periodic pension cost, net of tax of $39, $59, and $31 | (143 | ) | | (117 | ) | | (57 | ) |
| Prior service cost arising during the period, net of tax of ($94), ($14), and ($18) | 341 |
| | 28 |
| | 33 |
|
| Total defined benefit pension plans & other postretirement benefits, net of tax | 1,490 |
| | (53 | ) | | (839 | ) |
| Other comprehensive income/(loss), net of tax | 1,290 |
| | 247 |
| | (875 | ) |
| Comprehensive loss related to noncontrolling interests | (21 | ) | | (2 | ) | | (1 | ) |
| Comprehensive income, net of tax |
| $11,729 |
| |
| $8,703 |
| |
| $4,158 |
|
See Notes to the Consolidated Financial Statements on pages 67 – 131.
54–113.
The Boeing Company and Subsidiaries
Consolidated Statements of Financial Position
| | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | |
| December 31, | 2020 | | 2019 |
| Assets | | | |
| Cash and cash equivalents | $7,752 | | | $9,485 | |
| Short-term and other investments | 17,838 | | | 545 | |
| Accounts receivable, net | 1,955 | | | 3,266 | |
| Unbilled receivables, net | 7,995 | | | 9,043 | |
| Current portion of customer financing, net | 101 | | | 162 | |
| Inventories | 81,715 | | | 76,622 | |
| Other current assets, net | 4,286 | | | 3,106 | |
| Total current assets | 121,642 | | | 102,229 | |
| Customer financing, net | 1,936 | | | 2,136 | |
| Property, plant and equipment, net | 11,820 | | | 12,502 | |
| Goodwill | 8,081 | | | 8,060 | |
| Acquired intangible assets, net | 2,843 | | | 3,338 | |
| Deferred income taxes | 86 | | | 683 | |
| Investments | 1,016 | | | 1,092 | |
| Other assets, net of accumulated amortization of $729 and $580 | 4,712 | | | 3,585 | |
| Total assets | $152,136 | | | $133,625 | |
| Liabilities and equity | | | |
| Accounts payable | $12,928 | | | $15,553 | |
| Accrued liabilities | 22,171 | | | 22,868 | |
| Advances and progress billings | 50,488 | | | 51,551 | |
| Short-term debt and current portion of long-term debt | 1,693 | | | 7,340 | |
| Total current liabilities | 87,280 | | | 97,312 | |
| Deferred income taxes | 1,010 | | | 413 | |
| Accrued retiree health care | 4,137 | | | 4,540 | |
| Accrued pension plan liability, net | 14,408 | | | 16,276 | |
| Other long-term liabilities | 1,486 | | | 3,422 | |
| Long-term debt | 61,890 | | | 19,962 | |
| Total liabilities | 170,211 | | | 141,925 | |
| Shareholders’ equity: | | | |
| Common stock, par value $5.00 – 1,200,000,000 shares authorized; 1,012,261,159 shares issued | 5,061 | | | 5,061 | |
| Additional paid-in capital | 7,787 | | | 6,745 | |
| Treasury stock, at cost | (52,641) | | | (54,914) | |
| Retained earnings | 38,610 | | | 50,644 | |
| Accumulated other comprehensive loss | (17,133) | | | (16,153) | |
| Total shareholders’ deficit | (18,316) | | | (8,617) | |
| Noncontrolling interests | 241 | | | 317 | |
| Total equity | (18,075) | | | (8,300) | |
| Total liabilities and equity | $152,136 | | | $133,625 | |
|
| | | | | | | |
| (Dollars in millions, except per share data) | | | |
| December 31, | 2018 |
| | 2017 |
|
| Assets | | | |
| Cash and cash equivalents |
| $7,637 |
| |
| $8,813 |
|
| Short-term and other investments | 927 |
| | 1,179 |
|
| Accounts receivable, net | 3,879 |
| | 2,894 |
|
| Unbilled receivables, net | 10,025 |
| | 8,194 |
|
| Current portion of customer financing, net | 460 |
| | 309 |
|
| Inventories | 62,567 |
| | 61,388 |
|
| Other current assets | 2,335 |
| | 2,417 |
|
| Total current assets | 87,830 |
| | 85,194 |
|
| Customer financing, net | 2,418 |
| | 2,756 |
|
| Property, plant and equipment, net | 12,645 |
| | 12,672 |
|
| Goodwill | 7,840 |
| | 5,559 |
|
| Acquired intangible assets, net | 3,429 |
| | 2,573 |
|
| Deferred income taxes | 284 |
| | 321 |
|
| Investments | 1,087 |
| | 1,260 |
|
| Other assets, net of accumulated amortization of $503 and $482 | 1,826 |
| | 2,027 |
|
| Total assets |
| $117,359 |
| |
| $112,362 |
|
| Liabilities and equity | | | |
| Accounts payable |
| $12,916 |
| |
| $12,202 |
|
| Accrued liabilities | 14,808 |
| | 13,069 |
|
| Advances and progress billings | 50,676 |
| | 48,042 |
|
| Short-term debt and current portion of long-term debt | 3,190 |
| | 1,335 |
|
| Total current liabilities | 81,590 |
| | 74,648 |
|
| Deferred income taxes | 1,736 |
| | 2,188 |
|
| Accrued retiree health care | 4,584 |
| | 5,545 |
|
| Accrued pension plan liability, net | 15,323 |
| | 16,471 |
|
| Other long-term liabilities | 3,059 |
| | 2,015 |
|
| Long-term debt | 10,657 |
| | 9,782 |
|
| Shareholders’ equity: | | | |
| Common stock, par value $5.00 – 1,200,000,000 shares authorized; 1,012,261,159 shares issued | 5,061 |
| | 5,061 |
|
| Additional paid-in capital | 6,768 |
| | 6,804 |
|
| Treasury stock, at cost | (52,348 | ) | | (43,454 | ) |
| Retained earnings | 55,941 |
| | 49,618 |
|
| Accumulated other comprehensive loss | (15,083 | ) | | (16,373 | ) |
| Total shareholders’ equity | 339 |
| | 1,656 |
|
| Noncontrolling interests | 71 |
| | 57 |
|
| Total equity | 410 |
| | 1,713 |
|
| Total liabilities and equity |
| $117,359 |
| |
| $112,362 |
|
See Notes to the Consolidated Financial Statements on pages 5467 – 113.
50
The Boeing Company and Subsidiaries
Consolidated Statements of Cash Flows | | | (Dollars in millions) | | | | | | (Dollars in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Cash flows – operating activities: | | | | | | Cash flows – operating activities: | |
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
| |
| Net (loss)/earnings | | Net (loss)/earnings | ($11,941) | | | ($636) | | | $10,460 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | Adjustments to reconcile net earnings to net cash provided by operating activities: | |
| Non-cash items – | | | | | | Non-cash items – | |
| Share-based plans expense | 202 |
| | 202 |
| | 190 |
| Share-based plans expense | 250 | | | 212 | | | 202 | |
| Treasury shares issued for 401(k) contribution | | Treasury shares issued for 401(k) contribution | 195 | | |
| Depreciation and amortization | 2,114 |
| | 2,047 |
| | 1,889 |
| Depreciation and amortization | 2,246 | | | 2,271 | | | 2,114 | |
| Investment/asset impairment charges, net | 93 |
| | 113 |
| | 90 |
| Investment/asset impairment charges, net | 410 | | | 443 | | | 93 | |
| Customer financing valuation (benefit)/expense | (3 | ) | | 2 |
| | (7 | ) | |
| (Gain)/loss on dispositions, net | (75 | ) | | (21 | ) | | 7 |
| |
| Customer financing valuation adjustments | | Customer financing valuation adjustments | 12 | | | 250 | | | (3) | |
| | Gain on dispositions, net | | Gain on dispositions, net | (202) | | | (691) | | | (75) | |
| 777X reach-forward loss | | 777X reach-forward loss | 6,493 | | |
| Other charges and credits, net | 247 |
| | 293 |
| | 371 |
| Other charges and credits, net | 1,462 | | | 334 | | | 247 | |
| | Changes in assets and liabilities – | | | | | | Changes in assets and liabilities – | |
| Accounts receivable | (795 | ) | | (840 | ) | | 326 |
| Accounts receivable | 909 | | | 603 | | | (795) | |
| Unbilled receivables | (1,826 | ) | | (1,600 | ) | | 792 |
| Unbilled receivables | 919 | | | 982 | | | (1,826) | |
| Advances and progress billings | 2,636 |
| | 4,700 |
| | (1,362 | ) | Advances and progress billings | (1,060) | | | 737 | | | 2,636 | |
| Inventories | 568 |
| | (1,403 | ) | | 4,004 |
| Inventories | (11,002) | | | (12,391) | | | 568 | |
| Other current assets | 98 |
| | (19 | ) | | (200 | ) | Other current assets | 372 | | | (682) | | | 98 | |
| Accounts payable | 2 |
| | 130 |
| | 622 |
| Accounts payable | (5,363) | | | 1,600 | | | 2 | |
| Accrued liabilities | 1,117 |
| | 335 |
| | 312 |
| Accrued liabilities | 1,074 | | | 7,781 | | | 1,117 | |
| Income taxes receivable, payable and deferred | (180 | ) | | 656 |
| | (734 | ) | Income taxes receivable, payable and deferred | (2,576) | | | (2,476) | | | (180) | |
| Other long-term liabilities | 87 |
| | 94 |
| | (68 | ) | Other long-term liabilities | (222) | | | (621) | | | 87 | |
| Pension and other postretirement plans | (153 | ) | | (582 | ) | | 153 |
| Pension and other postretirement plans | (794) | | | (777) | | | (153) | |
| Customer financing, net | 120 |
| | 1,041 |
| | (662 | ) | Customer financing, net | 173 | | | 419 | | | 120 | |
| Other | 610 |
| | (260 | ) | | (261 | ) | Other | 235 | | | 196 | | | 610 | |
| Net cash provided by operating activities | 15,322 |
| | 13,346 |
| | 10,496 |
| |
| Net cash (used)/provided by operating activities | | Net cash (used)/provided by operating activities | (18,410) | | | (2,446) | | | 15,322 | |
| Cash flows – investing activities: | | | | | | Cash flows – investing activities: | |
| Property, plant and equipment additions | (1,722 | ) | | (1,739 | ) | | (2,613 | ) | Property, plant and equipment additions | (1,303) | | | (1,834) | | | (1,722) | |
| Property, plant and equipment reductions | 120 |
| | 92 |
| | 38 |
| Property, plant and equipment reductions | 296 | | | 334 | | | 120 | |
| Acquisitions, net of cash acquired | (3,230 | ) | | (324 | ) | | (297 | ) | Acquisitions, net of cash acquired | | (455) | | | (3,230) | |
| Proceeds from dispositions | | Proceeds from dispositions | | 464 | | |
| Contributions to investments | (2,607 | ) | | (3,569 | ) | | (1,719 | ) | Contributions to investments | (37,616) | | | (1,658) | | | (2,607) | |
| Proceeds from investments | 2,898 |
| | 3,607 |
| | 1,206 |
| Proceeds from investments | 20,275 | | | 1,759 | | | 2,898 | |
| Purchase of distribution rights | (69 | ) | | (131 | ) | | | Purchase of distribution rights | | (127) | | | (69) | |
| Other | (11 | ) | | 6 |
| | 7 |
| Other | (18) | | | (13) | | | (11) | |
| Net cash used by investing activities | (4,621 | ) | | (2,058 | ) | | (3,378 | ) | Net cash used by investing activities | (18,366) | | | (1,530) | | | (4,621) | |
| Cash flows – financing activities: | | | | | | Cash flows – financing activities: | |
| New borrowings | 8,548 |
| | 2,077 |
| | 1,325 |
| New borrowings | 47,248 | | | 25,389 | | | 8,548 | |
| Debt repayments | (7,183 | ) | | (953 | ) | | (1,359 | ) | Debt repayments | (10,998) | | | (12,171) | | | (7,183) | |
| Repayments of distribution rights and other asset financing |
|
| |
|
| | (24 | ) | |
| | Contributions from noncontrolling interests | 35 |
| |
|
| |
|
| Contributions from noncontrolling interests | | 7 | | | 35 | |
| | Stock options exercised | 81 |
| | 311 |
| | 321 |
| Stock options exercised | 36 | | | 58 | | | 81 | |
| | Employee taxes on certain share-based payment arrangements | (257 | ) | | (132 | ) | | (93 | ) | Employee taxes on certain share-based payment arrangements | (173) | | | (248) | | | (257) | |
| Common shares repurchased | (9,000 | ) | | (9,236 | ) | | (7,001 | ) | Common shares repurchased | | (2,651) | | | (9,000) | |
| Dividends paid | (3,946 | ) | | (3,417 | ) | | (2,756 | ) | Dividends paid | (1,158) | | | (4,630) | | | (3,946) | |
| Net cash used by financing activities | (11,722 | ) | | (11,350 | ) | | (9,587 | ) | |
| Other | | Other | | (15) | | |
| Net cash provided/(used) by financing activities | | Net cash provided/(used) by financing activities | 34,955 | | | 5,739 | | | (11,722) | |
| Effect of exchange rate changes on cash and cash equivalents | (53 | ) | | 80 |
| | (33 | ) | Effect of exchange rate changes on cash and cash equivalents | 85 | | | (5) | | | (53) | |
| Net (decrease) / increase in cash & cash equivalents, including restricted | (1,074 | ) | | 18 |
| | (2,502 | ) | |
| Net (decrease)/increase in cash & cash equivalents, including restricted | | Net (decrease)/increase in cash & cash equivalents, including restricted | (1,736) | | | 1,758 | | | (1,074) | |
| Cash & cash equivalents, including restricted, at beginning of year | 8,887 |
| | 8,869 |
| | 11,371 |
| Cash & cash equivalents, including restricted, at beginning of year | 9,571 | | | 7,813 | | | 8,887 | |
| Cash & cash equivalents, including restricted, at end of year | 7,813 |
| | 8,887 |
| | 8,869 |
| Cash & cash equivalents, including restricted, at end of year | 7,835 | | | 9,571 | | | 7,813 | |
| Less restricted cash & cash equivalents, included in Investments | 176 |
| | 74 |
| | 68 |
| Less restricted cash & cash equivalents, included in Investments | 83 | | | 86 | | | 176 | |
| Cash and cash equivalents at end of year |
| $7,637 |
| |
| $8,813 |
| |
| $8,801 |
| Cash and cash equivalents at end of year | $7,752 | | | $9,485 | | | $7,637 | |
See Notes to the Consolidated Financial Statements on pages 5467 – 113.
51
The Boeing Company and Subsidiaries
Consolidated Statements of Equity
| | | | Boeing shareholders | | | Boeing shareholders | |
| (Dollars in millions, except per share data) | Common
Stock |
| Additional
Paid-In
Capital |
| Treasury
Stock |
| Retained
Earnings |
| Accumulated
Other
Comprehensive
Loss |
| Non-
controlling
Interest |
| Total |
| (Dollars in millions, except per share data) | Common
Stock | Additional
Paid-In
Capital | Treasury
Stock | | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Non-
controlling
Interest | Total |
| Balance at January 1, 2016 |
| $5,061 |
|
| $4,834 |
|
| ($29,568 | ) |
| $39,657 |
|
| ($12,748 | ) |
| $62 |
|
| $7,298 |
| |
| Net earnings | | | 5,034 |
| | (1 | ) | 5,033 |
| |
| Other comprehensive income, net of tax of $425 | | (875 | ) | | (875 | ) | |
| Balance at January 1, 2018 | | Balance at January 1, 2018 | $5,061 | | $6,804 | | ($43,454) | | | $49,618 | | ($16,373) | | $57 | | $1,713 | |
| Net earnings/(loss) | | Net earnings/(loss) | | | 10,460 | | | (21) | | 10,439 | |
| Other comprehensive income, net of tax of ($379) | | Other comprehensive income, net of tax of ($379) | | | | 1,290 | | | 1,290 | |
| Share-based compensation and related dividend equivalents | | 244 |
| | (35 | ) | | 209 |
| Share-based compensation and related dividend equivalents | | 238 | | | | (36) | | | 202 | |
| Excess tax pools | | (84 | ) | | (84 | ) | |
| | Treasury shares issued for stock options exercised, net | | (63 | ) | 383 |
| | 320 |
| Treasury shares issued for stock options exercised, net | | (45) | | 126 | | | | 81 | |
| Treasury shares issued for other share-based plans, net | | (169 | ) | 89 |
| | (80 | ) | Treasury shares issued for other share-based plans, net | | (229) | | (20) | | | | (249) | |
| Common shares repurchased | | (7,001 | ) | | (7,001 | ) | |
| Cash dividends declared ($4.69 per share) | | (2,902 | ) | | (2,902 | ) | |
| Changes in noncontrolling interests | | (1 | ) | (1 | ) | |
| Balance at December 31, 2016 |
| $5,061 |
|
| $4,762 |
|
| ($36,097 | ) |
| $41,754 |
|
| ($13,623 | ) |
| $60 |
|
| $1,917 |
| |
| Net earnings | | 8,458 |
| | (2 | ) | 8,456 |
| |
| Impact of ASU 2018-02 | | 2,997 |
| (2,997 | ) | | — |
| |
| Other comprehensive loss, net of tax of ($69) | | 247 |
| | 247 |
| |
| Share-based compensation and related dividend equivalents | | 238 |
| | (35 | ) | | 203 |
| |
| Treasury shares issued for stock options exercised, net | | (88 | ) | 399 |
| | 311 |
| |
| Treasury shares issued for other share-based plans, net | | (190 | ) | 62 |
| | (128 | ) | |
| Treasury shares contributed to pension plans | | 2,082 |
| 1,418 |
| | 3,500 |
| |
| Common shares repurchased | | (9,236 | ) | | (9,236 | ) | |
| Cash dividends declared ($5.97 per share) | | (3,556 | ) | | (3,556 | ) | |
| Changes in noncontrolling interests | | (1 | ) | (1 | ) | |
| Balance at December 31, 2017 |
| $5,061 |
|
| $6,804 |
|
| ($43,454 | ) |
| $49,618 |
|
| ($16,373 | ) |
| $57 |
|
| $1,713 |
| |
| Net earnings | | 10,460 |
| | (21 | ) | 10,439 |
| |
Other comprehensive income, net of tax of ($379)
| | 1,290 |
| | 1,290 |
| |
| Share-based compensation and related dividend equivalents | | 238 |
| | (36 | ) | | 202 |
| |
| Treasury shares issued for stock options exercised, net | | (45 | ) | 126 |
| | 81 |
| |
| Treasury shares issued for other share-based plans, net | | (229 | ) | (20 | ) | | (249 | ) | |
| | Common shares repurchased | | (9,000 | ) | | (9,000 | ) | Common shares repurchased | | (9,000) | | | | (9,000) | |
| Cash dividends declared ($7.19 per share) | | (4,101 | ) | | (4,101 | ) | Cash dividends declared ($7.19 per share) | | | (4,101) | | | (4,101) | |
| Changes in noncontrolling interests | | 35 |
| 35 |
| Changes in noncontrolling interests | | | | 35 | | 35 | |
| Balance at December 31, 2018 |
| $5,061 |
|
| $6,768 |
|
| ($52,348 | ) |
| $55,941 |
|
| ($15,083 | ) |
| $71 |
|
| $410 |
| Balance at December 31, 2018 | $5,061 | | $6,768 | | ($52,348) | | | $55,941 | | ($15,083) | | $71 | | $410 | |
| Net loss | | Net loss | | | (636) | | | (41) | | (677) | |
| Other comprehensive loss, net of tax of $298 | | Other comprehensive loss, net of tax of $298 | | | | (1,070) | | | (1,070) | |
| Share-based compensation and related dividend equivalents | | Share-based compensation and related dividend equivalents | | 245 | | | | (33) | | | 212 | |
| | Treasury shares issued for stock options exercised, net | | Treasury shares issued for stock options exercised, net | | (47) | | 104 | | | | 57 | |
| Treasury shares issued for other share-based plans, net | | Treasury shares issued for other share-based plans, net | | (221) | | (19) | | | | (240) | |
| | Common shares repurchased | | Common shares repurchased | | (2,651) | | | | (2,651) | |
| Cash dividends declared ($8.22 per share) | | Cash dividends declared ($8.22 per share) | | | (4,628) | | | (4,628) | |
| Changes in noncontrolling interests | | Changes in noncontrolling interests | | | | 287 | | 287 | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $5,061 | | $6,745 | | ($54,914) | | | $50,644 | | ($16,153) | | $317 | | ($8,300) | |
| Impact of ASU 2016-13 | | Impact of ASU 2016-13 | | | (162) | | | (162) | |
| Balance at January 1, 2020 | | Balance at January 1, 2020 | $5,061 | | $6,745 | | ($54,914) | | | $50,482 | | ($16,153) | | $317 | | ($8,462) | |
| Net loss | | Net loss | | | (11,873) | | | (68) | | (11,941) | |
| Other comprehensive loss, net of tax of $52 | | Other comprehensive loss, net of tax of $52 | | | | (980) | | | (980) | |
| Share-based compensation | | Share-based compensation | | 250 | | | | | 250 | |
| | Treasury shares issued for stock options exercised, net | | Treasury shares issued for stock options exercised, net | | (26) | | 63 | | | | 37 | |
| Treasury shares issued for other share-based plans, net | | Treasury shares issued for other share-based plans, net | | (214) | | 47 | | | | (167) | |
| Treasury shares contributed to pension plans | | Treasury shares contributed to pension plans | | 952 | | 2,048 | | | | 3,000 | |
| | Treasury shares issued for 401(k) contribution | | Treasury shares issued for 401(k) contribution | | 80 | | 115 | | | | 195 | |
| Changes in noncontrolling interests | | Changes in noncontrolling interests | | | | (8) | | (8) | |
| Other | | Other | | | 1 | | | 1 | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | $5,061 | | $7,787 | | ($52,641) | | | $38,610 | | ($17,133) | | $241 | | ($18,075) | |
See Notes to the Consolidated Financial Statements on pages 5467 – 113.
52
The Boeing Company and Subsidiaries
Notes to the Consolidated Financial Statements
Summary of Business Segment Data
|
| | | | | | | | | | | |
| (Dollars in millions) | | | | | |
Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Revenues: | | | | | |
| Commercial Airplanes |
| $60,715 |
| |
| $58,014 |
| |
| $59,378 |
|
| Defense, Space & Security | 23,195 |
| | 20,561 |
| | 20,180 |
|
| Global Services | 17,018 |
| | 14,581 |
| | 13,819 |
|
| Boeing Capital | 274 |
| | 307 |
| | 298 |
|
| Unallocated items, eliminations and other | (75 | ) | | 542 |
| | (179 | ) |
| Total revenues |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
|
| Earnings from operations: | | | | | |
| Commercial Airplanes |
| $7,879 |
| |
| $5,452 |
| |
| $1,981 |
|
| Defense, Space & Security | 1,594 |
| | 2,193 |
| | 1,678 |
|
| Global Services | 2,522 |
| | 2,246 |
| | 2,159 |
|
| Boeing Capital | 79 |
| | 114 |
| | 59 |
|
| Segment operating profit | 12,074 |
| | 10,005 |
| | 5,877 |
|
| Unallocated items, eliminations and other | (1,414 | ) | | (1,099 | ) | | (707 | ) |
| FAS/CAS service cost adjustment | 1,327 |
| | 1,438 |
| | 1,357 |
|
| Earnings from operations | 11,987 |
| | 10,344 |
| | 6,527 |
|
| Other income/(loss), net | 92 |
| | 123 |
| | (438 | ) |
| Interest and debt expense | (475 | ) | | (360 | ) | | (306 | ) |
| Earnings before income taxes | 11,604 |
| | 10,107 |
| | 5,783 |
|
| Income tax expense | (1,144 | ) | | (1,649 | ) | | (749 | ) |
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
| | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | |
Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenues: | | | | | |
| Commercial Airplanes | $16,162 | | | $32,255 | | | $57,499 | |
| Defense, Space & Security | 26,257 | | | 26,095 | | | 26,300 | |
| Global Services | 15,543 | | | 18,468 | | | 17,056 | |
| Boeing Capital | 261 | | | 244 | | | 274 | |
| Unallocated items, eliminations and other | (65) | | | (503) | | | (2) | |
| Total revenues | $58,158 | | | $76,559 | | | $101,127 | |
| (Loss)/earnings from operations: | | | | | |
| Commercial Airplanes | ($13,847) | | | ($6,657) | | | $7,830 | |
| Defense, Space & Security | 1,539 | | | 2,615 | | | 1,692 | |
| Global Services | 450 | | | 2,697 | | | 2,536 | |
| Boeing Capital | 63 | | | 28 | | | 79 | |
| Segment operating (loss)/earnings | (11,795) | | | (1,317) | | | 12,137 | |
| Unallocated items, eliminations and other | (2,355) | | | (2,073) | | | (1,477) | |
| FAS/CAS service cost adjustment | 1,383 | | | 1,415 | | | 1,327 | |
| (Loss)/earnings from operations | (12,767) | | | (1,975) | | | 11,987 | |
| Other income, net | 447 | | | 438 | | | 92 | |
| Interest and debt expense | (2,156) | | | (722) | | | (475) | |
| (Loss)/earnings before income taxes | (14,476) | | | (2,259) | | | 11,604 | |
| Income tax benefit/(expense) | 2,535 | | | 1,623 | | | (1,144) | |
| | | | | |
| | | | | |
| Net (loss)/earnings | (11,941) | | | (636) | | | 10,460 | |
| Less: net loss attributable to noncontrolling interest | (68) | | | | | |
| Net (loss)/earnings attributable to Boeing Shareholders | ($11,873) | | | ($636) | | | $10,460 | |
This information is an integral part of the Notes to the Consolidated Financial Statements. See Note 2322 for further segment results.
The Boeing Company and Subsidiaries
Notes to the Consolidated Financial Statements
Years ended December 31, 2018, 20172020, 2019 and 20162018
(Dollars in millions, except per share data)otherwise stated)
Note 1 – Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing,” the “Company,” “we,” “us,” or “our”). These statements include the accounts of all majority-owned subsidiaries and variable interest entities that are required to be consolidated. All significant intercompany accounts and transactions have been eliminated. As described in Note 23, effective July 1, 2017,22, we now operate in four4 reportable segments: Commercial Airplanes (BCA); Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC). Effective at the beginning of 2020, certain programs were realigned between our BDS segment and Unallocated items, eliminations and other. Amounts in prior periods have been reclassified to conform to the current year presentation.
Liquidity Matters
The global outbreak of COVID-19 and the grounding of the 737 MAX airplane are having a significant adverse impact on our business and are expected to continue to negatively impact revenue, earnings and operating cash flow in future quarters. The COVID-19 pandemic has caused an unprecedented shock to demand for air travel, creating a tremendous challenge for our customers, our business and the entire aerospace manufacturing and services sector. We currently expect it will take approximately three years for travel to return to 2019 levels and a few years beyond that for the industry to return to long-term trend growth. There is significant uncertainty with respect to when commercial air traffic levels will recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.
During 2020, net cash used by operating activities was $18.4 billion, and we expect negative operating cash flows in future quarters until commercial deliveries ramp up. In the first quarter of 2020, we entered into and fully drew on a $13.8 billion two-year delayed draw term loan credit agreement (delayed draw term loan facility). In the second quarter of 2020, we issued $25 billion of fixed rate senior notes that mature between 2023 and 2060. In the fourth quarter of 2020, we issued $4.9 billion of fixed rate senior notes that mature between 2024 and 2031. As a result, our cash and short-term investment balance was $25.6 billion and our debt balance was $63.6 billion at December 31, 2020.
The major credit rating agencies downgraded our short term and long term credit ratings during 2020, and there is risk for further downgrades. At December 31, 2020, our debt balance includes no commercial paper borrowings compared to $6.1 billion at December 31, 2019. In the current environment, we may have limited future access to the commercial paper market. In addition, we have term notes of $1.5 billion maturing in 2021.
At December 31, 2020, trade payables included $3.8 billion payable to suppliers who have elected to participate in supply chain financing programs. While access to supply chain financing has been reduced due to our current credit ratings and debt levels, we do not believe that these or future changes in the availability of supply chain financing will have a significant impact on our liquidity.
At December 31, 2020, we had $9.5 billion of unused borrowing capacity on revolving credit agreements. We anticipate that these credit lines will primarily serve as back-up liquidity to support our general corporate borrowing needs. Our borrowing capacity includes a $3.1 billion 364-day revolving credit facility, which is set to expire in October 2021.
In addition to our debt issuances, we have taken a number of actions to improve liquidity. During the first quarter of 2020, our Board of Directors terminated its prior authorization to repurchase shares of the Company’s outstanding common stock and suspended the declaration and/or payment of dividends until further notice. We have also reduced production rates in our commercial business to reflect the impact of COVID-19 on the industry. We are executing on our plans to reduce our workforce through a combination of voluntary and involuntary layoffs and natural turnover. During 2020, we recorded severance costs for approximately 26,000 employees, of which approximately 18,000 have left the Company as of December 31, 2020, and the remainder are expected to leave in 2021. In the fourth quarter of 2020, we began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans. In December 2020, we awarded most of our employees a one-time stock grant that will vest in three years in lieu of merit increases. We expect these actions to further enable the Company to conserve cash.
We are also working with our customers and supply chain to accelerate receipts and conserve cash. For example, the United States Department of Defense (U.S. DoD) has taken steps to work with its industry partners to increase liquidity in the form of increased progress payment rates and reductions in withholds among other initiatives. We are also deferring certain tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
We have reduced discretionary spending, including reducing or deferring research and development and capital expenditures.
In July 2020, we announced our business transformation efforts to assess our business across five key pillars – infrastructure, overhead and organization, portfolio and investments, supply chain health and operational excellence. Within the infrastructure pillar we are assessing our overall facility requirements in light of reduced demand in our commercial businesses and remote and virtual work opportunities for large numbers of our workforce. We also anticipate a reduction in office space needs compared to our current capacity. However, as we consolidate our footprint, we may incur near term adverse impacts to earnings. The overhead and organization pillar is focused on our cost structure and how we are organized so we can right size our workforce and simplify and reduce management layers and bureaucracy. The portfolio and investments pillar includes aligning our portfolio and investments to focus on our core business and the changes in market conditions. The supply chain pillar is focused on supply chain health and stability, reducing indirect procurement spend and streamlining our transportation, logistics and warehousing approach. The operational excellence pillar is focused on improving performance, enhancing quality and reducing rework. These activities are not intended to constrain our capacity, but to enable the Company to emerge stronger and be more resilient when the market recovers.
Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, our ability to successfully implement further actions to improve liquidity as well as our ability to access additional liquidity, if needed, we believe it is probable that we will be able to fund our operations for the foreseeable future.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ActualWe believe that the accounting estimates and assumptions are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ from those estimates.
Operating Cycle
For classification of certain current assets and liabilities, we use the duration of the related contract or program as our operating cycle, which is generally longer than one year.
Standards Issued and Implemented
In the first quarter of 2018,2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using a modified retrospective method, which resulted in the following Accounting Standards Updates (ASUs): ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2017-07,Compensation - Retirement Benefits (Topic 715): Improving the Presentationrecognition of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; ASU 2016-18allowances for credit losses on our Consolidated Statement of Cash Flows (Topic 230): Restricted Cash;ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): ReclassificationFinancial Position as of Certain Tax Effects from Accumulated Other Comprehensive Income.January 1, 2020 and a $162 cumulative-effect adjustment to retained earnings to align our credit loss methodology with the new standard. The standard replaces the incurred loss impairment methodology under Topic 310 with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and certain other financial assets. See Notes 5, 6, 9 and 14 for additional disclosures.
The impact of the adoption of these standards to our Consolidated Financial Statements is presented in Note 2 and the additional disclosures are shown in Notes 9and 23.
ASU 2014-09In the first quarter of 2018,2020, we also adopted ASU 2014-09, Revenue2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the quantitative impairment test from Contracts with Customers (Topic 606),a two-step process to a one-step process. The quantitative test is performed by comparing the carrying value of net assets to the estimated fair value of the related operations. If the fair value is determined to be less than carrying value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment. The standard continues to permit a company to test goodwill for impairment by performing a qualitative assessment or using the full retrospective method. Topic 606 requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services.
Most of our defense contracts at our BDS and BGS segments and certain military derivative aircraft contracts at our BCA segment now recognize revenue under the new standard as costs are incurred. Under previous GAAP, revenue was generally recognized when deliveries were made, performance milestones were attained, or as costs were incurred. The new standard accelerates the timing of when the revenue is recognized, however, it does not change the total amount of revenue recognized on these contracts. The new standard does not affect revenue recognition or the use of program accounting for commercial airplane contracts in our BCA business. We continue to recognize revenue for these contracts
at the point in time when the customer accepts delivery of the airplane. The adoption resulted in a cumulative adjustment to increase Retained earnings by $901 at January 1, 2016, an increase of $139 to Net earnings for the year ended December 31, 2016, and an increase of $261 to Net earnings for the year ended December 31, 2017.
ASU 2017-07 In the first quarter of 2018, we adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.The standard requires non-service cost components of net periodic benefit cost to be presented in non-operating earnings using a retrospective transition method. We applied a practical expedient as the estimation basis for the reclassification of prior period non-service cost components of net periodic benefit cost from Earnings from operations to Other income/(loss), net. Through the end of 2017, a portion of net periodic pension and other postretirement income or expense was not recognized in net earnings in the year incurred because it was allocated to production as product costs, and reflected in inventory at the end of the reporting periods. Effective January 1, 2018, in accordance with our adoption of ASU 2017-07, only service costs may be allocated to production costs and capitalized in inventory on a prospective basis. The impact of adoption was not material.
ASU 2016-18In the first quarter of 2018, we adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The standard requires companies to include restricted amounts with Cash & cash equivalents when reconciling the beginning and end of period total amounts shown on the Statements of Cash Flows. The impact of adoption was not material.
ASU 2018-02 In the first quarter of 2018, we early adopted ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows companies to reclassify from Accumulated other comprehensive income/loss to Retained earnings the difference between the historical corporate income tax rate of 35% and the 21% rate enacted in the Tax Cuts and Jobs Act (TCJA) in December 2017. This resulted in an increase of $2,997 to Retained earnings and an increase of $2,997 to Accumulated other comprehensive loss.quantitative test.
Revenue and Related Cost Recognition
Commercial aircraft contracts The majority of our BCA segment revenue is derived from commercial aircraft contracts. For each contract, we determine the transaction price based on the consideration expected to be received. We allocate the transaction price to each commercial aircraft performance obligation based on relative standalone selling prices adjusted by an escalation formula as specified in the customer agreement. Revenue is recognized for each commercial aircraft performance obligation at the point in time when the aircraft is completed and accepted by the customer. We use program accounting to determine the amount reported as cost of sales.
WhereIn certain situations, where an aircraft is still in our possession, and title and risk of loss has passed to the customer (known as a bill-and-hold arrangement), revenue will be recognized when all specific requirements for transfer of control under a bill-and-hold arrangement have been met.
Payments for commercial aircraft sales are received in accordance with the customer agreement, which generally includes a deposit upon order and additional payments in accordance with a payment schedule, with the balance being due immediately prior to or at aircraft delivery. Advances and progress billings (contract liabilities) are normal and customary for commercial aircraft contracts and not considered a significant financing component as they are intended to protect us from the other party failing to adequately complete some or all of its obligations under the contract.
Long-term contracts Substantially all contracts at BDS, certain military derivative aircraft contracts at BCA and certain contracts at BGS are long-term contracts with the U.S. government and other customers that generally extend over several years. Products sales under long-term contracts primarily include fighter
jets, rotorcraft, cybersecurity products, surveillance suites, advanced weapons, missile defense, military derivative aircraft, satellite systems, and modification of commercial passenger aircraft to cargo freighters. Services sales under long-term contracts primarily include support and maintenance agreements associated with our commercial and defense products and space travel on Commercial Crew.
For each long-term contract, we determine the transaction price based on the consideration expected to be received. We allocate the transaction price to each distinct performance obligation to deliver a good or service, or a collection of goods and/or services, based on the relative standalone selling prices. A long-term contract will typically represent a single distinct performance obligation due to the highly interdependent and interrelated nature of the underlying goods and/or services and the significant service of integration that we provide. While the scope and price on certain long-term contracts may be modified over their life, the transaction price is based on current rights and obligations under the contract and does not include potential modifications until they are agreed upon with the customer. When applicable, a cumulative adjustment or separate recognition for the additional scope and price may result. Long-term contracts can be negotiated with a fixed price or a price in which we are reimbursed for costs incurred plus an agreed upon profit. The Federal Acquisition Regulations provide guidance on the types of cost that will be reimbursed in establishing the price for contracts with the U.S. government. Certain long-term contracts include in the transaction price variable consideration, such as incentive and award fees, if specified targets are achieved. The amount included in the transaction price represents the expected value, based on a weighted probability, or the most likely amount.
Long-term contract revenue is recognized over the contract term (over time) as the work progresses, either as products are produced or as services are rendered. We generally recognize revenue over time as we perform on long-term contracts because of continuous transfer of control to the customer. For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, for non-U.S. government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment of the transaction price associated with work performed to date on products or services that do not have an alternative use to the Company.
The accounting for long-term contracts involves a judgmental process of estimating total sales,, costs and profit for each performance obligation. Cost of sales is recognized as incurred. The amount reported as revenues is determined by adding a proportionate amount of the estimated profit to the amount reported as cost of sales. Recognizing revenue as costs are incurred provides an objective measure of progress on the long-term contract and thereby best depicts the extent of transfer of control to the customer.
Changes in estimated revenues, cost of sales and the related effect on operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a long-term contract’s percentage-of-completion. When the current estimates of total sales and costs for a long-term contract indicate a loss, a provision for the entire reach-forward loss on the long-term contract is recognized.
Net cumulative catch-up adjustments to prior years' revenue and earnings, including certain reach-forward losses, across all long-term contracts were as follows:
|
| | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Increase to Revenue |
| $137 |
| |
| $559 |
| |
| $394 |
|
| Increase/(decrease) to Earnings from Operations |
| ($190 | ) | |
| $250 |
| |
| ($263 | ) |
| Increase/(decrease) to Diluted EPS |
| ($0.29 | ) | |
| $0.34 |
| |
| ($0.36 | ) |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| (Decrease)/Increase to Revenue | ($359) | | | $54 | | | $137 | |
| Increase to Loss/decrease to Earnings from operations | ($942) | | | ($111) | | | ($190) | |
| Decrease to Diluted EPS | ($1.37) | | | ($0.06) | | | ($0.29) | |
Significant adjustments during the three years ended December 31, 20182020 included reach-forward losses of $953, $148 and $736 $445 and $1,127 on the USAF KC-46A Tanker contract recorded during 2020, 2019, and 2018, 2017 and 2016.
Due to the significance of judgment in the estimation process, changes in underlying assumptions/estimates, supplier performance, or circumstances may adversely or positively affect financial performance in future periods.
Payments under long-term contracts may be received before or after revenue is recognized. The U.S. government customer typically withholds payment of a small portion of the contract price until contract completion. Therefore, long-term contracts typically generate Unbilled receivables (contract assets) but may generate Advances and progress billings (contract liabilities). Long-term contract Unbilled receivables and Advances and progress billings are not considered a significant financing component because they are intended to protect either the customer or the Company in the event that some or all of the obligations under the contract are not completed.
Commercial spare parts contracts Certain contracts at our BGS segment include sales of commercial spare parts. For each contract, we determine the transaction price based on the consideration expected to be received. The spare parts have discrete unit prices that represent fair value. We generally consider each spare part to be a separate performance obligation. Revenue is recognized for each commercial spare part performance obligation at the point in time of delivery to the customer. We may provide our customers with a right to return a commercial spare part where a customer may receive a full or partial refund, a credit applied to amounts owed, a different product in exchange, or any combination of these items. We consider the potential for customer returns in the estimated transaction price. The amount reported as cost of sales is recorded at average cost. Payments for commercial spare parts sales are typically received shortly after delivery.
Other service revenue contracts Certain contracts at our BGS segment are for sales of services to commercial customers including maintenance, training, data analytics and information-based services. We recognize revenue for these service performance obligations over time as the services are rendered. The method of measuring progress (such as straight-line or billable amount) varies depending upon which method best depicts the transfer of control to the customer based on the type of service performed. Cost of sales is recorded as incurred.
Concession Sharing Arrangements We account for sales concessions to our customers in consideration of their purchase of products and services as a reduction of the transaction price and the revenue that is recognized for the related performance obligations. The sales concessions incurred may be partially reimbursed by certain suppliers in accordance with concession sharing arrangements. We record these reimbursements, which are presumed to represent reductions in the price of the vendor’s products or services, as a reduction in Cost of products.
Unbilled Receivables and Advances and Progress Billings
Unbilled receivables (contract assets) arise when the Company recognizes revenue for amounts which cannot yet be billed under terms of the contract with the customer. Advances and progress billings (contract liabilities) arise when the Company receives payments from customers in advance of recognizing revenue. The amount of Unbilled receivables or Advances and progress billings is determined for each contract.contract.
Financial Services Revenue We record financial services revenue associated with sales-type/finance leases, operating leases, and notes receivable.
Lease and financing revenue arrangements are included in Sales of services on the Consolidated Statements of Operations. For sales-type/finance leases, we record an assetfinancing receivables at lease inception. This assetA financing receivable is recorded at the aggregate of future minimum lease payments, estimated residual value of the leased equipment, and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. Income recognition is generally suspended for financing receivables at the date full recovery of income and principal becomes not probable. Income is recognized when financing receivables become contractually current and performance is demonstrated by the customer.Residual
values, which are reviewed periodically, represent the estimated amount we expect to receive at lease termination from the disposition of the leased equipment. Actual residual values realized could differ from these estimates.
Declines in estimated residual value that are deemed other-than-temporary are recognized in the period in which the declines occur.
For operating leases, revenue on leased aircraft and equipment is recorded on a straight-line basis over the term of the lease. Operating lease assets, included in Customer financing, are recorded at cost and depreciated over the period that we project we will hold the asset to an estimated residual value, using the straight-line method. We periodically review our estimates of residual value and recognize forecasted changes by prospectively adjusting depreciation expense.
For notes receivable, notes are recorded net of any unamortized discounts and deferred incremental direct costs. Interest income and amortization of any discounts are recorded ratably over the related term of the note.
Reinsurance Revenue Our wholly-owned insurance subsidiary, Astro Ltd., participates in a reinsurance pool for workers’ compensation. The member agreements and practices of the reinsurance pool minimize any participating members’ individual risk. Reinsurance revenues were $145, $141$129, $151 and $147$145 during 2018, 20172020, 2019 and 2016,2018, respectively. Reinsurance costs related to premiums and claims paid to the reinsurance pool were $136, $144$136, $150 and $139$136 during 2018, 20172020, 2019 and 2016,2018, respectively. Revenues and costs are presented net in Cost of sales in the Consolidated Statements of Operations.
Fleet Support
We provide assistance and support to facilitate efficient and safe aircraft operation to the operators of all our commercial airplane models. Collectively known as fleet support, these activities and support services include flight and maintenance training, field service support, engineering support, and technical data and documents. Fleet support activity begins prior to aircraft delivery as the customer receives training, manuals, and technical consulting support. This activity continues throughout the aircraft’s operational life. Services provided after delivery include field service support, consulting on maintenance, repair, and operational issues brought forth by the customer or regulators, updating manuals and engineering data, and the issuance of service bulletins that impact the entire model’s fleet. Field service support involves our personnel located at customer facilities providing and coordinating fleet support activities and requests. The costs for fleet support are expensed as incurred as Cost of services.
Research and Development
Research and development includes costs incurred for experimentation, design, and testing, as well as bid and proposal efforts related to government products and services which are expensed as incurred unless the costs are related to certain contractual arrangements with customers. Costs that are incurred pursuant to such contractual arrangements are recorded over the period that revenue is recognized, consistent with our contract accounting policy. We have certain research and development arrangements that meet the requirement for best efforts research and development accounting. Accordingly, the amounts funded by the customer are recognized as an offset to our research and development expense rather than as contract revenues. Research and development expense included bid and proposal costs of $224, $214 and $234 $288in 2020, 2019 and $311 in 2018, 2017 and 2016, respectively.
Share-Based Compensation
We provide various forms of share-based compensation to our employees. For awards settled in shares, we measure compensation expense based on the grant-date fair value net of estimated forfeitures. For awards settled in cash, or that may be settled in cash, we measure compensation
expense based on the fair value at each reporting date net of estimated forfeitures. The expense is recognized over the requisite service period, which is generally the vesting period of the award.
Income Taxes
Provisions for U.S. federal, state and local, and non-U.S. income taxes are calculated on reported Earnings(Loss)/earnings before income taxes based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions.
The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. We record a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on our tax return. To the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Tax-related interest and penalties are classified as a component of Income tax expense.benefit/(expense).
We also assess the likelihood that we will be able to recover our deferred tax assets against future sources of taxable income and reduce the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not that all or a portion of such assets will not be realized. Changes in our estimates and judgments regarding realization of deferred tax assets may result in an increase or decrease to our tax expense and/or other comprehensive income, which would be recorded in the period in which the change occurs.
Postretirement Plans
The majorityMany of our employees have earned benefits under defined benefit pension plans. Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016. Additional union employees transitioned to company-funded defined contribution retirement savings plans effective January 1, 2019. We also provide postretirement benefit plans other than pensions, consisting principally of health care coverage to eligible retirees and qualifying dependents. Benefits under the pension and other postretirement benefit plans are generally based on age at retirement and years of service and, for some pension plans, benefits are also based on the employee’s annual earnings. The net periodic cost of our pension and other postretirement plans is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset return, and medical trend (rate of growth for medical costs). A portion of the service cost component of net periodic pension and other postretirement income or expense is not recognized in net earnings in the year incurred because it is allocated to production as product costs, and reflected in inventory at the end of a reporting period. Actuarial gains and losses, which occur when actual experience differs from actuarial assumptions, are reflected in Shareholders’ equity (net of taxes). If actuarial gains and losses exceed ten percent of the greater of plan assets or plan liabilities we amortize them over the average expected future service periodlifetime of employees.participants. The funded status of our pension and postretirement plans is reflected on the Consolidated Statements of Financial Position.
Postemployment Plans
We record a liability for postemployment benefits, such as severance or job training, when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated.
Environmental Remediation
We are subject to federal and state requirements for protection of the environment, including those for discharge of hazardous materials and remediation of contaminated sites. We routinely assess, based on in-depth studies, expert analyses and legal reviews, our contingencies, obligations, and commitments for remediation of contaminated sites, including assessments of ranges and probabilities of recoveries from other responsible parties and/or insurance carriers. Our policy is to accrue and charge to current expense identified exposures related to environmental remediation sites when it is probable that a liability has been incurred and the amount can be reasonably estimated. The amount of the liability is based on our best estimate or the low end of a range of reasonably possible exposure for investigation, cleanup, and monitoring costs to be incurred. Estimated remediation costs are not discounted to present value as the timing of payments cannot be reasonably estimated. We may be able to recover a portion of the remediation costs from insurers or other third parties. Such recoveries are recorded when realization of the claim for recovery is deemed probable.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments, such as commercial paper, time deposits, and other money market instruments, which have original maturities of three months or less. We aggregate our cash balances by bank where conditions for right of set-off are met, and reclassify any negative balances, consisting mainly of uncleared checks, to Accounts payable. Negative balances reclassified to Accounts payable were $127$74 and $116$101 at December 31, 20182020 and 2017.2019.
Inventories
Inventoried costs on commercial aircraft programs and long-term contracts include direct engineering, production and tooling and other non-recurring costs, and applicable overhead, which includes fringe benefits, production related indirect and plant management salaries and plant services, not in excess of estimated net realizable value. To the extent a material amount of such costs are related to an abnormal event or are fixed costs not appropriately attributable to our programs or contracts, they are expensed in the current period rather than inventoried. Inventoried costs include amounts relating to programs and contracts with long-term production cycles, a portion of which is not expected to be realized within one year. Included in inventory for federal government contracts is an allocation of allowable costs related to manufacturing process reengineering.
Commercial aircraft programs inventory includes deferred production costs and supplier advances. Deferred production costs represent actual costs incurred for production of early units that exceed the estimated average cost of all units in the program accounting quantity. Higher production costs are experienced at the beginning of a new or derivative airplane program. Units produced early in a program require substantially more effort (labor and other resources) than units produced later in a program because of volume efficiencies and the effects of learning. We expect that these deferred costs will be fully recovered when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries is below the estimated average cost of all units in the program. Supplier advances represent payments for parts we have contracted to receive from suppliers in the future. As parts are received, supplier advances are amortized to work in process.
The determination of net realizable value of long-term contract costs is based upon quarterly reviews that estimate costs to be incurred to complete all contract requirements. When actual contract costs and the estimate to complete exceed total estimated contract revenues, a loss provision is recorded. The determination of net realizable value of commercial aircraft program costs is based upon quarterly program reviews that estimate revenue and cost to be incurred to complete the program accounting quantity. When estimated costs to complete exceed estimated program revenues to go, a program loss provision is recorded in the current period for the estimated loss on all undelivered units in the accounting quantity.
Used aircraft purchased by the Commercial Airplanes segment and general stock materials are stated at cost not in excess of net realizable value. See ‘Aircraft Valuation’ within this Note for a discussion of our valuation of used aircraft. Spare parts inventory is stated at lower of average unit cost or net realizable value. We review our commercial spare parts and general stock materials quarterly to identify impaired inventory, including excess or obsolete inventory, based on historical sales trends, expected production usage, and the size and age of the aircraft fleet using the part. Impaired inventories are charged to Cost of products in the period the impairment occurs.
Included in inventory for commercial aircraft programs are amounts paid or credited in cash, or other consideration to certain airline customers, that are referred to as early issue sales consideration. Early issue sales consideration is recognized as a reduction to revenue when the delivery of the aircraft under contract occurs. If an airline customer does not perform and take delivery of the contracted aircraft, we believe that we would have the ability to recover amounts paid. However, to the extent early issue sales consideration exceeds advances and is not considered to be otherwise recoverable, it would be written off in the current period.
Precontract Costs
We may, from time to time, incur costs in excess of the amounts required for existing contracts. If we determine the costs are probable of recovery from future orders, then we capitalize the precontract costs we incur, excluding start-up costs which are expensed as incurred. Capitalized precontract costs are included in Inventories in the accompanying Consolidated Statements of Financial Position. Should future orders not materialize or we determine the costs are no longer probable of recovery, the capitalized costs would be written off.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including applicable construction-period interest, less accumulated depreciation and are depreciated principally over the following estimated useful lives: new buildings and land improvements, from 10 to 40 years; and new machinery and equipment, from 4 to 20 years. The principal methods of depreciation are as follows: buildings and land improvements, 150% declining balance; and machinery and equipment, sum-of-the-years’ digits. Capitalized internal use software is included in Other assets and amortized using the straight line method over 5 years. Capitalized software as a service is included in Other assets and amortized using the straight line method over the term of the hosting arrangement which is typically no greater than 510 years. We periodically evaluate the appropriateness of remaining depreciable lives assigned to long-lived assets, including assets that may be subject to a management plan for disposition.
Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Long-lived assets held for use are subject to an impairment assessment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset.
Leases We determine if an arrangement is, or contains, a lease at the inception date. Operating leases are included in Other assets, with the related liabilities included in Accrued liabilities and Other long-term liabilities. Assets under finance leases, which primarily represent computer equipment, are included in Property, plant and equipment, net, with the related liabilities included in Short-term debt and current portion of long-term debt and Long-term debt on the Consolidated Statements of Financial Position.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present
value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as fair market value adjustments, utilities, and maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components which are accounted for as a single lease component.
Asset Retirement Obligations
We record all known asset retirement obligations for which the liability’s fair value can be reasonably estimated, including certain asbestos removal, asset decommissioning and contractual lease restoration obligations. Recorded amounts are not material.
We also have known conditional asset retirement obligations, such as certain asbestos remediation and asset decommissioning activities to be performed in the future, that are not reasonably estimable due to insufficient information about the timing and method of settlement of the obligation. Accordingly, these
obligations have not been recorded in the Consolidated Financial Statements. A liability for these obligations will be recorded in the period when sufficient information regarding timing and method of settlement becomes available to make a reasonable estimate of the liability’s fair value. In addition, there may be conditional asset retirement obligations that we have not yet discovered (e.g. asbestos may exist in certain buildings but we have not become aware of it through the normal course of business), and therefore, these obligations also have not been included in the Consolidated Financial Statements.
Goodwill and Other Acquired Intangibles
Goodwill and other acquired intangible assets with indefinite lives are not amortized, but are tested for impairment annually and when an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Our annual testing date is April 1.
We test goodwill for impairment by performing a qualitative assessment or using a two-step impairment process.quantitative test. If we choose to perform a qualitative assessment and determine it is more likely than not that the carrying value of the net assets is more than the fair value of the related operations, the two-step impairment processquantitative test is then performed; otherwise, no further testing is required. For operations where the two-step impairment processquantitative test is used, we first compare the carrying value of net assets to the estimated fair value of the related operations. If the fair value is determined to be less than carrying value, a second step is performedthe shortfall up to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the faircarrying value of the operations, and is compared to its carrying value. The shortfall of the fair value below carrying valuegoodwill represents the amount of goodwill impairment.
Indefinite-lived intangibles consist of a brand and trade namesname and in-process research and development (IPR&D) acquired in business combinations. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. IPR&D is reclassified to finite-lived acquired intangible assets when a project is completed, and then amortized on a straight-line basis over the asset’s estimated useful life. We test these intangibles for impairment by comparing theirthe carrying valuevalues to current projections of related discounted cash flows attributable to the brand and trade names.flows. Any excess carrying value over the amount of discounted cash flows represents the amount of the impairment.
Our finite-lived acquired intangible assets are amortized on a straight-line basis over their estimated useful lives as follows: developed technology, from 4 to 14 years; product know-how, from 6 to 30 years; customer base, from 3 to 17 years; distribution rights, from 3 to 27 years; and other, from 21 to 32 years. We evaluate the potential impairment of finite-lived acquired intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying
value is no longer recoverable based upon the undiscounted future cash flows of the asset, the amount of the impairment is the difference between the carrying amount and the fair value of the asset.
Investments
Time deposits are held-to-maturity investments that are carried at cost.
Available-for-sale debt securities include commercial paper, U.S. government agency securities, and corporate debt securities. Available-for-sale debt securities are recorded at fair value, and unrealized gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Realized gains and losses on available-for-sale debt securities are recognized based on the specific identification method. Available-for-sale debt securities are assessed for impairment quarterly.
The equity method of accounting is used to account for investments for which we have the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an investee of between 20% and 50%. The cumulative earnings approach is used for cash flow classification of distributions received from equity method investments.
Other Equity investments are recorded at fair value, with gains and losses recorded through net earnings. Equity investments without readily determinable fair value are measured at cost, less impairments, plus or minus observable price changes. Equity investments without readily determinable fair value are assessed for impairment quarterly.
We classify investment income and loss on our Consolidated Statements of Operations based on whether the investment is operating or non-operating in nature. Operating investments align strategically and are integrated with our operations. Earnings from operating investments, including our share of income or loss from equity method investments, dividend income from other equity investments, and any impairments or gain/loss on the disposition of these investments, are recorded in Income from operating investments, net. Non-operating investments are those we hold for non-strategic purposes. Earnings from non-operating investments, including interest and dividends on marketable securities, and any impairments or gain/loss on the disposition of these investments are recorded in Other income/(loss), net.
Derivatives
All derivative instruments are recognized in the financial statements and measured at fair value regardless of the purpose or intent of holding them. We use derivative instruments to principally manage a variety of market risks. For derivatives designated as hedges of the exposure to changes in fair value of the recognized asset or liability or a firm commitment (referred to as fair value hedges), the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to include in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. For our cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported in comprehensive income and is subsequently reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The ineffective portion of the gain or loss of a cash flow hedge is reported in earnings immediately. We have agreements to purchase and sell aluminum to address long-term strategic sourcing objectives and international business requirements. These agreements are derivatives for accounting purposes but are not designated for hedge accounting treatment. We also hold certain derivative instruments for economic purposes that are not designated for hedge accounting treatment. For these aluminum agreements and for other derivative instruments not designated for hedge accounting treatment, the changes in their fair value are recorded in earnings immediately.
Allowances for losses on certain financial assets
We establish allowances for credit losses on accounts receivable, unbilled receivables, customer financing receivables, and certain other financial assets. The adequacy of these allowances are assessed quarterly through consideration of factors including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of the receivable, expected loss rates
and collateral exposures. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by major credit rating agencies.
Aircraft Valuation
Used aircraft under trade-in commitments and aircraft under repurchase commitments In conjunction with signing a definitive agreement for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. Additionally, we have entered into contingent repurchase commitments with certain customers wherein we agree to repurchase the Sale Aircraft at a specified price, generally 10 to 15 years after delivery of the Sale Aircraft. Our repurchase of the Sale Aircraft is contingent upon a future, mutually acceptable agreement for the sale of additional new aircraft. If we execute an agreement for the sale of additional new aircraft, and if the customer exercises its right to sell the Sale Aircraft to us, a contingent repurchase commitment would become a trade-in commitment. Our historical experience is that contingent repurchase commitments infrequently become trade-in commitments.
Exposure related to trade-in commitments may take the form of:
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(1) | adjustments to revenue for the difference between the contractual trade-in price in the definitive agreement and our best estimate of the fair value of the trade-in aircraft as of the date of such agreement, which would be recognized upon delivery of the Sale Aircraft, and/or |
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(2) | charges to cost of products for adverse changes in the fair value of trade-in aircraft that occur subsequent to signing of a definitive agreement for Sale Aircraft but prior to the purchase of the used trade-in aircraft. Estimates based on current aircraft values would be included in Accrued liabilities. |
(1)adjustments to revenue for the difference between the contractual trade-in price in the definitive agreement and our best estimate of the fair value of the trade-in aircraft as of the date of such agreement, which would be recognized upon delivery of the Sale Aircraft, and/or
(2)charges to cost of products for adverse changes in the fair value of trade-in aircraft that occur subsequent to signing of a definitive agreement for Sale Aircraft but prior to the purchase of the used trade-in aircraft. Estimates based on current aircraft values would be included in Accrued liabilities.
The fair value of trade-in aircraft is determined using aircraft-specific data such as model, age and condition, market conditions for specific aircraft and similar models, and multiple valuation sources. This process uses our assessment of the market for each trade-in aircraft, which in most instances begins years before the return of the aircraft. There are several possible markets in which we continually pursue opportunities to place used aircraft. These markets include, but are not limited to, the resale market, which could potentially include the cost of long-term storage; the leasing market, with the potential for refurbishment costs to meet the leasing customer’s requirements; or the scrap market. Trade-in aircraft valuation varies significantly depending on which market we determine is most likely for each aircraft. On a quarterly basis, we update our valuation analysis based on the actual activities associated with placing each aircraft into a market or using current published third-party aircraft valuations based on the type and age of the aircraft, adjusted for individual attributes and known conditions.
Used aircraft acquired by the Commercial Airplanes segment are included in Inventories at the lower of cost or net realizable value as it is our intent to sell these assets. To mitigate costs and enhance marketability, aircraft may be placed on operating lease. While on operating lease, the assets are included in Customer financing.
Customer financing Customer financing includes operating lease equipment, notes receivable, and sales-type/finance leases. Sales-type/finance leases are treated as receivables, and allowances for losses are established as necessary.
We assess the fair value of the assets we own, including equipment under operating leases, assets held for sale or re-lease, and collateral underlying receivables, to determine if their fair values are less
than the related assets’ carrying values. Differences between carrying values and fair values of sales-type/finance leases and notes and other receivables, as determined by collateral value, are considered in determining the allowance for losses on receivables.
We use a median calculated from published collateral values from multiple third-party aircraft value publications based on the type and age of the aircraft to determine the fair value of aircraft. Under certain circumstances, we apply judgment based on the attributes of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by outside publications.
Impairment review for assets under operating leases and held for sale or re-lease We evaluate for impairment assets under operating lease or assets held for sale or re-lease when events or changes in circumstances indicate that the expected undiscounted cash flow from the asset may be less than the carrying value. We use various assumptions when determining the expected undiscounted cash flow, including our intentions for how long we will hold an asset subject to operating lease before it is sold, the expected future lease rates, lease terms, residual value of the asset, periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the remaining economic life of the asset. We record assets held for sale at the lower of carrying value or fair value less costs to sell.
When we determine that impairment is indicated for an asset, the amount of impairment expense recorded is the excess of the carrying value over the fair value of the asset.
Allowance for losses on customer financing receivables We record the potential impairment of customer financing receivables in a valuation account, the balance of which is an accounting estimate of probableexpected but unconfirmed losses. The allowance for losses on receivables relates to two components of receivables: (a) receivables that are evaluated individually for impairment and (b) all other receivables.
We determine a receivable is impaired when, based on current information and events, it is probableexpected that we will be unable to collect amounts due according to the original contractual terms of the receivable agreement, without regard to any subsequent restructurings. Factors considered in assessing collectability include, but are not limited to, a customer’s extended delinquency, requests for restructuring and filings for bankruptcy. We determine a specific impairment allowance based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral we would expect to realize.
We review the adequacy of the allowance attributable to the remaining receivables (after excluding receivables subject to a specific impairment allowance) by assessing both the collateral exposure and the applicable cumulative default rate. Collateral exposure for a particular receivable is the excess of the carrying value of the receivable over the fair value of the related collateral. A receivable with an estimated fair value in excess of the carrying value is considered to have no collateral exposure. The applicable cumulative default rate is determined using two components: customer credit ratings and weighted average remaining contract term. Internally assigned credit ratings, our credit quality indicator, are determined for each customer in the portfolio. Those ratings are updated based upon public information and information obtained directly from our customers.
We have entered into agreements with certain customers that would entitle us to look beyond the specific collateral underlying the receivable for purposes of determining the collateral exposure as described above. Should the proceeds from the sale of the underlying collateral asset resulting from a default condition be insufficient to cover the carrying value of our receivable (creating a shortfall condition), these agreements would, for example, permit us to take the actions necessary to sell or retain certain other assets in which the customer has an equity interest and use the proceeds to cover the shortfall.
Each quarter we review customer credit ratings, published historical credit default rates for different rating categories, and multiple third-party aircraft value publications as a basis to validate the reasonableness of the allowance for losses on receivables. There can be no assurance that actual results will not differ from estimates or that the consideration of these factors in the future will not result in an increase or decrease to the allowance for losses on receivables.
Warranties
In conjunction with certain product sales, we provide warranties that cover factors such as non-conformance to specifications and defects in material and design. The majority of our warranties are issued by our Commercial Airplanes segment. Generally, aircraft sales are accompanied by a 3 to 4-year4-year standard warranty for systems, accessories, equipment, parts, and software manufactured by us or manufactured to certain standards under our authorization. These warranties are included in the programs’ estimate at completion. On occasion we have made commitments beyond the standard warranty obligation to correct fleet-wide major issues of a particular model, resulting in additional accrued warranty expense. Warranties issued by our BDS segment principally relate to sales of military aircraft and weapons hardware and are included in the contract cost estimates.systems. These sales are generally accompanied by a six month to two-yeartwo-year warranty period and cover systems, accessories, equipment, parts, and software manufactured by us to certain contractual specifications. Estimated costs related to standard warranties are recorded in the period in which the related product delivery occurs. The warranty liability recorded at each balance sheet date reflects the estimated number of months of warranty coverage outstanding for products delivered
times the average of historical monthly warranty payments, as well as additional amounts for certain major warranty issues that exceed a normal claims level. Estimated costs of these additional warranty issues are considered changes to the initial liability estimate.
We provide guarantees to certain commercial airplane customers which include compensation provisions for failure to meet specified aircraft performance targets. We account for these performance guarantees as warranties. The estimated liability for these warranties is based on known and anticipated operational characteristics and forecasted customer operation of the aircraft relative to contractually specified performance targets, and anticipated settlements when contractual remedies are not specified. Estimated payments are recorded as a reduction of revenue at delivery of the related aircraft. We have agreements that require certain suppliers to compensate us for amounts paid to customers for failure of supplied equipment to meet specified performance targets. Claims against suppliers under these agreements are included in Inventories and recorded as a reduction in Cost of products at delivery of the related aircraft. These performance warranties and claims against suppliers are included in the programs’ estimate at completion.
Supplier Penalties
We record an accrual for supplier penalties when an event occurs that makes it probable that a supplier penalty will be incurred and the amount is reasonably estimable. Until an event occurs, we fully anticipate accepting all products procured under production-related contracts.
Guarantees
We record a liability in Accrued liabilities for the fair value of guarantees that are issued or modified after December 31, 2002.guarantees. For credit guarantees, the liability is equal to the present value of the expected loss. We determine the expected loss by multiplying the creditor’s default rate by the guarantee amount reduced by the expected recovery, if applicable, for each future period the credit guarantee will be outstanding. If atapplicable. At inception of a guarantee, and adjusted each quarter, we determine there is a probable related contingent loss, we willalso recognize a liability for the greater of (a) the fair value of the guarantee as described above or (b) the probableexpected contingent loss amount.
Standards Issued and Not Yet Implemented
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-02, Leases(Topic 842). The new standard is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard permits two approaches, one requiring retrospective application of the new guidance with restatement of prior years, and one requiring prospective application of the new guidance. We plan to adopt the new lease standard effective January 1, 2019 and apply it prospectively. We do not expect the new lease standard to have a material effect on our financial position, results of operations or cash flows.
66
Note 2 - Impact of Adoption of New Standards
In the first quarter of 2018, we adopted the following ASUs: ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost; ASU 2016-18 Statement of Cash Flows (Topic 230)Restricted Cash; andASU 2018-02Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The impact to our Consolidated Financial Statements as a result of adopting these standards was as follows:
Consolidated Statements of Operations |
| | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31 | 2017 |
| 2016 |
| (Dollars in millions, except per share data) | Reported | | Impact of New Standards | | Restated | | Reported | | Impact of New Standards | | Restated |
| Sales of products |
| $83,204 |
| |
| $536 |
| |
| $83,740 |
| |
| $84,399 |
| |
| ($1,201 | ) | |
| $83,198 |
|
| Sales of services | 10,188 |
| | 77 |
| | 10,265 |
| | 10,172 |
| | 126 |
| | 10,298 |
|
| Total revenues | 93,392 |
| | 613 |
| | 94,005 |
| | 94,571 |
| | (1,075 | ) | | 93,496 |
|
| | | | | | | | | | | | |
| Cost of products | (68,365 | ) | | (514 | ) | | (68,879 | ) | | (72,713 | ) | | 1,700 |
| | (71,013 | ) |
| Cost of services | (7,631 | ) | | (32 | ) | | (7,663 | ) | | (8,018 | ) | | 64 |
| | (7,954 | ) |
| Boeing Capital interest expense | (70 | ) | |
|
| | (70 | ) | | (59 | ) | |
|
| | (59 | ) |
| Total costs and expenses | (76,066 | ) | | (546 | ) | | (76,612 | ) | | (80,790 | ) | | 1,764 |
| | (79,026 | ) |
| | 17,326 |
| | 67 |
| | 17,393 |
| | 13,781 |
| | 689 |
| | 14,470 |
|
| Income from operating investments, net | 204 |
| |
|
| | 204 |
| | 303 |
| |
|
| | 303 |
|
| General and administrative expense | (4,094 | ) | | (1 | ) | | (4,095 | ) | | (3,616 | ) | | 3 |
| | (3,613 | ) |
| Research and development expense, net | (3,179 | ) | |
|
| | (3,179 | ) | | (4,627 | ) | | 1 |
| | (4,626 | ) |
| Gain/(loss) on dispositions, net | 21 |
| |
|
| | 21 |
| | (7 | ) | |
|
| | (7 | ) |
| Earnings from operations | 10,278 |
| | 66 |
| | 10,344 |
| | 5,834 |
| | 693 |
| | 6,527 |
|
| Other income/(loss), net | 129 |
| | (6 | ) | | 123 |
| | 40 |
| | (478 | ) | | (438 | ) |
| Interest and debt expense | (360 | ) | |
|
| | (360 | ) | | (306 | ) | |
|
| | (306 | ) |
| Earnings before income taxes | 10,047 |
| | 60 |
| | 10,107 |
| | 5,568 |
| | 215 |
| | 5,783 |
|
| Income tax expense | (1,850 | ) | | 201 |
| | (1,649 | ) | | (673 | ) | | (76 | ) | | (749 | ) |
| Net earnings |
| $8,197 |
| |
| $261 |
| |
| $8,458 |
| |
| $4,895 |
| |
| $139 |
| |
| $5,034 |
|
| | | | | | | | | | | | |
| Basic earnings per share |
| $13.60 |
| |
| $0.43 |
| |
| $14.03 |
| |
| $7.70 |
| |
| $0.22 |
| |
| $7.92 |
|
| | | | | | | | | | | | |
| Diluted earnings per share |
| $13.43 |
| |
| $0.42 |
| |
| $13.85 |
| |
| $7.61 |
| |
| $0.22 |
| |
| $7.83 |
|
Consolidated Statement of Financial Position
|
| | | | | | | | | | | |
| (Dollars in millions) | December 31, 2017 |
| Assets | Reported | | Impact of New Standards | | Restated |
| Cash and cash equivalents |
| $8,813 |
| |
|
| |
| $8,813 |
|
| Short-term and other investments | 1,179 |
| |
|
| | 1,179 |
|
| Accounts receivable, net | 10,516 |
| |
| ($7,622 | ) | | 2,894 |
|
| Unbilled receivables, net |
|
| | 8,194 |
| | 8,194 |
|
| Current portion of customer financing, net | 309 |
| |
|
| | 309 |
|
| Inventories | 44,344 |
| | 17,044 |
| | 61,388 |
|
| Other current assets |
|
|
| 2,417 |
| | 2,417 |
|
| Total current assets | 65,161 |
| | 20,033 |
| | 85,194 |
|
| Customer financing, net | 2,740 |
| | 16 |
| | 2,756 |
|
| Property, plant and equipment, net | 12,672 |
| |
|
| | 12,672 |
|
| Goodwill | 5,559 |
| |
|
| | 5,559 |
|
| Acquired intangible assets, net | 2,573 |
| |
|
| | 2,573 |
|
| Deferred income taxes | 341 |
| | (20 | ) | | 321 |
|
| Investments | 1,260 |
| |
|
| | 1,260 |
|
| Other assets, net of accumulated amortization | 2,027 |
| |
|
| | 2,027 |
|
| Total assets |
| $92,333 |
| |
| $20,029 |
| |
| $112,362 |
|
| Liabilities and equity | | | | | |
| Accounts payable |
| $12,202 |
| |
|
| |
| $12,202 |
|
| Accrued liabilities | 15,292 |
| |
| ($2,223 | ) | | 13,069 |
|
| Advances and billings in excess of related costs | 27,440 |
| | (27,440 | ) | |
|
|
| Advances and progress billings |
|
| | 48,042 |
| | 48,042 |
|
| Short-term debt and current portion of long-term debt | 1,335 |
| |
|
| | 1,335 |
|
| Total current liabilities | 56,269 |
| | 18,379 |
| | 74,648 |
|
| Deferred income taxes | 1,839 |
| | 349 |
| | 2,188 |
|
| Accrued retiree health care | 5,545 |
| |
|
| | 5,545 |
|
| Accrued pension plan liability, net | 16,471 |
| |
|
| | 16,471 |
|
| Other long-term liabilities | 2,015 |
| |
|
| | 2,015 |
|
| Long-term debt | 9,782 |
| |
|
| | 9,782 |
|
| Shareholders’ equity: | | | | | |
| Common stock | 5,061 |
| |
|
| | 5,061 |
|
| Additional paid-in capital | 6,804 |
| |
|
| | 6,804 |
|
| Treasury stock, at cost | (43,454 | ) | |
|
| | (43,454 | ) |
| Retained earnings | 45,320 |
| | 4,298 |
| | 49,618 |
|
| Accumulated other comprehensive loss | (13,376 | ) | | (2,997 | ) | | (16,373 | ) |
| Total shareholders’ equity | 355 |
| | 1,301 |
| | 1,656 |
|
| Noncontrolling interests | 57 |
| |
|
| | 57 |
|
| Total equity | 412 |
| | 1,301 |
| | 1,713 |
|
| Total liabilities and equity |
| $92,333 |
| |
| $20,029 |
| |
| $112,362 |
|
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31 | 2017 | | 2016 |
| (Dollars in millions) | Reported |
| | Impact of New Standards | Restated |
| | Reported |
| | Impact of New Standards | Restated |
|
| Cash flows - operating activities: | | | | | | | | | | | |
| Net earnings |
| $8,197 |
| |
| $261 |
| |
| $8,458 |
| |
| $4,895 |
| |
| $139 |
| |
| $5,034 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | |
| Non-cash items - | | | | | | | | | | | |
| Share-based plans expense | 202 |
| |
| | 202 |
| | 190 |
| |
| | 190 |
|
| Depreciation and amortization | 2,069 |
| | (22 | ) | | 2,047 |
| | 1,910 |
| | (21 | ) | | 1,889 |
|
| Investment/asset impairment charges, net | 113 |
| |
| | 113 |
| | 90 |
| |
| | 90 |
|
| Customer financing valuation expense/(benefit) | 2 |
| |
| | 2 |
| | (7 | ) | |
| | (7 | ) |
| (Gain)/loss on dispositions, net | (21 | ) | |
| | (21 | ) | | 7 |
| |
| | 7 |
|
| Other charges and credits, net | 287 |
| | 6 |
| | 293 |
| | 369 |
| | 2 |
| | 371 |
|
| Changes in assets and liabilities - | | |
| | | | | |
| | |
| Accounts receivable | (1,821 | ) | | 981 |
| | (840 | ) | | 112 |
| | 214 |
| | 326 |
|
| Unbilled receivables |
| | (1,600 | ) | | (1,600 | ) | |
| | 792 |
| | 792 |
|
| Advances and progress billings |
| | 4,700 |
| | 4,700 |
| |
| | (1,362 | ) | | (1,362 | ) |
| Inventories | (1,085 | ) | | (318 | ) | | (1,403 | ) | | 3,755 |
| | 249 |
| | 4,004 |
|
| Other current assets |
| | (19 | ) | | (19 | ) | |
| | (200 | ) | | (200 | ) |
| Accounts payable | 130 |
| |
| | 130 |
| | 622 |
| |
| | 622 |
|
| Accrued liabilities | 573 |
| | (238 | ) | | 335 |
| | 726 |
| | (414 | ) | | 312 |
|
| Advances and billings in excess of related costs | 3,570 |
| | (3,570 | ) | |
| | (493 | ) | | 493 |
| |
|
| Income taxes receivable, payable and deferred | 857 |
| | (201 | ) | | 656 |
| | (810 | ) | | 76 |
| | (734 | ) |
| Other long-term liabilities | 94 |
| |
| | 94 |
| | (68 | ) | |
| | (68 | ) |
| Pension and other postretirement plans | (582 | ) | |
| | (582 | ) | | 153 |
| |
| | 153 |
|
| Customer financing, net | 1,017 |
| | 24 |
| | 1,041 |
| | (696 | ) | | 34 |
| | (662 | ) |
| Other | (258 | ) | | (2 | ) | | (260 | ) | | (256 | ) | | (5 | ) | | (261 | ) |
| Net cash provided by operating activities | 13,344 |
| | 2 |
| | 13,346 |
| | 10,499 |
| | (3 | ) | | 10,496 |
|
| Cash flows - investing activities: | | | | | | | | | | | |
| Property, plant and equipment additions | (1,739 | ) | |
| | (1,739 | ) | | (2,613 | ) | |
| | (2,613 | ) |
| Property, plant and equipment reductions | 92 |
| |
| | 92 |
| | 38 |
| |
| | 38 |
|
| Acquisitions, net of cash acquired | (324 | ) | |
| | (324 | ) | | (297 | ) | |
| | (297 | ) |
| Contributions to investments | (3,601 | ) | | 32 |
| | (3,569 | ) | | (1,719 | ) | |
| | (1,719 | ) |
| Proceeds from investments | 3,639 |
| | (32 | ) | | 3,607 |
| | 1,209 |
| | (3 | ) | | 1,206 |
|
| Purchase of distribution rights | (131 | ) | |
| | (131 | ) | |
| |
| |
|
| Other | 2 |
| | 4 |
| | 6 |
| | 2 |
| | 5 |
| | 7 |
|
| Net cash used by investing activities | (2,062 | ) | | 4 |
| | (2,058 | ) | | (3,380 | ) | | 2 |
| | (3,378 | ) |
| Cash flows - financing activities: | | | | | | | | | | | |
| New borrowings | 2,077 |
| |
| | 2,077 |
| | 1,325 |
| |
| | 1,325 |
|
| Debt repayments | (953 | ) | |
| | (953 | ) | | (1,359 | ) | |
| | (1,359 | ) |
| Repayments of distribution rights and other asset financing |
| |
| |
| | (24 | ) | |
| | (24 | ) |
| Stock options exercised | 311 |
| |
| | 311 |
| | 321 |
| |
| | 321 |
|
| Employee taxes on certain share-based payment arrangements | (132 | ) | |
| | (132 | ) | | (93 | ) | |
| | (93 | ) |
| Common shares repurchased | (9,236 | ) | |
| | (9,236 | ) | | (7,001 | ) | |
| | (7,001 | ) |
| Dividends paid | (3,417 | ) | |
| | (3,417 | ) | | (2,756 | ) | |
| | (2,756 | ) |
| Net cash used by financing activities | (11,350 | ) | |
| | (11,350 | ) | | (9,587 | ) | |
| | (9,587 | ) |
| Effect of exchange rate changes on cash & cash equivalents, including restricted | 80 |
| |
| | 80 |
| | (33 | ) | |
| | (33 | ) |
| Net increase/(decrease) in cash & cash equivalents, including restricted | 12 |
| | 6 |
| | 18 |
| | (2,501 | ) | | (1 | ) | | (2,502 | ) |
| Cash & cash equivalents, including restricted*, at beginning of year | 8,801 |
| | 68 |
| | 8,869 |
| | 11,302 |
| | 69 |
| | 11,371 |
|
| Cash & cash equivalents, including restricted*, at end of year | 8,813 |
| | 74 |
| | 8,887 |
| | 8,801 |
| |
| $68 |
| | 8,869 |
|
| Less restricted cash & cash equivalents, included in Investments | | | | | 74 |
| | | | | | 68 |
|
| Cash and cash equivalents at end of year | | | | |
| $8,813 |
| | | | | |
| $8,801 |
|
* Reported balance excludes restricted amounts
Consolidated Statements of Equity
|
| | | | | | | | | | | | | | | | | | | | | |
| | Boeing shareholders | | |
| (Dollars in millions) | Common Stock |
| Additional Paid-In Capital |
| Treasury Stock |
| Retained Earnings |
| Accumulated Other Comprehensive Loss |
| Non- controlling Interests |
| Total |
|
| Balance at January 1, 2016, as reported |
| $5,061 |
|
| $4,834 |
|
| ($29,568 | ) |
| $38,756 |
|
| ($12,748 | ) |
| $62 |
|
| $6,397 |
|
| Cumulative Impact of Topic 606 at 1/1/2016 | | | | 901 |
| | | 901 |
|
| Balance at January 1, 2016, as restated | $5,061 |
| $4,834 |
|
| ($29,568 | ) |
| $39,657 |
|
| ($12,748 | ) |
| $62 |
| 7,298 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Boeing shareholders | | |
| (Dollars in millions) | Common Stock |
| Additional Paid-In Capital |
| Treasury Stock |
| Retained Earnings |
| Accumulated Other Comprehensive Loss |
| Non- controlling Interests |
| Total |
|
| Balance at January 1, 2017, as reported |
| $5,061 |
|
| $4,762 |
|
| ($36,097 | ) |
| $40,714 |
|
| ($13,623 | ) |
| $60 |
|
| $877 |
|
| Cumulative Impact of Topic 606 at 1/1/2016 | | | | 901 |
| | | 901 |
|
| Impact of Topic 606 on 2016 earnings | | | | 139 |
| | | 139 |
|
| Balance at January 1, 2017, as restated |
| $5,061 |
|
| $4,762 |
|
| ($36,097 | ) |
| $41,754 |
|
| ($13,623 | ) |
| $60 |
|
| $1,917 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | Boeing shareholders | | |
| (Dollars in millions) | Common Stock |
| Additional Paid-In Capital |
| Treasury Stock |
| Retained Earnings |
| Accumulated Other Comprehensive Loss |
| Non- controlling Interests |
| Total |
|
| Balance at December 31, 2017, as reported |
| $5,061 |
|
| $6,804 |
|
| ($43,454 | ) |
| $45,320 |
|
| ($13,376 | ) |
| $57 |
|
| $412 |
|
| Cumulative Impact of Topic 606 at 1/1/2016 | | | | 901 |
| | | 901 |
|
| Impact of Topic 606 on 2016 earnings | | | | 139 |
| | | 139 |
|
| Impact of Topic 606 on 2017 earnings | | | | 261 |
| | | 261 |
|
| Total impact of ASC 606 through December 31, 2017 | | | | 1,301 |
| | | 1,301 |
|
| Impact of ASU 2018-02 | | | | 2,997 |
| (2,997 | ) | | |
| Balance at December 31, 2017, as restated |
| $5,061 |
|
| $6,804 |
|
| ($43,454 | ) |
| $49,618 |
|
| ($16,373 | ) |
| $57 |
|
| $1,713 |
|
Note 3 – Acquisitions and Joint Ventures
KLX Inc.
On October 9, 2018, we acquired all the outstanding shares of KLX Inc. (KLX). KLX is a global provider of aviation parts and services in the aerospace industry. Its capabilities include distribution and supply chain services. The KLX acquisition is intended to accelerate growth in our services business by allowing Boeing to offer commercial, defense, business and general aviation customers a broader range of offerings. The results of KLX’s operations have been included in our Global Services segment from the acquisition date. KLX’s revenues and earnings from operations from October 9, 2018 through December 31, 2018 were $356 and $50.
The preliminary allocation of the purchase price was as follows:
|
| | | |
Cash and cash equivalents |
| $225 |
|
Accounts receivable | 260 |
|
Inventories | 1,321 |
|
Other current assets | 41 |
|
Property, plant & equipment | 36 |
|
Goodwill | 2,110 |
|
Intangible assets | 965 |
|
Other assets | 65 |
|
Current liabilities | (347 | ) |
Other long-term liabilities | (180 | ) |
Long-term debt | (1,210 | ) |
Total net assets acquired |
| $3,286 |
|
The goodwill has been allocated to the Global Services and Commercial Airplanes segments based on revenue synergies expected to be realized from the integration of KLX’s products and services and expected cost synergies primarily resulting from the consolidation of procurement spending and functional support. Approximately $533 of the acquired goodwill and intangible assets is deductible for tax purposes. The acquired intangible assets primarily relate to customer and supplier relationships and have a weighted-average useful life of 17.5 years.
Strategic Partnership with Embraer
On July 5, 2018, we and Embraer S.A. (Embraer) announced the signing of a Memorandum of Understanding to establish a strategic partnership between the two companies. On December 17, 2018, the terms of the strategic partnership were agreed by both companies. The agreed terms define the joint venture comprising the commercial aircraft and services operations of Embraer, in which Boeing will acquire an 80 percent ownership stake for $4.2 billion. The companies have also agreed to the terms of another joint venture to promote and develop new markets for the multi-mission medium airlift KC-390, in which Boeing will hold a 49 percent ownership stake. On January 10, 2019, the Government of Brazil reviewed the terms of the strategic partnership and advised it would not exercise its Golden Share veto power, allowing the transaction to move forward. On January 11, 2019, the Embraer Board of Directors ratified its prior approval of the strategic partnership and authorized execution of the definitive transaction documents. On January 24, 2019, the definitive transaction documents were executed. The transaction remains subject to Embraer shareholder and regulatory approvals, as well as other customary closing conditions. Assuming approvals are received in a timely manner, the transaction is intended to close by
the end of 2019. If the transaction is not completed due to failure to obtain antitrust approvals, we would be required to pay a termination fee of $100.
Note 42 – Goodwill and Acquired Intangibles
Effective at the beginning of 2020, certain programs were realigned between our BDS segment and Unallocated items, eliminations and other. Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 20182020 and 20172019 were as follows:
|
| | | | | | | | | | | | | | | |
| | Commercial Airplanes |
| | Defense, Space & Security |
| | Global Services |
| | Total |
|
| Balance at January 1, 2017 |
| $992 |
| |
| $2,854 |
| |
| $1,478 |
| |
| $5,324 |
|
| Acquisitions |
|
| | 220 |
| |
| | 220 |
|
| Goodwill adjustments |
|
| |
| | 15 |
| | 15 |
|
| Balance at December 31, 2017 |
| $992 |
| |
| $3,074 |
| |
| $1,493 |
| |
| $5,559 |
|
| KLX Acquisition | 249 |
| |
|
| | 1,861 |
| | 2,110 |
|
| Other Acquisitions |
| | 180 |
| | 3 |
| | 183 |
|
| Goodwill adjustments |
|
| |
|
| | (12 | ) | | (12 | ) |
| Balance at December 31, 2018 |
| $1,241 |
| |
| $3,254 |
| |
| $3,345 |
|
|
| $7,840 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial
Airplanes | | Defense, Space & Security | | Global Services | | Other | | Total |
| Balance at January 1, 2019 | $1,241 | | | $3,229 | | | $3,345 | | | $25 | | | $7,840 | |
| KLX acquisition adjustments | | | | | (51) | | | | | (51) | |
| Acquisitions | 72 | | | 0 | | 188 | | | 62 | | | 322 | |
| | | | | | | | | |
| Dispositions | | | | | (49) | | | | | (49) | |
| Goodwill adjustments | | | (10) | | | 8 | | | | | (2) | |
| Balance at December 31, 2019 | $1,313 | | | $3,219 | | | $3,441 | | | $87 | | | $8,060 | |
| | | | | | | | | |
| | | | | | | | | |
| Goodwill adjustments | 3 | | | 5 | | | 13 | | | | | 21 | |
| Balance at December 31, 2020 | $1,316 | | | $3,224 | | | $3,454 | | | $87 | | | $8,081 | |
As of December 31, 20182020 and 2017,2019, we had indefinite-lived intangible assets with carrying amounts of $490$197 relating to trade names. During 2019, we recorded an impairment of $293 within Cost of Sales, as a result of our decision to retire the Aviall brand and trade name. As of December 31, 2020 and 2019, we had an indefinite-lived intangible asset with a carrying amount of $202 related to in process research and development for a next-generation air vehicle.
The gross carrying amounts and accumulated amortization of our acquired finite-lived intangible assets were as follows at December 31:
|
| | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| | Gross Carrying Amount |
| | Accumulated Amortization |
| | Gross Carrying Amount |
| | Accumulated Amortization |
|
| Distribution rights |
| $2,879 |
| |
| $1,101 |
| |
| $2,445 |
| |
| $943 |
|
| Product know-how | 536 |
| | 324 |
| | 522 |
| | 298 |
|
| Customer base | 1,284 |
| | 523 |
| | 650 |
| | 479 |
|
| Developed technology | 595 |
| | 439 |
| | 556 |
| | 406 |
|
| Other | 218 |
| | 186 |
| | 213 |
| | 177 |
|
| Total |
| $5,512 |
| |
| $2,573 |
| |
| $4,386 |
| |
| $2,303 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Distribution rights | $2,812 | | | $1,427 | | | $2,989 | | | $1,262 | |
| Product know-how | 553 | | | 384 | | | 553 | | | 354 | |
| Customer base | 1,373 | | | 672 | | | 1,364 | | | 599 | |
| Developed technology | 626 | | | 502 | | | 653 | | | 485 | |
| Other | 303 | | | 238 | | | 280 | | | 200 | |
| Total | $5,667 | | | $3,223 | | | $5,839 | | | $2,900 | |
During 2020, we recorded impairments of $178 within Cost of Sales related to our distribution rights, primarily driven by airlines' decisions to retire certain aircraft. Amortization expense for acquired finite-lived intangible assets for the years ended December 31, 20182020 and 20172019 was $272$317 and $240.$331. Estimated amortization expense for the five succeeding years is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
|
| Estimated amortization expense |
| $333 |
| |
| $306 |
| |
| $299 |
| |
| $285 |
| |
| $266 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
| Estimated amortization expense | $284 | | | $245 | | | $234 | | | $220 | | | $196 | |
During 2018 and 20172019, we acquired $1,133 and $298$563 of finite-lived intangible assets, of which $0 and $55$30 related to non-cash investing and financing transactions.
72
Note 53 – Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.
The elements used in the computation of basic and diluted earnings per share were as follows:
| | | | | | | | | | | | | | | | | |
(In millions - except per share amounts) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Net (loss)/earnings attributable to Boeing Shareholders | ($11,873) | | | ($636) | | | $10,460 | |
| Less: earnings available to participating securities | 0 | | 0 | | 7 | |
| Net (loss)/earnings available to common shareholders | ($11,873) | | | ($636) | | | $10,453 | |
| Basic | | | | | |
| Basic weighted average shares outstanding | 569.0 | | | 566.0 | | | 579.9 | |
| Less: participating securities | 0.4 | | | 0.6 | | | 0.7 | |
| Basic weighted average common shares outstanding | 568.6 | | | 565.4 | | | 579.2 | |
| Diluted | | | | | |
| Basic weighted average shares outstanding | 569.0 | | | 566.0 | | | 579.9 | |
Dilutive potential common shares(1) | 0 | | 0 | | 6.3 | |
| Diluted weighted average shares outstanding | 569.0 | | | 566.0 | | | 586.2 | |
| Less: participating securities | 0.4 | | | 0.6 | | | 0.7 | |
| Diluted weighted average common shares outstanding | 568.6 | | | 565.4 | | | 585.5 | |
| Net (loss)/earnings per share: | | | | | |
| Basic | ($20.88) | | | ($1.12) | | | $18.05 | |
| Diluted | (20.88) | | | (1.12) | | | 17.85 | |
|
| | | | | | | | | | | |
(In millions - except per share amounts) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Net earnings |
| $10,460 |
| |
| $8,458 |
| |
| $5,034 |
|
| Less: earnings available to participating securities | 7 |
| | 6 |
| | 3 |
|
| Net earnings available to common shareholders |
| $10,453 |
| |
| $8,452 |
| |
| $5,031 |
|
| Basic | | | | | |
| Basic weighted average shares outstanding | 579.9 |
| | 603.2 |
| | 636.5 |
|
| Less: participating securities | 0.7 |
| | 0.7 |
| | 1.0 |
|
| Basic weighted average common shares outstanding | 579.2 |
| | 602.5 |
| | 635.5 |
|
| Diluted | | | | | |
| Basic weighted average shares outstanding | 579.9 |
| | 603.2 |
| | 636.5 |
|
Dilutive potential common shares(1) | 6.3 |
| | 7.5 |
| | 7.3 |
|
| Diluted weighted average shares outstanding | 586.2 |
| | 610.7 |
| | 643.8 |
|
| Less: participating securities | 0.7 |
| | 0.7 |
| | 1.0 |
|
| Diluted weighted average common shares outstanding | 585.5 |
| | 610.0 |
| | 642.8 |
|
| Net earnings per share: | | | | | |
| Basic |
| $18.05 |
| |
| $14.03 |
| |
| $7.92 |
|
| Diluted | 17.85 |
| | 13.85 |
| | 7.83 |
|
| |
(1)
| Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards. |
TheAs a result of incurring a net loss for the years ended December 31, 2020 and 2019, potential common shares of 1.6 million and 4.1 million were excluded from diluted loss per share because the effect would have been antidilutive. In addition, the following table includes the number of shares that may be dilutive potential common shares in the future. These shares were not included in the computation of
diluted (loss)/earnings per share because the effect was either antidilutive or the performance condition was not met.
|
| | | | | | | | |
| (Shares in millions) | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Performance awards | 2.5 |
| | 4.1 |
| | 6.5 |
|
| Performance-based restricted stock units | 0.3 |
| | 0.5 |
| | 2.5 |
|
| | | | | | | | | | | | | | | | | |
| (Shares in millions) | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| | | | | |
| Performance awards | 5.7 | | | 2.8 | | | 2.5 | |
| Performance-based restricted stock units | 1.3 | | | 0.6 | | | 0.3 | |
| Restricted stock units | 1.0 | | | | | |
Note 64 – Income Taxes
The components of (Loss)/earnings before income taxes were:
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| U.S. |
| $11,166 |
| |
| $9,660 |
| |
| $5,386 |
|
| Non-U.S. | 438 |
| | 447 |
| | 397 |
|
| Total |
| $11,604 |
| |
| $10,107 |
| |
| $5,783 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| U.S. | ($14,882) | | | ($2,792) | | | $11,166 | |
| Non-U.S. | 406 | | | 533 | | | 438 | |
| Total | ($14,476) | | | ($2,259) | | | $11,604 | |
Income tax expense/(benefit)/expense consisted of the following:
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Current tax expense | | | | | |
| U.S. federal |
| $1,873 |
| |
| $1,276 |
| |
| $1,193 |
|
| Non-U.S. | 169 |
| | 149 |
| | 133 |
|
| U.S. state | 97 |
| | 23 |
| | 15 |
|
| Total current | 2,139 |
| | 1,448 |
| | 1,341 |
|
| Deferred tax expense | | | | | |
| U.S. federal | (996 | ) | | 204 |
| | (544 | ) |
| Non-U.S. | (4 | ) | | 3 |
| | (4 | ) |
| U.S. state | 5 |
| | (6 | ) | | (44 | ) |
| Total deferred | (995 | ) | | 201 |
| | (592 | ) |
| Total income tax expense |
| $1,144 |
| |
| $1,649 |
| |
| $749 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Current tax (benefit)/expense | | | | | |
| U.S. federal | ($3,968) | | | ($308) | | | $1,873 | |
| Non-U.S. | 148 | | | 169 | | | 169 | |
| U.S. state | 21 | | | (161) | | | 97 | |
| Total current | (3,799) | | | (300) | | | 2,139 | |
| Deferred tax (benefit)/expense | | | | | |
| U.S. federal | 652 | | | (953) | | | (996) | |
| Non-U.S. | 0 | | (3) | | | (4) | |
| U.S. state | 612 | | | (367) | | | 5 | |
| Total deferred | 1,264 | | | (1,323) | | | (995) | |
| Total income tax (benefit)/expense | ($2,535) | | | ($1,623) | | | $1,144 | |
Net income tax payments were $37, $837 and $1,326 $896in 2020, 2019 and $1,460 in 2018, 2017 and 2016, respectively.
The following is a reconciliation of the U.S. federal statutory tax rate to our effectiveactual income tax rates:expense:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Amount | Rate | | Amount | Rate | | Amount | Rate |
| U.S. federal statutory tax | ($3,039) | | 21.0 | % | | ($474) | | 21.0 | % | | $2,437 | | 21.0 | % |
| Valuation allowance | 2,603 | | (18.0) | | | 25 | | (1.1) | | | 22 | | 0.2 | |
Impact of CARES Act (1) | (1,175) | | 8.1 | | | | | | | |
Audit settlements(2) | (587) | | 4.1 | | | (371) | | 16.4 | | | (412) | | (3.6) | |
| Research and development credits | (284) | | 2.0 | | | (382) | | 16.9 | | | (207) | | (1.8) | |
| Other provision adjustments | 234 | | (1.7) | | | 66 | | (3.0) | | | 91 | | 1.0 | |
| State income tax provision, net of effects on U.S. federal tax | (168) | | 1.2 | | | (45) | | 2.0 | | | 75 | | 0.6 | |
Excess tax benefits(3) | (82) | | 0.6 | | | (180) | | 8.0 | | | (181) | | (1.6) | |
Foreign derived intangible income(4) | (31) | | 0.2 | | | (229) | | 10.1 | | | (549) | | (4.7) | |
| Tax deductible dividends | (13) | | 0.1 | | | (53) | | 2.4 | | | (48) | | (0.4) | |
| Tax on non-US activities | 7 | | (0.1) | | | 20 | | (0.9) | | | 27 | | 0.2 | |
Impact of Tax Cuts and Jobs Act(5) | | | | | | | (111) | | (1.0) | |
| | | | | | | | |
| Income tax (benefit)/expense | ($2,535) | | 17.5 | % | | ($1,623) | | 71.8 | % | | $1,144 | | 9.9 | % |
|
| | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| U.S. federal statutory tax | 21.0 | % | | 35.0 | % | | 35.0 | % |
Foreign derived intangible income(1) | (4.7 | ) | |
|
| |
|
|
Federal audit settlements(2) | (3.6 | ) | |
|
| | (3.1 | ) |
| Research and development credits | (1.8 | ) | | (1.6 | ) | | (5.0 | ) |
Excess tax benefits(3) | (1.6 | ) | | (2.1 | ) | | (1.8 | ) |
| Other provision adjustments | 1.3 |
| | (0.2 | ) | | (0.3 | ) |
Impact of Tax Cuts and Jobs Act(4) | (1.0 | ) | | (12.6 | ) | | |
| Tax on non-US activities | 0.3 |
| | (0.9 | ) | | (0.5 | ) |
Tax basis adjustment(5) |
|
| |
|
| | (7.6 | ) |
| U.S. manufacturing activity tax benefit |
| | (1.3 | ) | | (3.7 | ) |
| Effective income tax rate | 9.9 | % | | 16.3 | % | | 13.0 | % |
| |
(1)
| On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted. The TCJA revised the U.S. corporate income tax by, among other things, lowering the rate from 35% to 21% effective January 1, 2018, implementing a territorial tax system and imposing a one-time tax on deemed repatriated earnings of non-U.S. subsidiaries. The TCJA also enacted provisions which effectively apply a lower U.S. tax rate to intangible income derived from serving non-U.S. markets. In 2018,(2) In the fourth quarter of 2020, we recorded a $549 tax benefit related to foreign derived intangible income. |
| |
(2)
| In the third quarter of 2018, we recorded a tax benefit of $412 related to the settlement of the 2013-2014 |
federal tax audit. In the third quarter of 2016, a tax benefit of $177 was recorded$587 related to the settlement of the 2011-20122015-2017 federal tax audit. In the fourth quarter of 2019, we recorded a tax benefit of $371 related to the settlement of state tax audits spanning 15 tax years. In the third quarter of 2018, we recorded a tax benefit of $412 related to the settlement of the 2013-2014 federal tax audit.
| |
(3) In 2020, 2019 and 2018, we recorded excess tax benefits related to employee share-based payments of $82, $180 and $181, respectively. (4) In 2020, 2019 and 2018, we recorded tax benefits related to foreign derived intangible income of $31, $229 and $549, respectively which effectively apply a lower U.S. tax rate to intangible income derived from serving non-U.S. markets. (5) During the fourth quarter of 2018 and in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118, the Company completed its accounting for the provisional amounts recognized at December 31, 2017 and recorded an incremental benefit related to refinements to these provisional amounts which was not significant.
| In 2018, 2017 and 2016, we recorded excess tax benefits related to employee share-based payments of $181, $207 and $105. |
| |
(4)
| In accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (SAB 118), in the fourth quarter of 2017, we recorded provisional tax benefits of $1,430 related to the remeasurement of our net U.S. deferred tax liabilities to reflect the reduction in the corporate tax rate and a provisional tax expense of $159 related to tax on non-U.S. activities resulting from the TCJA. During the fourth quarter of 2018 and in accordance with SAB 118, the Company completed its accounting for the provisional amounts recognized at December 31, 2017 and recorded an incremental benefit related to refinements to these provisional amounts which was not significant. |
| |
(5)
| In the third quarter of 2016, we recorded incremental tax benefits of $440 related to the application of a 2012 Federal Court of Claims decision which held that the tax basis in certain assets could be increased (tax basis adjustment). |
Significant components of our deferred tax assets/(liabilities)/assets at December 31 were as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Inventory and long-term contract methods of income recognition | ($4,313) | | | ($6,048) | |
| Pension benefits | 3,029 | | | 3,495 | |
| Fixed assets, intangibles and goodwill | (1,645) | | | (1,544) | |
| 737 MAX customer concessions and other considerations | 1,253 | | | 1,626 | |
Net operating loss, credit and capital loss carryovers(1) | 1,182 | | | 696 | |
| Other postretirement benefit obligations | 1,023 | | | 1,120 | |
| Other employee benefits | 957 | | | 849 | |
| Accrued expenses and reserves | 808 | | | 628 | |
| Customer and commercial financing | (180) | | | (268) | |
| Other | 56 | | | (166) | |
| Gross deferred tax assets/(liabilities) before valuation allowance | $2,170 | | | $388 | |
| Valuation allowance | (3,094) | | | (118) | |
| Net deferred tax assets/(liabilities) after valuation allowance | ($924) | | | $270 | |
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Inventory and long-term contract methods of income recognition | (5,422 | ) | | (6,459 | ) |
| Pension benefits | 3,344 |
| | 3,565 |
|
| Fixed assets, intangibles and goodwill (net of valuation allowance of $16 and $16) | (1,616 | ) | | (1,253 | ) |
| Retiree health care benefits | 1,124 |
| | 1,304 |
|
| Other employee benefits | 873 |
| | 847 |
|
| Accrued expenses and reserves | 411 |
| | 334 |
|
| Customer and commercial financing | (309 | ) | | (369 | ) |
Net operating loss, credit and capital loss carryovers (net of valuation allowance of $77 and $53)(1) | 258 |
| | 299 |
|
| Other | (115 | ) | | (135 | ) |
Net deferred tax (liabilities)/assets(2) |
| ($1,452 | ) | |
| ($1,867 | ) |
| |
(1)
| Of the deferred tax asset for net operating loss and credit carryovers, $244 expires on or before December 31, 2037 and $14 may be carried over indefinitely. |
| |
(2)
| Included in the net deferred tax (liabilities)/assets as of December 31, 2018 and 2017 are deferred tax assets in the amounts of $4,275 and $4,636 related to Accumulated other comprehensive loss.
|
Net deferred tax assets/(liabilities)/assets at December 31 were as follows:
|
| | | | | | | |
| 2018 |
| | 2017 |
|
| Deferred tax assets |
| $8,835 |
| |
| $8,399 |
|
| Deferred tax liabilities | (10,194 | ) | | (10,197 | ) |
| Valuation allowance | (93 | ) | | (69 | ) |
| Net deferred tax (liabilities)/assets |
| ($1,452 | ) | |
| ($1,867 | ) |
| | | | | | | | | | | |
| 2020 | | 2019 |
| Deferred tax assets | $11,600 | | | $10,722 | |
| Deferred tax liabilities | (9,430) | | | (10,334) | |
| Valuation allowance | (3,094) | | | (118) | |
| Net deferred tax assets/(liabilities) | ($924) | | | $270 | |
The Company’s deferred income tax assets of $11,600 can be used in future years to offset taxable income and reduce income taxes payable. The Company’s deferred income tax liabilities of $9,430 will partially offset deferred income tax assets and result in higher taxable income in future years and increase income taxes payable. Tax law determines whether future reversals of temporary differences will result in taxable and deductible amounts that offset each other in future years. The particular years in which temporary differences result in taxable or deductible amounts generally are determined by the timing of the recovery of the related asset or settlement of the related liability. The deferred income tax assets and liabilities relate primarily to U.S. federal and state tax jurisdictions. From a U.S. federal tax perspective the Company does not have any significant net operating loss carryforwards nor does it have any significant federal tax credits that are at risk of expiring. The Company generated taxable income in 2018 and 2019 and expects to have a tax net operating loss in 2020 that will be carried back to prior years when the tax rate was 35% due to the CARES Act benefit as described above.
During 2019 and 2020 the Company generated significant pre-tax losses and in the fourth quarter of 2020 the Company reached a three-year cumulative pre-tax loss position. We also normalized earnings and other comprehensive income for certain non-recurring items including certain 737 MAX expenses, an agreement with the Department of Justice, severance costs and remeasurement gains and losses from the annual remeasurement of pension and other postretirement benefit obligations. On a normalized basis the Company expects to reach a three-year cumulative loss position in 2021 as record earnings in 2018 are replaced by 2021 results. For purposes of assessing the recoverability of deferred
tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses.
As of December 31, 2020 the Company has recorded valuation allowances of $3,094 primarily for certain federal deferred tax assets, are reduced by astate net operating loss carryforwards, and state tax credits. To measure the valuation allowance, if, based upon available evidence, it is more likely than not that some or allthe Company estimated in what year each of theits deferred tax assets willand liabilities would reverse using systematic and logical methods to determine the reversal patterns. Based on these methods, deferred tax liabilities are assumed to reverse and generate taxable income over the next 5 to 10 years while deferred tax assets related to pension and other postretirement benefit obligations are assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily results from not be realized.
In accordance with U.S. GAAP,having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of deferred tax assets. Because the pension and other postretirement benefit obligations are recorded to both continuing operations and other comprehensive income (OCI), the Company has made an accounting policy electionrecorded a portion of the fourth quarter increase in the valuation allowance to treat Global Intangible Low Tax Income (GILTI) as a current yearincome tax expense in continuing operations ($2,513) and a portion to OCI ($196). If the periodCompany continues to generate losses and negative normalized earnings in which it is incurred.
Therefore,future periods, additional valuation allowances may have to be recorded with corresponding adverse impacts on earnings and/or OCI. When income generation returns to more normal levels we have not provided any deferred tax impacts of GILTI in our Consolidated Financial Statements forcan expect to see the year ended December 31, 2018.allowance reverse and increase reported earnings and/or OCI.
The TCJA one-time repatriation tax and GILTIGlobal Intangible Low Tax Income liabilities effectively taxed the undistributed earnings previously deferred from U.S. income taxes. We have not provided for foreign withholding tax on the undistributed earnings from our non-U.S. subsidiaries because such earnings are considered to be indefinitely reinvested. If such earnings were to be distributed, any foreign withholding tax would not be significant.
As of December 31, 20182020 and 2017,2019, the amounts accrued for the payment of income tax-related interest and penalties included in the Consolidated Statements of Financial Position were not significant. The amounts of interest included in the Consolidated Statements of Operations were not significant for the years ended December 31, 2018, 20172020, 2019 and 2016.2018.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Unrecognized tax benefits – January 1 |
| $1,736 |
| |
| $1,557 |
| |
| $1,617 |
|
| Gross increases – tax positions in prior periods | 87 |
| | 3 |
| | 17 |
|
| Gross decreases – tax positions in prior periods | (410 | ) | | (44 | ) | | (348 | ) |
| Gross increases – current-period tax positions | 1,208 |
| | 220 |
| | 344 |
|
| Settlements | (206 | ) | |
|
| | (73 | ) |
| Statute Lapse | (3 | ) | |
|
| |
|
|
| Unrecognized tax benefits – December 31 |
| $2,412 |
| |
| $1,736 |
| |
| $1,557 |
|
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Unrecognized tax benefits – January 1 | $1,476 | | | $2,412 | | | $1,736 | |
| Gross increases – tax positions in prior periods | 44 | | | 100 | | | 87 | |
| Gross decreases – tax positions in prior periods | (581) | | | (1,418) | | | (410) | |
| Gross increases – current period tax positions | 136 | | | 344 | | | 1,208 | |
| Gross decreases – current period tax positions | | | (1) | | | |
| Settlements | (109) | | | 39 | | | (206) | |
| Statute Lapse | | | | | (3) | |
| Unrecognized tax benefits – December 31 | $966 | | | $1,476 | | | $2,412 | |
As of December 31, 2018, 20172020, 2019 and 2016,2018, the total amount of unrecognized tax benefits was $2,412, $1,736$966, $1,476 and $1,557,$2,412, respectively, of which $1,405, $1,568$734, $1,287 and $1,402$1,405 would affect the effective tax rate, if recognized. As of December 31, 2018,2020, these amounts are primarily associated with uncertainties in the TCJA and the amount of research tax credits claimed. Also includedclaimed and uncertainties in these amounts are accruals for domestic state tax issues such as the allocation of income among various state tax jurisdictions and the amount of state tax credits claimed.TCJA.
Federal income tax audits have been settled for all years prior to 2015.2018. The Internal Revenue Service (IRS) is expected to begin the 2015-20172018-2019 federal tax audit in the first quarter of 2019.2021. We are also subject to examination in major state and international jurisdictions for the 2001-20172007-2019 tax years. We
believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
Audit outcomes and the timing of audit settlements are subject to significant uncertainty. It is reasonably possible that within the next 12 months unrecognized tax benefits related to state matters under audit may decrease by up to $460 based on current estimates.
Note 75 – Accounts Receivable, net
Accounts receivable at December 31 consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
U.S. government contracts(1) | $811 | | | $1,121 | |
| Commercial Airplanes | 17 | | | 29 | |
Global Services(2) | 1,437 | | | 1,967 | |
Defense, Space, & Security(2) | 120 | | | 220 | |
| Other | 14 | | | 2 | |
| Less valuation allowance | (444) | | | (73) | |
| Total | $1,955 | | | $3,266 | |
(1) |
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Commercial customer contracts |
| $2,059 |
| |
| $1,560 |
|
U.S. government contracts(1) | 1,877 |
| | 1,396 |
|
| Less valuation allowance | (57 | ) | | (62 | ) |
| Total |
| $3,879 |
| |
| $2,894 |
|
| |
(1)
| Includes foreign military sales through the U.S. government |
(2)Excludes U.S. government contracts
Our valuation allowance was increased from $73 to $138 on January 1, 2020 upon adoption of ASU 2016-13. See note 6. Accounts receivable expected to be collected after one year are not material.
Note 86 – Allowances for Losses on Financial Assets
Upon adoption of ASU 2016-13, we recorded a $162 cumulative-effect adjustment to retained earnings to increase our allowances for credit losses, resulting in a balance of $337 as of January 1, 2020. The change in allowances for expected credit losses for the year ended December 31, 2020 consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| Accounts receivable, net | Unbilled receivables, net | Other Current Assets, net | Customer financing, net | Other Assets, net | Total |
| | | | | | |
| | | | | | |
| Balance at January 1, 2020 | ($138) | | ($81) | | ($38) | | ($5) | | ($75) | | ($337) | |
| Changes in estimates | (314) | | (48) | | (34) | | (12) | | (66) | | (474) | |
| Write-offs | 8 | | | | | | 8 | |
| | | | | | |
| Recoveries | | | | | 1 | | 1 | |
| Balance at December 31, 2020 | ($444) | | ($129) | | ($72) | | ($17) | | ($140) | | ($802) | |
Note 7 – Inventories
Inventories at December 31 consisted of the following: |
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Long-term contracts in progress |
| $2,129 |
| |
| $1,854 |
|
| Commercial aircraft programs | 52,753 |
| | 52,861 |
|
| Commercial spare parts, used aircraft, general stock materials and other | 7,685 |
| | 6,673 |
|
| Total |
| $62,567 |
|
|
| $61,388 |
|
Long-Term Contracts in Progress | | | | | | | | | | | |
| 2020 | | 2019 |
| Long-term contracts in progress | $823 | | | $1,187 | |
| Commercial aircraft programs | 70,153 | | | 66,016 | |
| Commercial spare parts, used aircraft, general stock materials and other | 10,739 | | | 9,419 | |
| Total | $81,715 | | | $76,622 | |
Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to United Launch Alliance (ULA) (ULA) under an inventory supply agreement that terminates on March 31, 2021. The inventory balance was $227$17 and $284$176 at December 31, 20182020 and 2017.2019. See indemnifications to ULA in Note 15.14.
Included in inventories areCommercial spare parts, used aircraft, general stock materials and other includes capitalized precontract costs of $644$733 at December 31, 2018 primarily related to the KC-46A Tanker2020 and $933$711 at December 31, 20172019 primarily related to KC-46A Tanker C-17 and F/A-18.Commercial Crew. See Note 14.13.
Commercial Aircraft Programs
The increase in commercial aircraft programs inventory during 2020 reflects the large number of undelivered aircraft due to the 737 MAX grounding, lower wide-body deliveries driven by the impacts of the COVID-19 pandemic and 787 production issues and associated rework, partially offset by a reach-forward loss of $6,493 on the 777X program. At December 31, 2020, commercial aircraft programs inventory includes approximately 425 undelivered 737 MAX aircraft and 80 undelivered 787 aircraft.
We are currently remarketing certain aircraft and may have to remarket additional aircraft in future periods. If we are unable to successfully remarket the aircraft, determine further production rates reductions are necessary, and/or contract the program accounting quantities, future earnings may be reduced and/or additional reach-forward losses may have to be recorded.
At December 31, 20182020 and 2017,2019, commercial aircraft programs inventory included the following amounts related to the 737 program: deferred production costs of $2,159 and $1,313 and unamortized tooling and other non-recurring costs of $480 and $521. At December 31, 2020, $2,560 of 737 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $79 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At December 31, 2020 and 2019, commercial aircraft programs inventory included the following amounts related to the 777X program:unamortized tooling and other non-recurring costs of $3,295 and $2,914. During the fourth quarter of 2020 we determined that estimated costs to complete the 777X program plus costs already included in 777X inventory exceed estimated revenues from the program. The resulting reach-forward loss of $6,493 was recorded as a reduction to deferred production costs. As a result, 777X deferred production costs were immaterial at December 31, 2020. The level of profitability on the 777X program will be subject to a number of factors. These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification. One or more of these factors could result in additional reach-forward losses on the 777X program in future periods.
At December 31, 2020 and 2019, commercial aircraft programs inventory included the following amounts related to the 787 program: $27,852 and $30,695 of work in process (including deferred production costs of $22,967$14,976 and $25,358), $2,453$18,716, $1,865 and $3,189$2,202 of supplier advances, and $2,638$1,863 and $3,173$2,092 of unamortized tooling and other non-recurring costs. At December 31, 2018, $17,3202020, $12,165 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $8,285$4,674 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At December 31, 2018 and 2017, commercial aircraft programs inventory included $116 and $151 of unamortized tooling costs related to the 747 program. At December 31, 2018, $111 of 747 unamortized tooling costs are expected to be recovered from units included in the program accounting quantity that have firm orders or commitments. The program accounting quantity includes one already completed aircraft which is being remarketed.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $2,844$2,992 and $2,976$2,863 at December 31, 20182020 and 2017.2019.
Note 9–8 – Contracts with Customers
Unbilled receivables increaseddecreased from $8,194$9,043 at December 31, 20172019 to $10,025$7,995 at December 31, 2018, 2020, primarily driven by an increase in billings at BDS and BGS, as well as an increase in allowances for expected credit losses at BGS.
Advances and progress billings decreased from $51,551 at December 31, 2019 to $50,488 at December 31, 2020, primarily driven by revenue recognized at BDS, BGS and BCA in excess of billings.
Advancesadvances on orders received and progress billings increased from $48,042 at December 31, 2017 to $50,676 at December 31, 2018, primarily drivenreturn of BCA customer advances, partially offset by advances on orders received in excess of revenue recognized at BCA,. BDS, and BGS.
Revenues recognized for the years ended December 31, 20182020 and 20172019 from amounts recorded as Advances and progress billings at the beginning of each year were $24,737$10,360 and $22,796.$16,778.
Certain commercial airplane customers are experiencing liquidity issues and seeking additional capital. Should these customers fail to address their liquidity issues, accounts receivable, unbilled receivables and certain inventory could become impaired. In addition we would have to remove contracts related to these customers from backlog and remarket any undelivered aircraft.
The following table summarizes our contract assets under long-term contracts that were unbillable or related to outstanding claims as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Unbilled | | Claims |
| 2020 | | 2019 | | 2020 | | 2019 |
| Current | $5,628 | | | $6,931 | | | | | $9 | |
| Expected to be collected after one year | 2,496 | | | 2,112 | | | 18 | | | 14 | |
Less valuation allowance(1) | (129) | | | | | | | |
| Total | $7,995 | | | $9,043 | | | $18 | | | $23 | |
|
| | | | | | | | | | | | | | | |
| | Unbilled | | Claims |
| | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
| Current |
| $7,178 |
| |
| $5,149 |
| |
| $1 |
| |
| $4 |
|
| Expected to be collected after one year | 2,847 |
| | 3,045 |
| | 2 |
| | 55 |
|
| Total |
| $10,025 |
| |
| $8,194 |
| |
| $3 |
| |
| $59 |
|
Unbilled receivables related to commercial customerscustomer incentives expected to be collected after one year were $150$178 and $172$211 at December 31, 20182020 and 2017.2019. Unbilled receivables related to claims are items that we believe are earned, but are subject to uncertainty concerning their determination or ultimate realization.
Note 109 – Customer Financing
Customer financing primarily relates to our BCC segment. Prior period amounts have been adjusted to conform with the current year presentation as a result of the adoption of Topic 606. Customer financing consisted of the following at December 31:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Financing receivables: | | | |
| Investment in sales-type/finance leases |
| $1,125 |
| |
| $1,364 |
|
| Notes | 730 |
| | 1,022 |
|
| Total financing receivables | 1,855 |
| | 2,386 |
|
| Operating lease equipment, at cost, less accumulated depreciation of $203 and $305 | 782 |
| | 691 |
|
| Operating lease incentive | 250 |
| | |
| Gross customer financing | 2,887 |
| | 3,077 |
|
| Less allowance for losses on receivables | (9 | ) | | (12 | ) |
| Total |
| $2,878 |
| |
| $3,065 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Financing receivables: | | | |
| Investment in sales-type/finance leases | $919 | | | $1,029 | |
| Notes | 420 | | | 443 | |
| Total financing receivables | 1,339 | | | 1,472 | |
| Operating lease equipment, at cost, less accumulated depreciation of $209 and $235 | 715 | | | 834 | |
| | | |
| Gross customer financing | 2,054 | | | 2,306 | |
| Less allowance for losses on receivables | (17) | | | (8) | |
| Total | $2,037 | | | $2,298 | |
The components of investment in sales-type/finance leases at December 31 were as follows:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Minimum lease payments receivable |
| $908 |
| |
| $1,159 |
|
| Estimated residual value of leased assets | 425 |
| | 495 |
|
| Unearned income | (208 | ) | | (290 | ) |
| Total |
| $1,125 |
| |
| $1,364 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Minimum lease payments receivable | $756 | | | $799 | |
| Estimated residual value of leased assets | 299 | | | 393 | |
| Unearned income | (136) | | | (163) | |
| Total | $919 | | | $1,029 | |
Operating lease equipment primarily includes large commercial jet aircraft.
Financing receivable balances evaluated for impairment at December 31 were as follows:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Individually evaluated for impairment |
| $409 |
| |
| $422 |
|
| Collectively evaluated for impairment | 1,446 |
| | 1,964 |
|
| Total financing receivables |
| $1,855 |
| |
| $2,386 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Individually evaluated for impairment | $391 | | | $400 | |
| Collectively evaluated for impairment | 948 | | | 1,072 | |
| Total financing receivables | $1,339 | | | $1,472 | |
We determine a receivable is impaired when, based on current information and events, it is probable that we will be unable to collect amounts due according to the original contractual terms. At December 31, 20182020 and 2017,2019, we individually evaluated for impairment customer financing receivables of $409$391 and $422,$400, of which $398$380 and $411$388 were determined to be impaired. We recorded no allowance for losses on these impaired receivables as the collateral values exceeded the carrying values of the receivables.
Income recognitionWe determine a receivable is generally suspended forpast due when cash has not been received upon the due date specified in the contract. There were no past due customer financing receivables as of December 31, 2020.
We evaluate the collectability of customer financing receivables at the date full recovery of incomecommencement and principal becomes not probable. Incomeon a recurring basis. If a customer financing receivable is recognized when financing receivables become contractually current and performance is demonstrated bydeemed uncollectible, the customer. The average recorded investment is categorized as non-accrual status. When a customer is in impaired financing receivablesnon-accrual status at commencement, sales-type lease revenue is deferred until substantially all cash has been received or the customer is removed from non-accrual status. If a customer status changes to non-accrual after commencement or is a direct finance lease and sufficient collateral is available, we recognize contractual interest income as payments are received to the extent payments exceed past due principal payments. If there is not sufficient collateral, then revenue is not recognized until payments exceed the principal balance. Receivables in non-accrual status as of December 31, 2020 and December 31, 2019 were $380 and $388. Interest income received for the yeartwelve and three months ended December 31, 20182020 was $403,$34 and the related interest income was insignificant.
The change in the allowance for losses on financing receivables for the years ended December 31, 2018, 2017 and 2016, consisted of the following:
|
| | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Beginning balance - January 1 |
| ($12 | ) | |
| ($10 | ) | |
| ($16 | ) |
| Customer financing valuation benefit/(cost) | 3 |
| | (2 | ) | | 6 |
|
| Ending balance - December 31 |
| ($9 | ) | |
| ($12 | ) | |
| ($10 | ) |
| Collectively evaluated for impairment |
| ($9 | ) | |
| ($12 | ) | |
| ($10 | ) |
The adequacy of the allowance for losses is assessed quarterly. ThreeFour primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates, expected loss rate and collateral values.values, which may be adversely affected by impacts that COVID-19 has on our customers. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by the major credit rating agencies.
Our financing receivable balances at December 31 by internal credit rating category are shown below:and year of origination consisted of the following:
|
| | | | | | | |
| Rating categories | 2018 |
| | 2017 |
|
| BBB |
| $883 |
| |
| $1,170 |
|
| BB | 430 |
| | 627 |
|
| B | 135 |
| | 177 |
|
| CCC | 407 |
| | 412 |
|
| Total carrying value of financing receivables |
| $1,855 |
| |
| $2,386 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Rating categories | Current | 2019 | 2018 | 2017 | 2016 | Prior | Total |
| BBB | | | | | | $307 | | $307 | |
| BB | $135 | | $49 | | $15 | | | | 143 | | 342 | |
| B | | | | $52 | | | 167 | | 219 | |
| CCC | 7 | | 33 | | | 242 | | $177 | | 12 | | 471 | |
| | | | | | | |
| | | | | | | |
| Total carrying value of financing receivables | $142 | | $82 | | $15 | | $294 | | $177 | | $629 | | $1,339 | |
At December 31, 2018,2020, our allowance related to receivables with ratings of CCC, B, BB and BBB. We applied default rates that averaged 22.8%26.0%, 6.5%7.4%, 3.0% and 0.7%0.2%, respectively, to the exposure associated with those receivables.
Customer Financing Exposure
Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and overall market conditions and may be subject to reduced valuation with market decline. Certain collateral values are being adversely impacted by the changes in market conditions driven by the COVID-19 pandemic. Declines in collateral values could result in asset impairments, reduced finance lease income, and an increase in the allowance for losses. Our customer financing collateral is concentrated in 747-8out-of-production aircraft and out-of-production747-8 aircraft. Generally, out-of-production aircraft have experienced greater collateral value declines than in-production aircraft.
The majority of customer financing carrying values are concentrated in the following aircraft models at December 31:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| 717 Aircraft ($204 and $269 accounted for as operating leases) |
| $918 |
| |
| $1,081 |
|
| 747-8 Aircraft ($132 and $138 accounted for as operating leases) | 477 |
| | 483 |
|
| 737 Aircraft ($263 and $127 Accounted for as operating leases) | 290 |
| | 161 |
|
| MD-80 Aircraft (Accounted for as sales-type finance leases) | 204 |
| | 231 |
|
| 757 Aircraft ($24 and $27 accounted for as operating leases) | 200 |
| | 217 |
|
| 747-400 Aircraft ($45 and $88 Accounted for as operating leases) | 116 |
| | 170 |
|
| 777 Aircraft ($60 and $0 accounted for as operating leases) | 68 |
| | 14 |
|
| 767 Aircraft ($0 and $25 accounted for as operating leases) |
|
| | 98 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| 717 Aircraft ($98 and $124 accounted for as operating leases) | $637 | | | $736 | |
| 747-8 Aircraft ($121 and $130 accounted for as operating leases) | 480 | | | 475 | |
| 737 Aircraft ($214 and $240 Accounted for as operating leases) | 235 | | | 263 | |
| 777 Aircraft ($216 and $236 accounted for as operating leases) | 225 | | | 240 | |
| MD-80 Aircraft (Accounted for as sales-type finance leases) | 167 | | | 186 | |
| 757 Aircraft ($4 and $22 accounted for as operating leases) | 147 | | | 182 | |
| 747-400 Aircraft ($19 and $31 Accounted for as operating leases) | 71 | | | 90 | |
Charges related to customer financing asset impairment for the years ended December 31 were as follows:
|
| | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Boeing Capital |
| $1 |
| |
| $13 |
| |
| $45 |
|
| Other Boeing | 38 |
| | 30 |
| | 21 |
|
| Total |
| $39 |
| |
| $43 |
| |
| $66 |
|
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Boeing Capital | $32 | | | $53 | | | $1 | |
| Other Boeing | (8) | | | 217 | | | 38 | |
| Total | $24 | | | $270 | | | $39 | |
Scheduled receipts on customer financingDecember 31, 2020, undiscounted cash flows for notes receivable, sales-type/finance and operating leases over the next five years and thereafter are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | |
| Year | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | Beyond 2023 |
| Principal payments on notes receivable |
| $658 |
| |
| $11 |
| |
| $7 |
| |
| $37 |
| |
| $17 |
| |
|
|
| Sales-type/finance lease payments receivable | 208 |
| | 171 |
| | 124 |
| | 110 |
| | 92 |
| | 203 |
|
| Operating lease equipment payments receivable | 112 |
| | 93 |
| | 79 |
| | 68 |
| | 45 |
| | 91 |
|
| | | | | | | | | | | | | | | | | |
| Notes receivable | | Sales-type/finance leases | | Operating leases |
| Year 1 | $149 | | | $164 | | | $85 | |
| Year 2 | 53 | | | 150 | | | 75 | |
| Year 3 | 34 | | | 141 | | | 72 | |
| Year 4 | 18 | | | 121 | | | 56 | |
| Year 5 | 19 | | | 83 | | | 34 | |
| Thereafter | 147 | | | 97 | | | 66 | |
| Total lease receipts | 420 | | | 756 | | | 388 | |
| Less imputed interest | | | (136) | | | |
| Estimated unguaranteed residual values | | | 299 | | | |
| Total | $420 | | | $919 | | | $388 | |
As part of selected lease transactions, Boeing may provide incentives to commercial customers. At December 31, 2018 Customer Financing included $2502020 and December 31, 2019 unguaranteed residual values were $299 and $393. Guaranteed residual values at December 31, 2020 were not significant.
Note 1110 – Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Land |
| $546 |
| |
| $530 |
|
| Buildings and land improvements | 14,109 |
| | 14,125 |
|
| Machinery and equipment | 15,221 |
| | 14,577 |
|
| Construction in progress | 1,337 |
| | 1,081 |
|
| Gross property, plant and equipment | 31,213 |
| | 30,313 |
|
| Less accumulated depreciation | (18,568 | ) | | (17,641 | ) |
| Total |
| $12,645 |
| |
| $12,672 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Land | $512 | | | $527 | |
| Buildings and land improvements | 14,415 | | | 14,288 | |
| Machinery and equipment | 16,060 | | | 15,723 | |
| Construction in progress | 1,340 | | | 1,306 | |
| Gross property, plant and equipment | 32,327 | | | 31,844 | |
| Less accumulated depreciation | (20,507) | | | (19,342) | |
| Total | $11,820 | | | $12,502 | |
Depreciation expense was $1,556, $1,548$1,533, $1,567 and $1,418$1,556 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. Interest capitalized during the years ended December 31, 2020, 2019 and 2018 2017totaled $81, $83 and 2016 totaled $81, $110$81, respectively.
During 2020 and $170, respectively.
Rental expense for leased properties was $307, $2832019, we acquired $47 and $287, for the years ended December 31, 2018, 2017$128 of property, plant and 2016, respectively. At December 31, 2018, minimum rental payments under capital leases aggregated $164. Minimum rental payments under operating leases with initial or remaining terms of one year or more aggregated $1,838, net of sublease payments of $12 at December 31, 2018. Payments due under operatingequipment through non-cash investing and capital leases net of sublease amounts and non-cancellable future rentals during the next five years are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
|
| Minimum operating lease payments, net of sublease amounts |
| $272 |
| |
| $232 |
| |
| $194 |
| |
| $165 |
| |
| $126 |
|
| Minimum capital lease payments | 58 |
| | 45 |
| | 30 |
| | 16 |
| | 4 |
|
financing transactions. Accounts payable related to purchases of property, plant and equipment were $338$182 and $196$256 for the years ended December 31, 20182020 and 2017.2019.
Note 1211 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following at December 31:
| | | | | | | | | | | |
| 2020 | | 2019 |
Equity method investments (1) | $936 | | | $1,031 | |
| Time deposits | 17,154 | | | 50 | |
| Available for sale debt instruments | 596 | | | 405 | |
| Equity and other investments | 85 | | | 65 | |
Restricted cash & cash equivalents (2) | 83 | | | 86 | |
| Total | $18,854 | | | $1,637 | |
(1)Dividends received were $149 and $164 during 2020 and 2019. Retained earnings at December 31, 2020 include undistributed earnings from our equity method investments of $148.
(2)Reflects amounts restricted in support of our workers’ compensation programs, employee benefit programs, and insurance premiums.
Allowance for losses on available for sale debt instruments are assessed quarterly. All instruments are considered investment grade and, as such, we have not recognized an allowance for credit losses as of December 31, 2020.
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
Equity method investments (1) |
| $1,048 |
| |
| $1,214 |
|
| Time deposits | 255 |
| | 613 |
|
| Available for sale debt instruments | 491 |
| | 490 |
|
| Equity and other investments | 44 |
| | 48 |
|
Restricted cash & cash equivalents (2) | 176 |
| | 74 |
|
| Total |
| $2,014 |
| |
| $2,439 |
|
| |
(1)
| Dividends received were $325 and $247 during 2018 and 2017. Retained earnings at December 31, 2018 include undistributed earnings from our equity method investments of $104. |
| |
(2)
| Reflects amounts restricted in support of our workers’ compensation programs, employee benefit programs, and insurance premiums. |
Equity Method Investments
Our equity method investments consisted of the following as of December 31:
|
| | | | | | | | | | |
| | Segment | Ownership Percentages | | Investment Balance |
| | | | | 2018 |
| | 2017 |
|
| United Launch Alliance | BDS | 50% | |
| $768 |
| |
| $889 |
|
| Other | BCA, BDS, and BGS | | | 280 |
| | 325 |
|
| Total equity method investments | | |
| $1,048 |
| |
| $1,214 |
|
| | | | | | | | | | | | | | | | | | | | |
| Segment | Ownership Percentages | | Investment Balance |
| | | | 2020 | | 2019 |
| United Launch Alliance | BDS | 50% | | $735 | | | $771 | |
| Other | BCA, BDS, BGS and Other | | | 201 | | | 260 | |
| Total equity method investments | | | $936 | | | $1,031 | |
Note 1312 – Other AssetsLeases
Sea Launch
AtOur operating lease assets primarily represent manufacturing and research and development facilities, warehouses, and offices. Total operating lease expense was $360 and $326 for the years ended December 31, 20182020 and 2017, Other2019, of which $71 and $55 was attributable to variable lease expenses.
For the years ended December 31, 2020 and 2019, cash payments against operating lease liabilities totaled $299 and $277 and non-cash transactions totaled $371 and $371 to recognize operating assets included $244 and $356liabilities for new leases.
Supplemental Consolidated Statement of receivablesFinancial Position information related to our former investment in the Sea Launch venture which became payable by certain Sea Launch partners following Sea Launch’s bankruptcy filing in June 2009. The net amounts owed to Boeing by eachleases consisted of the partnersfollowing at December 31:
| | | | | | | | |
| 2020 | 2019 |
| Operating leases: | | |
| Operating lease right-of-use assets | $1,252 | $1,182 |
| | |
| Current portion of lease liabilities | 268 | 252 |
| Non-current portion of lease liabilities | 1,084 | 978 |
| Total operating lease liabilities | $1,352 | $1,230 |
| | |
Weighted average remaining lease term (years) | 9 | 9 |
| Weighted average discount rate | 3.43% | 3.35% |
Maturities of operating lease liabilities for the next five years are as follows: S.P. Koroley Rocket and Space Corporation Energia
| | | | | | | | |
| | Operating leases |
| 2021 | | $307 | |
| 2022 | | 241 | |
| 2023 | | 191 | |
| 2024 | | 135 | |
| 2025 | | 105 | |
| Thereafter | | 802 | |
| Total lease payments | | 1,781 | |
| Less imputed interest | | (429) | |
| Total | | $1,352 | |
As of Russia (RSC Energia) – $111, PO Yuzhnoye Mashinostroitelny Zavod of Ukraine – $89 and KB Yuzhnoye of Ukraine – $44.
In 2013, we filed an action in the United States District Court for the Central District of California seeking reimbursement from the other Sea Launch partners. In 2016, the United States District Court for the Central District of California issued a judgment in favor of Boeing. Later that year, we reached an agreement which we believe will enable us to recover the outstanding receivable balance from RSC Energia over the next several years. We continue to pursue collection efforts against the former Ukrainian partners in connection with the court judgment. We continue to believe the partners have the financial wherewithal to pay and intend to pursue vigorously all of our rights and remedies. In the event we are unable to secure reimbursement from RSC Energia and the Ukrainian Sea Launch partners, we could incur additional charges.
Spirit AeroSystems
At December 31, 2017, Other assets included $1372020, we have entered into a lease that has not yet commenced of receivables related to indemnifications from Spirit AeroSystems, Inc. (Spirit)$226, for costs incurred related to pensiona maintenance, repair and retiree medical obligationsoverhaul hangar that will support military aircraft programs. This lease will commence in 2023 with a lease term of former Boeing employees who were subsequently employed by Spirit. On July 12, 2018, the Delaware Supreme Court denied Boeing’s claim for indemnification. As a result, in the second quarter we wrote off the receivables attributable to the Spirit indemnifications.25 years.
Note 1413 – Liabilities, Commitments and Contingencies
Accrued Liabilities
Accrued liabilities at December 31 consisted of the following:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Accrued compensation and employee benefit costs | $7,121 | | | $5,582 | |
| 737 MAX customer concessions and other considerations | 5,537 | | | 7,389 | |
| Department of Justice agreement liability | 744 | | | |
| Environmental | 565 | | | 570 | |
| Product warranties | 1,527 | | | 1,267 | |
| Forward loss recognition | 1,913 | | | 1,681 | |
| Dividends payable | | | 1,159 | |
| Income taxes payable | 43 | | | 670 | |
| Current portion of lease liabilities | 268 | | | 252 | |
| Other | 4,453 | | | 4,298 | |
| Total | $22,171 | | | $22,868 | |
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Accrued compensation and employee benefit costs |
| $6,841 |
| |
| $6,659 |
|
| Environmental | 555 |
| | 524 |
|
| Product warranties | 1,127 |
| | 1,211 |
|
| Forward loss recognition | 1,488 |
| | 622 |
|
| Dividends payable | 1,160 |
| | 1,005 |
|
| Income Taxes Payable | 485 |
| | 380 |
|
| Other | 3,152 |
| | 2,668 |
|
| Total |
| $14,808 |
| |
| $13,069 |
|
737 MAX Grounding and COVID-19 Impacts
In 2019, following two fatal 737 MAX accidents, the Federal Aviation Administration (FAA) and non-U.S. civil aviation authorities issued orders suspending commercial operations of 737 MAX aircraft. Deliveries of the 737 MAX were suspended following these orders. Deliveries in the U.S. resumed in late 2020 following rescission by the FAA of its grounding order.
Multiple legal actions have been filed against us as a result of the accidents. In addition, we are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including an investigation by the Securities and Exchange Commission, the outcome of which may be material. Other than as described below with respect to the U.S. Department of Justice, we cannot
reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations and inquiries related to the 737 MAX.
On January 6, 2021, we entered into a Deferred Prosecution Agreement with the U.S. Department of Justice that resolves the Department of Justice’s previously disclosed investigation into us regarding the evaluation of the 737 MAX airplane by the FAA. Under the terms of the Deferred Prosecution Agreement, we agreed to the filing of a criminal information charging the Company with one count of conspiracy to defraud the United States, based on the conduct of two former 737 MAX program technical pilots; the criminal information will be dismissed after three years, provided that we comply with our obligations under the agreement. The Deferred Prosecution Agreement requires that we make payments totaling $2.51 billion, which consist of (a) a $243.6 million criminal monetary penalty; (b) $500 million in additional compensation to the heirs and/or beneficiaries of those who died in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 accidents; and (c) $1.77 billion to the Company’s airline customers for harm incurred as a result of the grounding of the 737 MAX, offset in part by payments already made and the remainder satisfied through payments to be made prior to the termination of the Deferred Prosecution Agreement. The agreement also requires that we review our compliance program and undertake continuous improvement efforts with respect to it, and implement enhanced compliance reporting and internal controls mechanisms. Of the payments described above, $1.77 billion has been included in amounts reserved in prior quarters for 737 MAX customer considerations. We expensed $743.6 million in the fourth quarter of 2020 related to this agreement.
During the fourth quarter of 2020, the FAA rescinded the order that grounded 737 MAX aircraft and issued an Airworthiness Directive specifying requirements that must be met before U.S. carriers can resume service, including installing software enhancements, completing wire separation modification, conducting pilot training and performing maintenance steps to prepare parked aircraft to fly again. The FAA also issued a Continued Airworthiness Notification to the International Community, and published the 737 MAX training requirements. The FAA must approve 737 MAX pilot training program revisions for each U.S. airline operating the aircraft and has indicated its intent to retain its authority to issue airworthiness certificates and export certificates of airworthiness for all new 737 MAX aircraft manufactured subsequent to the grounding order. The Brazilian National Civil Aviation Agency approved return of operations in the fourth quarter of 2020, and Transport Canada and the European Union Aviation Safety Agency (EASA)approved return of operations in the first quarter of 2021.
In December 2020, we delivered 27 aircraft, in compliance with the FAA regulatory requirements described above. We have assumed that the remaining non-U.S. regulatory approvals will occur and enable deliveries during the first half of 2021. We have approximately 425 airplanes in inventory as of December 31, 2020. A number of customers have requested to defer deliveries or to cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory. We now expect to deliver about half of the 737 MAX aircraft in inventory by the end of 2021. In the event that we are unable to resume aircraft deliveries in non-U.S. jurisdictions consistent with our assumptions of regulatory approval timing, our expectation of delivery timing could be impacted.
Due to the grounding and associated suspension of 737 MAX deliveries, we temporarily suspended 737 MAX production beginning in January 2020. We resumed early stages of 737 MAX production in May 2020 and continued to produce at low rates through the end of 2020.
In addition, we reduced the number of aircraft included in the accounting quantity by 400 units in the first quarter of 2020 as a result of reductions to planned production rates due to COVID-19 driven market uncertainties. As we are producing at abnormally low production rates in 2020 and 2021, we expect to incur approximately $5 billion of abnormal production costs that are being expensed as incurred. The slowdown in the planned production rate ramp-up increased expected abnormal costs, however this increase was offset by adjustments to the determination of the normal production level due to COVID-19 impacts on customer demand, as well as cost reduction activities, including significant
reductions in employment levels. We expensed $2,567 of abnormal production costs during the year ended December 31, 2020.
In addition to impacts related to the 737 MAX accidents and subsequent grounding, the 737 program continues to be significantly impacted by the COVID-19 pandemic and its effect on aircraft demand. These impacts have resulted in lower production and delivery rate assumptions. We currently expect to gradually increase the production rate to 31 per month by early 2022. We currently assume that we will implement further gradual production rate increases in subsequent periods based on market demand. The ongoing impacts of COVID-19 on market demand have also created significant uncertainty around the timing of deliveries of 737 MAX aircraft in inventory. We may need to recognize additional costs associated with remarketing and/or reconfiguring aircraft in inventory, which may reduce revenue and/or earnings in future periods.
We have also recorded additional expenses of $416 and $328 due to the 737 MAX grounding during 2020 and 2019, which include costs related to storage, inventory impairment, pilot training, and software updates.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during 2020.
| | | | | | | | | | | |
| 2020 | | 2019 |
| Beginning balance – January 1 | $7,389 | | | |
| Initial liability recorded in the second quarter of 2019 | | | $6,110 | |
| Reductions for payments made | (2,188) | | | (1,237) | |
| Reductions for concessions and other in-kind considerations | (162) | | | (133) | |
| Changes in estimates | 498 | | | 2,649 | |
| Ending balance – December 31 | $5,537 | | | $7,389 | |
We are working with our customers to minimize the impact to their operations from grounded and undelivered aircraft. We continue to reassess the liability for estimated potential concessions and other considerations to customers on a quarterly basis. This reassessment includes updating estimates to reflect revisions to return to service, delivery and production rate assumptions driven by timing of regulatory approvals, as well as latest information based on engagements with 737 MAX customers. The liability represents our current best estimate of future concessions and other considerations to customers, and is necessarily based on a series of assumptions. It is subject to change in future quarters as negotiations with customers mature and timing and conditions of return to service are better understood. The liability balance of $5.5 billion at December 31, 2020 includes $2.3 billion expected to be liquidated by lower customer delivery payments, $0.6 billion expected to be paid in cash and $0.1 billion in other concessions. Of the cash payments to customers, we expect to pay $0.3 billion in 2021 and $0.3 billion in 2022. The type of consideration to be provided for the remaining $2.5 billion will depend on the outcomes of negotiations with customers.
The 737 MAX remains grounded in certain non-U.S. jurisdictions. The civil aviation authorities in those jurisdictions will determine the timing and conditions of return to service. Our assumptions reflect our current best estimate, but actual timing and conditions of return to service and resumption of deliveries could differ from this estimate, the effect of which could be material. We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the timing and conditions of return to service, uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to the production rate, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows. For example, we expect that, in the event
that we are unable to resume aircraft deliveries in non-U.S. jurisdictions consistent with our assumptions, the continued absence of revenue, earnings, and cash flows associated with 737 MAX deliveries would continue to have a material impact on our operating results. In the event that future production rate increases occur at a slower rate or take longer than we are currently assuming, we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged production suspension or delays in planned production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce 737 program margins and/or increase abnormal production costs in the future.
Commercial air traffic has fallen dramatically due to the COVID-19 pandemic. While this trend has impacted passenger traffic most severely, near-term cargo traffic has also fallen significantly due to the global economic downturn and the reduction in cargo capacity on passenger airplanes. Airlines have significantly reduced their capacity, and many could implement further reductions in the near future. Many airlines are also implementing significant reductions in staffing. These capacity changes are causing, and are expected to continue to cause, negative impacts to our customers’ revenue, earnings, and cash flow, and in some cases may threaten the future viability of some of our customers, potentially causing defaults within our customer financing portfolio and/or requiring us to remarket aircraft that have already been produced and/or are currently in backlog. If 737 MAX aircraft remain grounded for an extended period of time in non-U.S. jurisdictions, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand. Our customers may also lack sufficient liquidity to purchase new aircraft due to impacts from the pandemic. We are also observing a significant increase in the number of requests for payment deferrals, contract modifications, lease restructurings and similar actions, and these trends may lead to additional earnings charges, impairments and other adverse financial impacts in our business over time. In addition, to the extent that customers have valid rights to cancel undelivered aircraft, we may be required to refund pre-delivery payments, putting additional constraints on our liquidity. There is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises. In addition, airlines may experience reduced demand due to reluctance by the flying public to travel.
As a result, there is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The COVID-19 pandemic also has increased, and its aftermath is also expected to continue to increase, uncertainty with respect to global trade volumes, putting significant negative pressure on cargo traffic. Any of these factors would have a significant impact on the demand for both single-aisle and wide-body commercial aircraft, as well as for the services we provide to commercial airlines. In addition, a lengthy period of reduced industry-wide demand for commercial aircraft would put additional pressure on our suppliers, resulting in increased procurement costs and/or additional supply chain disruption. To the extent that the COVID-19 pandemic or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers and/or suppliers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.
Environmental
The following table summarizes environmental remediation activity during the years ended December 31, 20182020 and 2017.2019.
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Beginning balance – January 1 |
| $524 |
| |
| $562 |
|
| Reductions for payments made | (37 | ) | | (45 | ) |
| Changes in estimates | 68 |
| | 7 |
|
| Ending balance – December 31 |
| $555 |
| |
| $524 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Beginning balance – January 1 | $570 | | | $555 | |
| Reductions for payments made | (42) | | | (47) | |
| Changes in estimates | 37 | | | 62 | |
| Ending balance – December 31 | $565 | | | $570 | |
The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios that includes the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At December 31, 20182020 and 2017,2019, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $796$1,095 and $868.
Product Warranties
The following table summarizes product warranty activity recorded during the years ended December 31, 20182020 and 2017.2019.
| | | | | | | | | | | |
| 2020 | | 2019 |
| Beginning balance – January 1 | $1,267 | | | $1,127 | |
| Additions for current year deliveries | 65 | | | 188 | |
| Reductions for payments made | (260) | | | (249) | |
| Changes in estimates | 455 | | | 201 | |
| Ending balance – December 31 | $1,527 | | | $1,267 | |
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Beginning balance – January 1 |
| $1,211 |
| |
| $1,414 |
|
| Additions for current year deliveries | 232 |
| | 274 |
|
| Reductions for payments made | (193 | ) | | (241 | ) |
| Changes in estimates | (123 | ) | | (236 | ) |
| Ending balance – December 31 |
| $1,127 |
| |
| $1,211 |
|
Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used
aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.
Trade-in commitment agreements at December 31, 20182020 have expiration dates from 20192021 through 2026.2028. At December 31, 20182020 and 2017,2019, total contractual trade-in commitments were $1,519$950 and $1,462.$1,407. As of December 31, 20182020 and 2017,2019, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $522$599 and $155$711 and the fair value of the related trade-in aircraft was $485$580 and $155.$678.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $19,462$11,512 and $10,221$13,377 as of December 31, 20182020 and 2017.2019. The estimated earliest potential funding dates for these commitments as of December 31, 20182020 are as follows:
|
| | | |
| | Total |
|
| 2019 |
| $2,331 |
|
| 2020 | 3,432 |
|
| 2021 | 2,784 |
|
| 2022 | 1,787 |
|
| 2023 | 3,402 |
|
| Thereafter | 5,726 |
|
| |
| $19,462 |
|
| | | | | |
| Total |
| 2021 | $2,329 | |
| 2022 | 2,384 | |
| 2023 | 1,677 | |
| 2024 | 1,677 | |
| 2025 | 1,827 | |
| Thereafter | 1,618 | |
| $11,512 | |
As of December 31, 2018, $18,7852020, all of these financing commitments relatedrelate to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.
Standby Letters of Credit and Surety Bonds
We have entered into standby letters of credit and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately $3,761$4,238 and $3,708$3,769 as of December 31, 20182020 and 2017.2019.
Company Owned Life Insurance
McDonnell Douglas Corporation insured its executives with Company Owned Life Insurance (COLI), which are life insurance policies with a cash surrender value. Although we do not use COLI currently, these obligations from the merger with McDonnell Douglas are still a commitment at this time. We have loans in place to cover costs paid or incurred to carry the underlying life insurance policies. As of
December 31, 20182020 and 2017,2019, the cash surrender value was $466$395 and $489$448 and the total loans were $447$382 and $470.$431. As we have the right to offset the loans against the cash surrender value of the policies, we present the net asset in Other assets on the Consolidated Statements of Financial Position as of December 31, 20182020 and 2017.2019.
United States Government Defense Environment Overview
The Bipartisan Budget Act of 2018, passedOmnibus appropriations acts for FY21, enacted in February 2018, raised the 2011 Budget Control Act spending caps for fiscal years 2018 and 2019 (FY18 and FY19). The consolidated spending bills signed into law in September 2018 provide defense funding for FY19, in compliance with the revised caps. These bills also provide FY19December 2020, provided FY21 appropriations for most of the federal government. Full year funding for thegovernment departments and agencies, not covered by enacted FY19 appropriations, including the United States Department of Defense (U.S. DoD), the National Aeronautics and Space Administration (NASA) and the Federal Aviation Administration (FAA), remains uncertain. Administration.
The unfunded departments and agencies affected by the partial government shutdown (December 22, 2018 through January 25, 2019) are now covered by a Continuing Resolution that extendsenacted FY21 appropriations included funding at FY18 levels through February 15, 2019. Congress and the President must agree to FY19 appropriations or an additional Continuing Resolution to fund affected departments and agencies beyond the February 15 deadline in order to prevent a second partial government shutdown. The impact of a partial government shutdown to the Company’s operations would increasefor Boeing’s major programs, such as the shutdown continues.
ThereF/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, there continues to be uncertainty with respect to future program-level appropriations for the U.S. DoD and other government agencies, including NASA. The 2011 Budget Control Act continues to mandate limits on U.S. government discretionary spending for fiscal years 2020 and 2021 (FY20 and FY21). The lower budget caps will take effect again in FY20 and FY21 unless Congress acts to raise the spending caps or to repeal or suspend the law. As a result, continued budget uncertainty and the risk of future sequestration cuts remain. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on theour results of the Company’s operations, financial position and/or cash flows.
BDS Fixed-Price Development Contracts
Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include Commercial Crew, Saudi F-15, USAF KC-46A Tanker, T-X Trainer,MQ-25, T-7A Red Hawk, VC-25B, Presidential Aircraft, MQ-25 Stingray, and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, we have recorded an increase in the reach-forward lossesloss of $1,320 on the KC-46A Tanker in 2018 as well as in prior years, and we continue to have risk for further losses if we experience further production, technical or quality issues, and delays in flight testing, certification and/or
delivery. In addition, in 2018, in connection with winning the T-X Trainer and MQ-25 Stingray competitions, we recorded a loss of $400costs associated with options for 346 T-X Trainer aircraftthe agreement signed in April 2020 with the U.S. Air Force (USAF) to develop and integrate a lossnew Remote Vision System, and the remaining costs reflect production inefficiencies including impacts of $291 related to the MQ-25 Stingray Engineering, Manufacturing and Development (EMD) contract.COVID-19 disruption. Moreover, our fixed-price development programs remain subject to additional reach-forward losses if we experience further production, technical or quality issues, schedule delays, or increased costs.
KC-46A Tanker
In 2011, we were awarded a contract from the U.S. Air Force (USAF) to design, develop, manufacture and deliver four next generation aerial refueling tankers. This EMDEngineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract valued at $4.9 billion and involves highly complex designs and systems integration. InSince 2016, the USAF has authorized twofive low rate initial production (LRIP) lots for a total of 67 aircraft. The EMD contract and authorized LRIP lots for 7 and 12 aircraftare valued at $2.8approximately $15 billion and in 2017, the USAF authorized an additional LRIP lot for 15 aircraft valued at $2.1 billion. On September 10, 2018, the USAF authorized an additional LRIP lot for 18 aircraft valued at $2.9 billion. In January 2019, we delivered the first KC-46A Tanker to the USAF.as of December 31, 2020.
At December 31, 2018,2020, we had approximately $370$463 of capitalized precontract costs and $550$1,281 of potential termination liabilities to suppliers. These values were primarily related to 12 aircraft in lot 6 and 15 aircraft in lot 7 for which we received contract awards in January 2021.
Recoverable Costs on Government Contracts
Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S. government to assess the merits of claims and where appropriate reserve for
amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.
The following table summarizes changes in the severance liability during 2020:
| | | | | | |
| 2020 | |
| Initial liability recorded in the second quarter of 2020 | $652 | | |
| Reductions for payments made | (658) | | |
| Changes in estimates | 289 | | |
| Ending balance – December 31 | $283 | | |
During 2020, the Company recorded severance costs for approximately 26,000 employees expected to leave the Company through a combination of voluntary and involuntary terminations. The severance packages are consistent with the Company’s ongoing compensation and benefits plans. As of December 31, 2020, approximately 18,000 of the 26,000 employees have left the Company, and the remainder are expected to leave in 2021.
Note 1514 – Arrangements with Off-Balance Sheet Risk
We enter into arrangements with off-balance sheet risk in the normal course of business, primarily in the form of guarantees.
The following table provides quantitative data regarding our third party guarantees. The maximum potential payments represent a “worst-case scenario,” and do not necessarily reflect amounts that we expect to pay. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under guarantees. The carrying amount of liabilities represents the amount included in Accrued liabilities.
|
| | | | | | | | | | | | | | | | | | | |
| | Maximum
Potential
Payments | | Estimated Proceeds from Collateral/ Recourse | | Carrying Amount of Liabilities |
| December 31, | 2018 |
| 2017 |
| | 2018 |
| 2017 |
| | 2018 |
| 2017 |
|
| Contingent repurchase commitments |
| $1,685 |
|
| $1,605 |
| |
| $1,685 |
|
| $1,605 |
| |
|
|
| $9 |
|
| Indemnifications to ULA: | | | | | | | | |
| Contributed Delta program launch inventory | 52 |
| 72 |
| | | | | | |
| Contract pricing | | 261 |
| | | | |
|
| 7 |
|
| Other Delta contracts | 176 |
| 191 |
| | | | |
|
|
|
| Credit guarantees | 106 |
| 109 |
| | 51 |
| 55 |
| | 16 |
| 16 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Maximum
Potential
Payments | | Estimated
Proceeds from
Collateral/
Recourse | | Carrying
Amount of
Liabilities |
| December 31, | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 |
| Contingent repurchase commitments | $1,452 | | $1,570 | | | $1,452 | | $1,570 | | | | |
| Indemnifications to ULA: | | | | | | | | |
| Contributed Delta inventory | 15 | | 30 | | | | | | | |
| Inventory supply agreement | 17 | | 34 | | | | | | | |
| Questioned costs | | 317 | | | | | | | $48 | |
| | | | | | | | |
| Credit guarantees | 90 | | 92 | | | 28 | | 36 | | | $24 | | 16 | |
| | | | | | | | |
Contingent Repurchase Commitments The repurchase price specified in contingent repurchase commitments is generally lower than the expected fair value at the specified repurchase date. Estimated
proceeds from collateral/recourse in the table above represent the lower of the contracted repurchase price or the expected fair value of each aircraft at the specified repurchase date.
Indemnifications to ULA In 2006, weDuring the first quarter of 2020, the USAF and ULA reached a settlement regarding previously questioned deferred support and deferred production costs. As part of the settlement the USAF agreed to indemnifyreimburse ULA throughfor $307 of those costs, which was received by ULA in the second quarter. Our indemnification to ULA associated with the recoverability of contributed assets
expired on December 31, 2020, against potential non-recoverability and non-allowability of $1,360 of Boeing Delta launch program inventory includedresulting in contributed assets plus $1,860 of inventory subjecta $33 payment to an inventory supply agreement which ends on March 31, 2021. See Note 8. ULA has yetthe partnership. This settlement retires our indemnification risks to consume $52 of contributed inventory.
We also agreed to indemnify ULA for up to $261 in the event ULA was unable to obtain sufficient additional contract pricing from the USAF for certain satellite missions. In the fourth quarter of 2018, ULA and the USAF entered into a settlement agreement which resulted in the USAF making a payment of $240 to ULA.
Potential payments for Other Delta contracts include $85 related to deferred support costs and $91 related to deferred production costs. In June 2011, the Defense Contract Management Agency (DCMA) notified ULA that it had determined that $271 of deferred support costs are not recoverable under government contracts. In December 2011, the DCMA notified ULA of the potential non-recoverability of an additional $114 of deferred production costs. ULA and Boeing believe that all costs are recoverable and in November 2011, ULA filed a certified claim with the USAF for collection of deferred support and production costs. The USAF issued a final decision denying ULA’s certified claim in May 2012. In 2012, Boeing and ULA, through its subsidiary United Launch Services, filed a suit in the Court of Federal Claims seeking recovery of the deferred support and production costs from the U.S. government, which subsequently asserted a counterclaim for credits that it alleges were offset by deferred support cost invoices. We believe that the U.S. government’s counterclaim is without merit. The discovery phase of the litigation completed in 2017. Boeing filed a motion on November 17, 2017, asking the court to award full recovery without a trial. The court denied Boeing’s motion on August 29, 2018. The court has entered the parties’ proposed pre-trial schedule providing for a final pre-trial conference on or before October 17, 2019. If, contrary to our belief, it is determined that some or all of the deferred support or production costs are not recoverable, we could be required to record pre-tax losses and make indemnification payments to ULA for up to $317 of the costs questioned by the DCMA.
Other Indemnifications In conjunction with our sales of Electron Dynamic Devices, Inc. and Rocketdyne Propulsion and Power businesses and our BCA facilities in Wichita, Kansas and Tulsa and McAlester, Oklahoma, we agreed to indemnify, for an indefinite period, the buyers for costs relating to pre-closing environmental conditions and certain other items. We are unable to assess the potential number of future claims that may be asserted under these indemnifications, nor the amounts thereof (if any). As a result, we cannot estimate the maximum potential amount of future payments under these indemnities and therefore, no liability has been recorded. To the extent that claims have been made under these indemnities and/or are probable and reasonably estimable, liabilities associated with these indemnities are included in the environmental liability disclosure in Note 14.13.
Credit Guarantees We have issued credit guarantees where we are obligated to make payments to a guaranteed party in the event that the original lessee or debtor does not make payments or perform certain specified services. Generally, these guarantees have been extended on behalf of guaranteed parties with less than investment-grade credit and are collateralized by certain assets. Current outstanding credit guarantees expire through 2036.
Industrial Revenue Bonds
Industrial Revenue Bonds (IRB) issued by St. Louis County were used to finance the purchase and/or construction of real and personal property at our St. Louis site. Tax benefits associated with IRBs include a twelve-year property tax abatement and sales tax exemption from St. Louis County. We record these properties on our Consolidated Statements of Financial Position. We have also purchased the IRBs and therefore are the bondholders as well as the borrower/lessee of the properties purchased with the IRB proceeds. The liabilities and IRB assets are equal and are reported net in the Consolidated Statements of Financial Position.
As of December 31, 20182020 and 2017,2019, the assets and liabilities associated with the IRBs were $271 and $166.$271.
Note 1615 – Debt
On In the first quarter of 2020, we entered into a $13,825, two-year delayed draw term loan facility, which includes additional commitments made subsequent to the initial closing date. As of December 31, 2020, we have fully drawn on the 13,825 delayed draw term loan facility, with February 23, 20186, 2022 as the final maturity date. Borrowings outstanding bear interest at the Eurodollar rate (determined in accordance with the delayed draw term loan facility agreement) plus between 0.75% and 1.25%, depending on our credit rating.
In the second quarter of 2020, we issued $1,400$25,000 of fixed rate senior notes consisting of $350$3,000 due MarchMay 1, 2023 that bear an annual interest rate of 2.8%4.508%, $350$3,500 due MarchMay 1, 20282025 that bear an annual interest rate of 3.25%4.875%, $350$2,000 due MarchMay 1, 20382027 that bear an annual interest rate of 3.55%5.04%, and $350$4,500 due MarchMay 1, 20482030 that bear an annual interest rate of 3.625%5.15%, $3,000 due May 1, 2040 that bear an annual interest rate of 5.705%, $5,500 due May 1, 2050 that bear an annual interest rate of 5.805%, and $3,500 due May 1, 2060 that bear an annual interest rate of 5.93%. The notes are unsecured senior obligations and rank equally in right of payment with our existing and future unsecured and unsubordinated indebtedness. The net proceeds of the issuance totaled $1,338,$24,802, after deducting underwriting discounts, commissions, and offering expenses.
On October 31, 2018,In the fourth quarter of 2020, we issued $700$4,900 of fixed rate senior notes consisting of $350$1,000 due NovemberFebruary 1, 20282024 that bear an annual interest rate of 3.45%1.95%, and $350$1,400 due NovemberFebruary 1, 20482026 that bear an annual interest rate of 3.85%2.75%, $1,100 due February 1, 2028 that bear an annual interest rate of 3.25%, and $1,400 due February 1, 2031 that bear an annual interest rate of 3.625%. The notes are unsecured
senior obligations and rank equally in right of payment with our existing and future unsecured and unsubordinated indebtedness. The net proceeds of the issuance totaled $663,$4,870, after deducting underwriting discounts, commissions, and offering expenses.
Interest incurred, including amounts capitalized, was $624, $541$2,280, $867 and $535$624 for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. Interest expense recorded by BCC is reflected as Boeing Capital interest expense on our Consolidated Statements of Operations. Total Company interest payments were $616, $527$1,925, $973 and $523$616 for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.
We have $5,120$9,473 currently available under credit line agreements, of which $2,610$3,073 is a 364-day revolving credit facility expiring in October 2019 and $2,5102021, $3,200 expires in October 2023.2022, and $3,200 expires in October 2024. The 364-day credit facility has a one-year term out option which allows us to extend the maturity of any borrowings one year beyond the aforementioned expiration date. We continue to be in full compliance with all covenants contained in our debt or credit facility agreements.
Short-term debt and current portion of long-term debt at December 31 consisted of the following:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Unsecured debt securities |
| $1,151 |
| |
| $599 |
|
| Non-recourse debt and notes | 25 |
| | 33 |
|
| Capital lease obligations | 57 |
| | 52 |
|
| Commercial paper | 1,895 |
| | 600 |
|
| Other notes | 62 |
| | 51 |
|
| Total |
| $3,190 |
| |
| $1,335 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Unsecured debt | $1,448 | | | $1,099 | |
| Non-recourse debt and notes | 15 | | | 21 | |
| Finance lease obligations | 65 | | | 71 | |
| Commercial paper | | | 6,109 | |
| Other notes | 165 | | | 40 | |
| Total | $1,693 | | | $7,340 | |
Debt at December 31 consisted of the following:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| Unsecured debt securities | | | |
| 0.95% - 4.88% due through 2048 |
| $7,538 |
| | 6,127 |
|
| 5.80% - 6.88% due through 2043 | 2,388 |
| | 2,386 |
|
| 7.25% - 8.75% due through 2043 | 1,638 |
| | 1,637 |
|
| Commercial paper | 1,895 |
| | 600 |
|
| | | | |
| Non-recourse debt and notes | | | |
| 6.98% - 7.38% notes due through 2021 | 62 |
| | 94 |
|
| Capital lease obligations due through 2034 | 156 |
| | 138 |
|
| Other notes | 170 |
| | 135 |
|
| Total debt |
| $13,847 |
| |
| $11,117 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Unsecured debt | | | |
| Variable rate: Eurodollar plus 0.75% - 1.25% due 2022 | $13,819 | | | |
| 1.45% - 3.20% due through 2030 | 10,645 | | | $8,600 | |
| 3.25% - 3.90% due through 2059 | 9,555 | | | 7,073 | |
| 3.95% - 5.15% due through 2059 | 13,917 | | | 1,731 | |
| 5.71% - 6.63% due through 2060 | 13,005 | | | 1,129 | |
| 6.88% - 8.75% due through 2043 | 2,252 | | | 2,250 | |
| Commercial paper | | | 6,109 | |
| | | |
| | | |
| Non-recourse debt and notes | | | |
| 6.98% notes due through 2021 | 15 | | | 37 | |
| Finance lease obligations due through 2044 | 203 | | | 229 | |
| Other notes | 172 | | | 144 | |
| Total debt | $63,583 | | | $27,302 | |
At December 31, 2018 and 2017,2020, we had no commercial paper borrowings. At December 31, 2019, commercial paper borrowings totaling $1,895 and $600,$6,109, with a weighted-average interest rate of 2.5% and 1.4%2.2%, were supported by unused commitments under the revolving credit agreement.
Total debt at December 31 is attributable to:
|
| | | | | | | |
| | 2018 |
| | 2017 |
|
| BCC |
| $2,487 |
| |
| $2,523 |
|
| Other Boeing | 11,360 |
| | 8,594 |
|
| Total debt |
| $13,847 |
| |
| $11,117 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| BCC | $1,640 | | | $1,960 | |
| Other Boeing | 61,943 | | | 25,342 | |
| Total debt | $63,583 | | | $27,302 | |
At December 31, 2018, $622020, $15 of debt (non-recourse debt and notes)debt) was collateralized by customer financing assets totaling $204.$167.
Scheduled principal payments for debt and minimum capitalfinance lease obligations for the next five years are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
|
| Scheduled principal payments |
| $3,195 |
| |
| $1,186 |
| |
| $816 |
| |
| $567 |
| |
| $779 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
| | | | | | | | | |
| | | | | | | | | |
| Debt | $1,630 | | | $14,976 | | | $3,776 | | | $2,001 | | | $4,301 | |
| Minimum finance lease obligations | $68 | | | $53 | | | $31 | | | $14 | | | $6 | |
Note 1716 – Postretirement Plans
The majorityMany of our employees have earned benefits under defined benefit pension plans. Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016. Additional union employees transitioned to company-funded defined contribution retirement savings plans effective January 1, 2019.
We fund our major pension plans through trusts. Pension assets are placed in trust solely for the benefit of the plans’ participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long-term with the growth of obligations for future benefit payments.
We also have other postretirement benefits (OPB) other than pensions which consist principally of health care coverage for eligible retirees and qualifying dependents, and to a lesser extent, life insurance to certain groups of retirees. Retiree health care is provided principally until age 65 for approximately halftwo-thirds of those retireesparticipants who are eligible for health care coverage. Certain employee groups, including employees covered by most United Auto Workers bargaining agreements, are provided lifetime health care coverage.
The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation (PBO). We have recognized the aggregate of all overfunded plans in Other assets, and the aggregate of all underfunded plans in either Accrued retiree health care or Accrued pension plan liability, net. The portion of the amount by which the actuarial present value of benefits included in the PBO exceeds the fair value of plan assets, payable in the next 12 months, is reflected in Accrued liabilities.
The components of net periodic benefit (income)/cost were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement Benefits |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Service cost |
| $430 |
| |
| $402 |
| |
| $604 |
| |
| $94 |
| |
| $106 |
| |
| $128 |
|
| Interest cost | 2,781 |
| | 2,991 |
| | 3,050 |
| | 194 |
| | 229 |
| | 262 |
|
| Expected return on plan assets | (4,009 | ) | | (3,847 | ) | | (3,999 | ) | | (8 | ) | | (7 | ) | | (8 | ) |
| Amortization of prior service (credits)/costs | (56 | ) | | (39 | ) | | 38 |
| | (126 | ) | | (137 | ) | | (126 | ) |
| Recognized net actuarial loss | 1,130 |
| | 804 |
| | 790 |
| | (10 | ) | | 10 |
| | 22 |
|
| Settlement/curtailment/other losses | 44 |
| | 1 |
| | 40 |
| |
|
| |
| |
|
| Net periodic benefit cost |
| $320 |
| |
| $312 |
| |
| $523 |
| |
| $144 |
| |
| $201 |
| |
| $278 |
|
| | | | | | | | | | | | |
| Net periodic benefit cost included in Earnings from operations |
| $313 |
| |
| $510 |
| |
| $1,257 |
| |
| $84 |
| |
| $107 |
| |
| $144 |
|
| Net periodic benefit cost included in Other income/(loss), net | (143 | ) | | (117 | ) | | 327 |
| | 101 |
| | 123 |
| | 151 |
|
| Net periodic benefit cost included in Earnings before income taxes |
| $170 |
| |
| $393 |
| |
| $1,584 |
| |
| $185 |
| |
| $230 |
| |
| $295 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Other Postretirement Benefits |
| Years ended December 31, | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| Service cost | $3 | | | $2 | | | $430 | | | $89 | | | $77 | | | $94 | |
| Interest cost | 2,455 | | | 2,925 | | | 2,781 | | | 130 | | | 196 | | | 194 | |
| Expected return on plan assets | (3,756) | | | (3,863) | | | (4,009) | | | (9) | | | (8) | | | (8) | |
| Amortization of prior service credits | (80) | | | (79) | | | (56) | | | (38) | | | (35) | | | (126) | |
| Recognized net actuarial loss/(gain) | 1,032 | | | 643 | | | 1,130 | | | (63) | | | (46) | | | (10) | |
| Settlement/curtailment loss/(gain) | 9 | | | | | 44 | | | (4) | | | | | |
| Net periodic benefit (income)/cost | ($337) | | | ($372) | | | $320 | | | $105 | | | $184 | | | $144 | |
| | | | | | | | | | | |
Net periodic benefit cost included in (Loss)/earnings
from operations | $3 | | | $313 | | | $313 | | | $91 | | | $88 | | | $84 | |
| Net periodic benefit (income)/cost included in Other income, net | (340) | | | (374) | | | (143) | | | 16 | | | 107 | | | 101 | |
| Net periodic benefit (income)/cost included in (Loss)/earnings before income taxes | ($337) | | | ($61) | | | $170 | | | $107 | | | $195 | | | $185 | |
The following tables show changes in the benefit obligation, plan assets and funded status of both pensions and OPB for the years ended December 31, 20182020 and 2017.2019. Benefit obligation balances presented below reflect the PBO for our pension plans, and accumulated postretirement benefit obligations (APBO) for our OPB plans.
|
| | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement Benefits |
| | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
| Change in benefit obligation | | | | | | | |
| Beginning balance |
| $80,393 |
| |
| $76,745 |
| |
| $6,085 |
| |
| $6,431 |
|
| Service cost | 430 |
| | 402 |
| | 94 |
| | 106 |
|
| Interest cost | 2,781 |
| | 2,991 |
| | 194 |
| | 229 |
|
| Amendments | (377 | ) | | (7 | ) | | (58 | ) | | (35 | ) |
| Actuarial (gain)/loss | (6,352 | ) | | 5,653 |
| | (732 | ) | | (204 | ) |
| Settlement/curtailment/other | (730 | ) | | (751 | ) | |
| |
|
| Gross benefits paid | (4,700 | ) | | (4,658 | ) | | (487 | ) | | (481 | ) |
| Subsidies |
|
| |
|
| | 24 |
| | 33 |
|
| Exchange rate adjustment | (21 | ) | | 18 |
| | (6 | ) | | 6 |
|
| Ending balance |
| $71,424 |
| |
| $80,393 |
| |
| $5,114 |
| |
| $6,085 |
|
| Change in plan assets | | | | | | | |
| Beginning balance at fair value |
| $64,011 |
| |
| $56,692 |
| |
| $143 |
| |
| $134 |
|
| Actual return on plan assets | (2,585 | ) | | 8,552 |
| | (3 | ) | | 15 |
|
| Company contribution | 16 |
| | 4,025 |
| | 2 |
| | 6 |
|
| Plan participants’ contributions |
|
| |
|
| | 7 |
| | 4 |
|
| Settlement payments | (764 | ) | | (744 | ) | |
| |
|
| Benefits paid | (4,557 | ) | | (4,530 | ) | | (17 | ) | | (16 | ) |
| Exchange rate adjustment | (19 | ) | | 16 |
| |
| |
|
| Ending balance at fair value |
| $56,102 |
| |
| $64,011 |
| |
| $132 |
| |
| $143 |
|
| Amounts recognized in statement of financial position at December 31 consist of: | | | | | | | |
| Other assets |
| $138 |
| |
| $218 |
| |
|
| |
|
|
| Other accrued liabilities | (137 | ) | | (129 | ) | |
| ($398 | ) | |
| ($397 | ) |
| Accrued retiree health care |
|
| |
|
| | (4,584 | ) | | (5,545 | ) |
| Accrued pension plan liability, net | (15,323 | ) | | (16,471 | ) | |
|
| |
|
|
| Net amount recognized |
| ($15,322 | ) | |
| ($16,382 | ) | |
| ($4,982 | ) | |
| ($5,942 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Other Postretirement Benefits |
| 2020 | | 2019 | | 2020 | | 2019 |
| Change in benefit obligation | | | | | | | |
| Beginning balance | $77,645 | | | $71,424 | | | $5,080 | | | $5,114 | |
| Service cost | 3 | | | 2 | | | 89 | | | 77 | |
| Interest cost | 2,455 | | | 2,925 | | | 130 | | | 196 | |
| | | | | | | |
| Amendments | | | | | (29) | | | 1 | |
| Actuarial loss/(gain) | 7,759 | | | 8,695 | | | (218) | | | 127 | |
| Settlement/curtailment/other | (68) | | | (756) | | | 55 | | | |
| Gross benefits paid | (5,386) | | | (4,658) | | | (450) | | | (474) | |
| Subsidies | | | | | 36 | | | 36 | |
| Exchange rate adjustment | 7 | | | 13 | | | | | 3 | |
| Ending balance | $82,415 | | | $77,645 | | | $4,693 | | | $5,080 | |
| Change in plan assets | | | | | | | |
| Beginning balance at fair value | $61,711 | | | $56,102 | | | $149 | | | $132 | |
| Actual return on plan assets | 9,275 | | | 10,851 | | | 21 | | | 26 | |
| Company contribution | 3,013 | | | 16 | | | | | 1 | |
| Plan participants’ contributions | | | | | 6 | | | 6 | |
| Settlement payments | (68) | | | (756) | | | | | |
| Benefits paid | (5,241) | | | (4,514) | | | (16) | | | (16) | |
| Exchange rate adjustment | 6 | | | 12 | | | | | |
| Ending balance at fair value | $68,696 | | | $61,711 | | | $160 | | | $149 | |
| Amounts recognized in statement of financial position at December 31 consist of: | | | | | | | |
| Other assets | $837 | | | $484 | | | | | |
| Accrued liabilities | (148) | | | (142) | | | ($396) | | | ($391) | |
| Accrued retiree health care | | | | | (4,137) | | | (4,540) | |
| Accrued pension plan liability, net | (14,408) | | | (16,276) | | | | | |
| Net amount recognized | ($13,719) | | | ($15,934) | | | ($4,533) | | | ($4,931) | |
Amounts recognized in Accumulated other comprehensive loss at December 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Other Postretirement Benefits |
| 2020 | | 2019 | | 2020 | | 2019 |
| Net actuarial loss/(gain) | $24,324 | | | $23,124 | | | ($735) | | | ($625) | |
| Prior service credits | (1,387) | | | (1,467) | | | (110) | | | (122) | |
| Total recognized in Accumulated other comprehensive loss | $22,937 | | | $21,657 | | | ($845) | | | ($747) | |
|
| | | | | | | | | | | | | | | |
| | Pension | | Other Postretirement Benefits |
| | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
| Net actuarial loss/(gain) |
| $22,061 |
| |
| $22,942 |
| |
| ($783 | ) | |
| ($59 | ) |
| Prior service (credits) | (1,546 | ) | | (1,211 | ) | | (158 | ) | | (226 | ) |
| Total recognized in Accumulated other comprehensive loss |
| $20,515 |
| |
| $21,731 |
| |
| ($941 | ) | |
| ($285 | ) |
The accumulated benefit obligation (ABO) for all pension plans was $69,376$80,694 and $77,414$75,787 at December 31, 20182020 and 2017.2019. Key information for our plans with ABO and PBO in excess of plan assets as of December 31 was as follows:
|
| | | | | | | |
| 2018 |
| | 2017 |
|
| Accumulated benefit obligation |
| $66,306 |
| |
| $71,975 |
|
| Fair value of plan assets | 52,894 |
| | 58,353 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| | | |
| Accumulated benefit obligation | $74,337 | | | $70,466 | |
| Fair value of plan assets | 61,502 | | | 55,907 | |
|
| | | | | | | |
| 2018 |
| | 2017 |
|
| Projected benefit obligation |
| $68,354 |
| |
| $74,953 |
|
| Fair value of plan assets | 52,894 |
| | 58,353 |
|
| | | | | | | | | | | |
| 2020 | | 2019 |
| Projected benefit obligation | $76,057 | | | $72,325 | |
| Fair value of plan assets | 61,502 | | | 55,907 | |
Assumptions
The following assumptions, which are the weighted average for all plans, are used to calculate the benefit obligation at December 31 of each year and the net periodic benefit cost for the subsequent year.
|
| | | | | | | | |
| December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Discount rate: | | | | | |
| Pension | 4.20 | % | | 3.60 | % | | 4.00 | % |
| Other postretirement benefits | 4.00 | % | | 3.30 | % | | 3.70 | % |
| Expected return on plan assets | 6.80 | % | | 6.80 | % | | 6.80 | % |
| Rate of compensation increase | 5.30 | % | | 5.30 | % | | 4.40 | % |
| Interest crediting rates for cash balance plans | 5.15 | % | | 5.15 | % | | 5.15 | % |
| | | | | | | | | | | | | | | | | |
| December 31, | 2020 | | 2019 | | 2018 |
| Discount rate: | | | | | |
| Pension | 2.50 | % | | 3.30 | % | | 4.20 | % |
| Other postretirement benefits | 2.00 | % | | 3.00 | % | | 4.00 | % |
| Expected return on plan assets | 6.50 | % | | 6.80 | % | | 6.80 | % |
| Rate of compensation increase | 4.30 | % | | 4.30 | % | | 5.30 | % |
| Interest crediting rates for cash balance plans | 5.00 | % | | 5.15 | % | | 5.15 | % |
The discount rate for each plan is determined based on the plans’ expected future benefit payments using a yield curve developed from high quality bonds that are rated as Aa or better by at least half of the four rating agencies utilized as of the measurement date. The yield curve is fitted to yields developed from bonds at various maturity points. Bonds with the ten percent highest and the ten percent lowest yields are omitted. The present value of each plan’s benefits is calculated by applying the discount rates to projected benefit cash flows.
The pension fund’s expected return on plan assets assumption is derived from a review of actual historical returns achieved by the pension trust and anticipated future long-term performance of individual asset classes. While consideration is given to recent trust performance and historical returns, the assumption represents a long-term, prospective return. The expected return on plan assets component of the net periodic benefit cost for the upcoming plan year is determined based on the expected return on plan assets assumption and the market-related value of plan assets (MRVA). Since our adoption of the accounting standard for pensions in 1987, we have determined the MRVA based on a five-yearfive-year moving average of plan assets. As of December 31, 2018,2020, the MRVA was approximately $3,435 more$6,805 less than the fair market value of assets.
Assumed health care cost trend rates were as follows:
|
| | | | | | | | |
| December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Health care cost trend rate assumed next year | 5.50 | % | | 6.00 | % | | 6.50 | % |
| Ultimate trend rate | 4.50 | % | | 4.50 | % | | 5.00 | % |
| Year that trend reached ultimate rate | 2021 |
| | 2021 |
| | 2021 |
|
| | | | | | | | | | | | | | | | | |
| December 31, | 2020 | | 2019 | | 2018 |
| Health care cost trend rate assumed next year | 4.50 | % | | 5.00 | % | | 5.50 | % |
| Ultimate trend rate | 4.50 | % | | 4.50 | % | | 4.50 | % |
| Year that trend reached ultimate rate | 2021 | | 2021 | | 2021 |
Plan Assets
Investment Strategy The overall objective of our pension assets is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension fund. Specific investment objectives for our long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, achieving a competitive total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.
We periodically update our long-term, strategic asset allocations. We use various analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. We identify investment benchmarks to evaluate performance for the asset classes in the strategic asset allocation that are market-based and investable where possible. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions. Short-term investments and exchange-traded derivatives are used to rebalance the actual asset allocation to the target asset allocation. The asset allocation is monitored and rebalanced periodically.frequently. The actual and target allocations by asset class for the pension assets at December 31 were as follows:
|
| | | | | | | | | | | |
| | Actual Allocations | | Target Allocations |
| Asset Class | 2018 |
| | 2017 |
| | 2018 |
| | 2017 |
|
| Fixed income | 48 | % | | 46 | % | | 47 | % | | 47 | % |
| Global equity | 28 |
| | 31 |
| | 29 |
| | 29 |
|
| Private equity | 5 |
| | 5 |
| | 5 |
| | 5 |
|
| Real estate and real assets | 9 |
| | 8 |
| | 9 |
| | 9 |
|
| Hedge funds | 10 |
| | 10 |
| | 10 |
| | 10 |
|
| Total | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Actual Allocations | | Target Allocations |
| Asset Class | 2020 | | 2019 | | 2020 | | 2019 |
| Fixed income | 49 | % | | 49 | % | | 49 | % | | 47 | % |
| Global equity | 30 | | | 29 | | | 29 | | | 29 | |
| Private equity | 6 | | | 5 | | | 5 | | | 5 | |
| Real estate and real assets | 7 | | | 8 | | | 9 | | | 9 | |
| Hedge funds | 8 | | | 9 | | | 8 | | | 10 | |
| Total | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Fixed income securities are invested primarily in a diversified portfolio of long duration instruments.instruments as well as Emerging Market, Structured, High Yield and Private Debt. Global equity securities are invested in a diversified portfolio of U.S. and non-U.S. companies, across various industries and market capitalizations.
Private equity investment vehicles are primarily limited partnerships (LPs) that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special situation strategies. Real estate and real assets include global private investments that may be held through an investmentinvestments in a limited partnership (LP) or other fund structures and publicly traded investments (such as Real Estate Investment Trusts (REITs) in the case of real estate). Real estate includes, but is not limited to, investments in office, retail, apartment and industrial properties. Real assets include, but are not limited to, investments in natural resources (such as energy, farmland and timber), commodities and infrastructure. Private equity investment vehicles are primarily limited partnerships (LPs) that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special situation strategies.
Hedge fund investments seek to capitalize on inefficiencies identified across and within different asset classes or markets. Hedge fund strategy types include, but are not limited to directional, event driven, relative value, long-short and multi-strategy.
Investment managers are retained for explicit investment roles specified by contractual investment guidelines. Certain investment managers are authorized to use derivatives, such as equity or bond futures, swaps, options and currency futures or forwards. Derivatives are used to achieve the desired market exposure of a security or an index, transfer value-added performance between asset classes,
achieve the desired currency exposure, adjust portfolio duration or rebalance the total portfolio to the target asset allocation.
As a percentage of total pension plan assets, derivative net notional amounts were 4.4%8.3% and 5.0%4.3% for fixed income, including to-be-announced mortgage-backed securities and treasury forwards, and 5.5%0.4% and 6.9%3.6% for global equity and commodities at December 31, 20182020 and 20172019.
I.
In 2017,n November 2020, the Company contributed $3,500$3,000 of our common stock to the pension fund. An independent fiduciary was retained to manage and liquidate the stock over time at its discretion. The liquidationPlan assets included $3,298 and $0 of theour common stock holdings was completed in the fourth quarteras of 2017.December 31, 2020 and 2019.
Risk Management In managing the planpension assets, we review and manage risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability matching and asset class diversification are central to our risk management approach and are integral to the overall investment strategy. Further, asset classes are constructed to achieve diversification by investment strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for publicly traded assets are specified and are monitored regularly through the custodian. Credit parameters for counterparties have been established for managers permitted to trade over-the-counter derivatives. Valuation is governed through several types of procedures, including reviews of manager valuation policies, custodian valuation processes, pricing vendor practices, pricing reconciliation, and periodic, security-specific valuation testing.testing.
Fair Value Measurements The following table presents our plan assets using the fair value hierarchy as of December 31, 20182020 and 2017.2019. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | December 31, 2017 |
| | Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Fixed income securities: | | | | | | | | |
| Corporate |
| $17,481 |
|
|
| $17,479 |
|
| $2 |
|
| $19,603 |
|
|
| $19,591 |
|
| $12 |
|
| U.S. government and agencies | 5,589 |
|
| 5,589 |
|
| 5,430 |
|
| 5,430 |
|
|
| Mortgage backed and asset backed | 722 |
|
| 410 |
| 312 |
| 760 |
|
| 460 |
| 300 |
|
| Municipal | 1,255 |
|
|
| 1,255 |
|
|
| 1,355 |
| | 1,355 |
|
|
| Sovereign | 967 |
|
|
| 967 |
|
|
| 1,237 |
| | 1,237 |
| |
| Other | 106 |
|
| $53 |
| 53 |
|
|
| 118 |
|
| $59 |
| 59 |
|
|
| Derivatives: |
| | | |
| | | |
| Assets |
|
|
|
|
| 49 |
|
| 49 |
|
|
| Liabilities | (51 | ) |
| (51 | ) |
| (25 | ) |
| (25 | ) |
|
| Cash equivalents and other short-term investments | 1,068 |
|
|
| 1,068 |
|
| 1,778 |
|
|
| 1,778 |
|
|
| Equity securities: |
| | | |
| | | |
| U.S. common and preferred stock | 3,744 |
| 3,744 |
|
|
| 4,615 |
| 4,615 |
|
|
|
| Non-U.S. common and preferred stock | 4,850 |
| 4,846 |
| 4 |
|
| 6,204 |
| 6,204 |
|
|
|
|
| Derivatives: |
| | | |
| | | |
| Assets | 3 |
|
|
| 3 |
|
| 4 |
| 1 |
| 3 |
|
|
| Liabilities | (9 | ) |
|
| (9 | ) |
| (4 | ) |
|
| (4 | ) |
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate and real assets: |
|
| | | |
|
| | | |
| Real estate | 422 |
| 422 |
|
|
|
|
| 462 |
| 462 |
|
|
|
|
|
| Real assets | 659 |
| 311 |
| 344 |
| 4 |
| 705 |
| 449 |
| 253 |
| 3 |
|
| Derivatives: |
|
| | | |
|
| | | |
| Assets | 4 |
|
| 4 |
|
|
| 17 |
|
|
| 17 |
|
|
|
| Liabilities | (17 | ) | (1 | ) | (16 | ) |
|
| (3 | ) |
|
| (3 | ) |
|
|
| Total |
| $36,793 |
|
| $9,375 |
|
| $27,100 |
|
| $318 |
|
| $42,305 |
|
| $11,790 |
|
| $30,200 |
|
| $315 |
|
| | | | | | | | | |
| Fixed income common/collective/pooled funds |
| $938 |
| | | |
| $1,257 |
| | | |
| Fixed income other | 442 |
| | | | 303 |
| | | |
| Equity common/collective pooled funds | 5,264 |
| | | | 6,786 |
| | | |
| Private equity | 2,934 |
| | | | 2,767 |
| | | |
| Real estate and real assets | 3,792 |
| | | | 3,744 |
| | | |
| Hedge funds | 5,484 |
| | | | 6,440 |
| | | |
| Total investments measured at NAV as a practical expedient |
| $18,854 |
| | | |
| $21,297 |
| | | |
| | | | | | | | | |
| Cash |
| $205 |
| | | |
| $170 |
| | | |
| Receivables | 404 |
| | | | 436 |
| | | |
| Payables | (154 | ) | | | | (197 | ) | | | |
| Total |
| $56,102 |
| | | |
| $64,011 |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | December 31, 2019 |
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 |
| Fixed income securities: | | | | | | | | |
| Corporate | $20,841 | | | $20,801 | | $40 | | $19,341 | | | $19,336 | | $5 | |
| U.S. government and agencies | 5,170 | | | 5,168 | | 2 | | 5,759 | | | 5,759 | | |
| Mortgage backed and asset backed | 786 | | | 666 | | 120 | | 1,181 | | | 720 | | 461 | |
| Municipal | 1,176 | | | 1,104 | | 72 | | 1,317 | | | 1,317 | | |
| Sovereign | 1,040 | | | 1,038 | | 2 | | 1,076 | | | 1,076 | | |
| Other | 19 | | $18 | | 1 | | | 55 | | $7 | | 48 | | |
| Derivatives: | | | | | | | | |
| Assets | 6 | | | 6 | | | | | | |
| Liabilities | (17) | | | (17) | | | (143) | | | (143) | | |
| Cash equivalents and other short-term investments | 1,081 | | | 1,081 | | | 769 | | | 769 | | |
| Equity securities: | | | | | | | | |
| U.S. common and preferred stock | 5,013 | | 5,013 | | | | 4,866 | | 4,866 | | | |
| Non-U.S. common and preferred stock | 5,577 | | 5,575 | | | 2 | | 5,529 | | 5,527 | | | 2 | |
| Boeing company stock | 3,298 | | 3,298 | | | | | | | |
| Derivatives: | | | | | | | | |
| Assets | 10 | | | 10 | | | 6 | | | 6 | | |
| Liabilities | (9) | | | (9) | | | (5) | | | (5) | | |
Private equity | | | | | | | | |
| Real estate and real assets: | | | | | | | | |
| Real estate | 351 | | 351 | | | | 454 | | 454 | | | |
| Real assets | 786 | | 723 | | 61 | | 2 | | 810 | | 649 | | 157 | | 4 | |
| Derivatives: | | | | | | | | |
| Assets | 6 | | | 6 | | | 5 | | 1 | | 4 | | |
| Liabilities | (2) | | | (2) | | | (2) | | | (2) | | |
| Total | $45,132 | | $14,978 | | $29,914 | | $240 | | $41,018 | | $11,504 | | $29,042 | | $472 | |
| | | | | | | | |
| Fixed income common/collective/pooled funds | $2,345 | | | | | $959 | | | | |
| Fixed income other | 604 | | | | | 512 | | | | |
| Equity common/collective pooled funds | 6,947 | | | | | 6,301 | | | | |
| Private equity | 4,013 | | | | | 3,184 | | | | |
| Real estate and real assets | 3,359 | | | | | 3,605 | | | | |
| Hedge funds | 5,745 | | | | | 5,688 | | | | |
| Total investments measured at NAV as a practical expedient | $23,013 | | | | | $20,249 | | | | |
| | | | | | | | |
| Cash | $267 | | | | | $207 | | | | |
| Receivables | 992 | | | | | 383 | | | | |
| Payables | (708) | | | | | (146) | | | | |
| Total | $68,696 | | | | | $61,711 | | | | |
Fixed income securities are primarily valued upon a market approach, using matrix pricing and considering a security’s relationship to other securities for which quoted prices in an active market may be available, or an income approach, converting future cash flows to a single present value amount. Inputs used in developing fair value estimates include reported trades, broker quotes, benchmark yields, and base spreads.
Common/collective/pooled funds are typically common or collective trusts valued at their NAVsnet asset values (NAVs) that are calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity. Derivatives included in the table above are over-the-counter and are primarily valued using an income approach with inputs that include benchmark yields, swap curves, cash flow analysis, rating agency data and interdealer broker rates. Exchange-traded derivative positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.
Cash equivalents and other short-term investments (which are used to pay benefits) are held in a separate account which consists of a commingled fund (with daily liquidity) and separately held short-term securities and cash equivalents. All of the investments in this cash vehicle are valued daily using a market approach with inputs that include quoted market prices for similar instruments. In the event a market price is not available for instruments with an original maturity of one year or less, amortized cost is used as a proxy for fair value. Common and preferred stock equity securities are primarily valued using a market approach based on the quoted market prices of identical instruments.
Private equity and private debt NAV valuations are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows and market based comparable data. For those investments reported on a one-quarter lagged basis (primarily LPs) we use NAVs, adjusted for subsequent cash flows and significant events.
Real estate and real asset NAV valuations are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. For those investments reported on a one-quarter lagged basis (primarily LPs) NAVs are adjusted for subsequent cash flows and significant events. Publicly traded REITs and infrastructure stocks are valued using a market approach based on quoted market prices of identical instruments. Exchange-traded commodities futures positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.
Hedge fund NAVs are generally based on the valuation of the underlying investments. This is primarily done by applying a market or income valuation methodology depending on the specific type of security or instrument held.
Investments in private equity, private debt, real estate, real assets, and hedge funds are primarily calculated and reported by the General Partner (GP), fund manager or third party administrator. Additionally, some investments in fixed income and equity are made via commingled vehicles and are valued in a similar fashion. Pension assets invested in commingled and limited partnership structures rely on the NAV of these investments as the practical expedient for the valuations.
The following tables present a reconciliation of Level 3 assets (excluding investments which are valued using NAVs as a practical expedient) held during the years ended December 31, 20182020 and 2017.2019. Transfers into and out of Level 3 are reported at the beginning-of-year values.
|
| | | | | | | | | | | | | | | | | | | |
| | January 1
2018 Balance |
| | Net Realized and Unrealized Gains/(Losses) |
| | Net Purchases, Issuances and Settlements |
| | Net Transfers Into/(Out of) Level 3 |
| | December 31
2018 Balance |
|
| Fixed income securities: | | | | | | | | | |
Corporate (1) |
| $2 |
| | | |
|
| |
|
| |
| $2 |
|
Mortgage backed and asset backed (1) | 310 |
| |
| ($3 | ) | |
| $3 |
| |
| $2 |
| | 312 |
|
| Real assets | 3 |
| |
|
| |
|
| | 1 |
| | 4 |
|
| Total |
| $315 |
| |
| ($3 | ) | |
| $3 |
| |
| $3 |
| |
| $318 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1
2020 Balance | | Net Realized and Unrealized Gains/(Losses) | | Net Purchases, Issuances and Settlements | | Net Transfers Into/(Out of) Level 3 | | December 31
2020 Balance |
| Fixed income securities: | | | | | | | | | |
| Corporate | $5 | | | $1 | | | $18 | | | $16 | | | $40 | |
U.S. government and
agencies | | | | | | | 2 | | | 2 | |
Mortgage backed and asset backed | 461 | | | (1) | | | (93) | | | (247) | | | 120 | |
| Municipal | | | 3 | | | 2 | | | 67 | | | 72 | |
| | | | | | | | | |
| Sovereign | | | (1) | | | 2 | | | 1 | | | 2 | |
| Equity securities: | | | | | | | | | |
| | | | | | | | | |
Non-U.S. common and
preferred stock | 2 | | | | | | | | | 2 | |
| | | | | | | | | |
| Real assets | 4 | | | | | 0 | | (2) | | | 2 | |
| Total | $472 | | | $2 | | | ($71) | | | ($163) | | | $240 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1
2019 Balance | | Net Realized and Unrealized Gains | | Net Purchases, Issuances and Settlements | | Net Transfers Into Level 3 | | December 31
2019 Balance |
| Fixed income securities: | | | | | | | | | |
| Corporate | $2 | | | | | $3 | | | 0 | | $5 | |
| | | | | | | | | |
| Mortgage backed and asset backed | 312 | | | $11 | | | 137 | | | $1 | | | 461 | |
| | | | | | | | | |
| Equity securities: | | | | | | | | | |
| | | | | | | | | |
| Non-U.S. common and preferred stock | | | | | 1 | | | 1 | | | 2 | |
| | | | | | | | | |
| Real assets | 4 | | | | | 0 | | | | 4 | |
| Total | $318 | | | $11 | | | $141 | | | $2 | | | $472 | |
|
| | | | | | | | | | | | | | | | | | | |
| | January 1
2017 Balance |
| | Net Realized and Unrealized Gains/(Losses) |
| | Net Purchases, Issuances and Settlements |
| | Net Transfers Into/(Out of) Level 3 |
| | December 31
2017 Balance |
|
| Fixed income securities: | | | | | | | | | |
Corporate (1) |
| $12 |
| |
|
| |
| $1 |
| |
| ($1 | ) | |
| $12 |
|
| U.S. government and agencies | 1 |
| | | | | | (1 | ) | |
|
Mortgage backed and asset backed (1) | 331 |
| |
| $10 |
| | (39 | ) | | (2 | ) | | 300 |
|
| Equity securities: | | | | | | | | |
|
| U.S. common and preferred stock | 1 |
| | (1 | ) | | | |
| |
|
| Real assets | 5 |
| |
|
| | (2 | ) | | | | 3 |
|
| Total |
| $350 |
| |
| $9 |
| |
| ($40 | ) | |
| ($4 | ) | |
| $315 |
|
| |
(1)
| Certain fixed income securities were reclassified between mortgage backed and asset backed and corporate on January 1, 2018 and 2017. |
TheFor the year ended December 31, 2020, the changes in unrealized gains/(losses)/gains for Level 3 assets still held at December 31, 2020 were $2 for corporate, $1 for mortgage backed and asset backed fixed income securities, $3 for municipal bonds and ($1) for sovereign.For the year ended December 31, 2019, the changes in unrealized gains/(losses) for Level 3 assets still held at December 31, 20182019 were $10 for mortgage backed and 2017 were a loss of $4asset backed fixed income securities and a gain of $6.($1) for non-U.S. common and preferred stock equity securities.
OPB Plan Assets The majority of OPB plan assets are invested in a balanced index fund which is comprised of approximately 60% equities and 40% debt securities. The index fund is valued using a market approach based on the quoted market price of an identical instrument (Level 1). The expected rate of return on these assets does not have a material effect on the net periodic benefit cost.
Cash Flows
Contributions Required pension contributions under the Employee Retirement Income Security Act (ERISA) (ERISA), as well as rules governing funding of our non-US pension plans, are not expected to be significant in 2019.2021. During the fourth quarter of 2020, we contributed $3,000 in common stock to the pension fund. We do not expect to make discretionary contributions to our pension plans in 2019.2021.
Estimated Future Benefit Payments The table below reflects the total pension benefits expected to be paid from the plans or from our assets, including both our share of the benefit cost and the participants’ share of the cost, which is funded by participant contributions. OPB payments reflect our portion only.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year(s) | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | 2023 |
| | 2024-2028 |
|
| Pensions |
| $4,711 |
| |
| $4,706 |
| |
| $4,684 |
| |
| $4,630 |
| |
| $4,575 |
| |
| $22,171 |
|
| Other postretirement benefits: | | | | | | | | | | | |
| Gross benefits paid | 486 |
| | 486 |
| | 477 |
| | 476 |
| | 465 |
| | 2,066 |
|
| Subsidies | (17 | ) | | (17 | ) | | (17 | ) | | (18 | ) | | (18 | ) | | (90 | ) |
| Net other postretirement benefits |
| $469 |
| |
| $469 |
| |
| $460 |
| |
| $458 |
| |
| $447 |
| |
| $1,976 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year(s) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026-2030 |
| Pensions | $4,959 | | | $4,825 | | | $4,720 | | | $4,657 | | | $4,581 | | | $21,383 | |
| Other postretirement benefits: | | | | | | | | | | | |
| Gross benefits paid | 462 | | | 452 | | | 435 | | | 415 | | | 394 | | | 1,606 | |
| Subsidies | (32) | | | (32) | | | (32) | | | (31) | | | (30) | | | (139) | |
| Net other postretirement benefits | $430 | | | $420 | | | $403 | | | $384 | | | $364 | | | $1,467 | |
Termination Provisions
Certain of the pension plans provide that, in the event there is a change in control of the Company which is not approved by the Board of Directors and the plans are terminated within five years thereafter, the assets in the plan first will be used to provide the level of retirement benefits required by ERISA,, and then any surplus will be used to fund a trust to continue present and future payments under the postretirement medical and life insurance benefits in our group insurance benefit programs.
Should we terminate certain pension plans under conditions in which the plan’s assets exceed that plan’s obligations, the U.S. government will be entitled to a fair allocation of any of the plan’s assets based on plan contributions that were reimbursed under U.S. government contracts.
Defined Contribution Plans
We provide certain defined contribution plans to all eligible employees. The principal plans are the Company-sponsored 401(k) plans. The expense for these defined contribution plans was $1,480, $1,522$1,351, $1,533 and $1,413$1,480 in 2020, 2019 and 2018, 2017 and 2016, respectively.
Note 1817 – Share-Based Compensation and Other Compensation Arrangements
Share-Based Compensation
Our 2003 Incentive Stock Plan, as amended and restated, permits awards of incentive and non-qualified stock options, stock appreciation rights, restricted stock or units, performance shares, performance restricted stock or units, performance units and other stock and cash-based awards to our employees, officers, directors, consultants, and independent contractors. The aggregate number of shares of our stock authorized for issuance under the plan is 87,000,000.
Shares issued as a result of stock option exercises or conversion of stock unit awards will be funded out of treasury shares, except to the extent there are insufficient treasury shares, in which case new shares will be issued. We believe we currently have adequate treasury shares to satisfy these issuances during 2019.
Share-based plans expense is primarily included in Total costs and expenses and General and administrative expense, since it is incentive compensation issued primarilyas well as a portion allocated to our executives.production as inventoried costs. The share-based plans expense and related income tax benefit were as follows:
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Stock options |
|
| |
|
| |
| $4 |
|
| Restricted stock units and other awards |
| $213 |
| |
| $212 |
| | 189 |
|
| Share-based plans expense |
| $213 |
| |
| $212 |
| |
| $193 |
|
| Income tax benefit |
| $46 |
| |
| $46 |
| |
| $69 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| | | | | |
| Restricted stock units and other awards | $243 | | | $217 | | | $213 | |
| | | | | |
| | | | | |
| Income tax benefit | $53 | | | $47 | | | $46 | |
Stock Options
We discontinued granting options in 2014, replacing them with performance-based restricted stock units. Options granted through January 2014 had an exercise price equal to the fair market value of our stock on the date of grant and expire ten10 years after the date of grant. The stock options vested over a period of three years and were fully vested atas of December 31, 2018.2017.
Stock option activity for the year ended December 31, 20182020 is as follows:
|
| | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price Per Share |
| | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
|
| Number of shares under option: | | | | | | | |
| Outstanding at beginning of year | 4,417,218 | |
| $71.69 |
| | | | |
| Exercised | (1,165,135) | | 69.53 |
| | | | |
| Outstanding at end of year | 3,252,083 | |
| $72.47 |
| | 3.20 | |
| $813 |
|
| Exercisable at end of year | 3,252,083 | |
| $72.47 |
| | 3.20 | |
| $813 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
| Number of shares under option: | | | | | | | |
| Outstanding at beginning of year | 2,375,583 | | $74.79 | | | | | |
| | | | | | | |
| Exercised | (515,063) | | 71.47 | | | | | |
| | | | | | | |
| Outstanding at end of year | 1,860,520 | | $75.71 | | | 1.65 | | $257 | |
| Exercisable at end of year | 1,860,520 | | $75.71 | | | 1.65 | | $257 | |
The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 2017was $90, $279 and 2016 was $320, $491 and $265,$320, with a related tax benefit of $70, $175$32, $61 and $94,$70, respectively. No options vested during the years ended December 31, 20182020, 2019 and 2017. The grant date fair value of stock options vested during the year ended December 31, 2016 was $27.2018.
Restricted Stock Units
In February 2018, 20172020, 2019 and 2016,2018, we granted to our executives 325,108, 233,582 and 260,730 523,835 and 777,837restricted stock units (RSUs) as part of our long-term incentive program with grant date fair values of $361.13, $178.72$319.04, $428.22 and $117.50$361.13 per unit, respectively. In December 2020, we granted to our executives 721,734 RSUs as part of our long-term incentive program with a grant date fair value of $233.00 per unit. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an executive terminates employment because of retirement, involuntary layoff, disability, or death, the employee (or beneficiary) will receive a proration of stock units based on active employment during the three-year service period, except in the case of the December 2020 grant, which will vest in full for executives that terminate employment due to retirement after attaining certain age and service conditions. In all other cases, the RSUs will not vest and all rights to the stock units will terminate. These RSUs are labeled executive long-term incentive program in the table below.
In December 2020, we granted to our employees (excluding executives and certain union-represented employees), a one-time grant of 5,163,425 RSUs with a grant date fair value of $233.00 per unit. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an employee terminates employment because of retirement, layoff, disability, or death, the employee (or beneficiary) will receive a proration of stock units based on active
employment during the three-year service period. In all other cases, the RSUs will not vest and all rights to the stock units will terminate. These RSUs are labeled employee long-term incentive program in the table below.
In addition to RSUs awarded under our long-term incentive program, we grant RSUs to certain executives and employees to encourage retention or to reward various achievements. These RSUs are labeled other RSUs in the table below. The fair values of all RSUs are estimated using the average of the high and low stock prices on the date of grant.
RSU activity for the year ended December 31, 20182020 was as follows:
|
| | | | | | | |
| | Long-Term Incentive Program |
| | Other |
|
| Number of units: | | | |
| Outstanding at beginning of year | 1,627,102 |
| | 1,156,462 |
|
| Granted | 287,729 |
| | 216,949 |
|
| Dividends | 28,249 |
| | 20,759 |
|
| Forfeited | (80,426 | ) | | (30,745 | ) |
| Distributed | (540,403 | ) | | (379,190 | ) |
| Outstanding at end of year | 1,322,251 |
| | 984,235 |
|
| Unrecognized compensation cost |
| $97 |
| |
| $108 |
|
Weighted average remaining contractual life (years) | 1.8 |
| | 3.1 |
|
| | | | | | | | | | | |
| Executive Long-Term Incentive Program | Employee Long-Term Incentive Program | Other |
| Number of units: | | | |
| Outstanding at beginning of year | 905,025 | | | 908,321 | |
| Granted | 1,103,608 | | 5,163,425 | | 196,818 | |
| Dividends | 7,091 | | | 7,303 | |
| Forfeited | (104,374) | | | (33,896) | |
| Distributed | (487,749) | | | (329,227) | |
| Outstanding at end of year | 1,423,601 | | 5,163,425 | | 749,319 | |
| Unrecognized compensation cost | $237 | | $973 | | $102 | |
Weighted average remaining contractual life (years) | 2.5 | 3.0 | 2.0 |
The number of vested but undistributed RSUs at December 31, 20182020 was not significant.
Performance-Based Restricted Stock Units
Performance-Based Restricted Stock Units (PBRSUs) are stock units that pay out based on the Company’s total shareholder return as compared to a group of peer companies over a three-year period. The award payout can range from 0% to 200% of the initial PBRSU grant. PBRSUs granted in February 2017 and 2016 will not exceed 400% of the initial value (excluding dividend equivalent credits). The PBRSUs granted under this program will vest at the payout amount and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an executive terminates employment because of retirement, involuntary layoff, disability, or death, the employee (or beneficiary) remains eligible under the award and, if the award is earned, will receive a proration of stock units based on active employment during the three-year service period. In all other cases, the PBRSUs will not vest and all rights to the stock units will terminate.
In February 2018, 20172020, 2019 and 2016,2018, we granted to our executives 241,284, 492,273290,202, 214,651 and 721,176241,284 PBRSUs as part of our long-term incentive program. Compensation expense for the award is recognized over the three-year performance period based upon the grant date fair value. The grant date fair values were estimated using a Monte-Carlo simulation model with the assumptions presented below. The model includes no expected dividend yield as the units earn dividend equivalents.
|
| | | | | | | | |
| Grant Year | Grant Date | Performance Period | Expected Volatility |
| Risk Free Interest Rate |
| Grant Date Fair Value |
|
| 2018 | 2/26/2018 | 3 years | 22.11 | % | 2.36 | % | 390.27 |
|
| 2017 | 2/27/2017 | 3 years | 21.37 | % | 1.46 | % | 190.17 |
|
| 2016 | 2/22/2016 | 3 years | 22.44 | % | 0.92 | % | 126.74 |
|
| | | | | | | | | | | | | | | | | |
| Grant Year | Grant Date | Performance Period | Expected Volatility | Risk Free Interest Rate | Grant Date Fair Value |
| 2020 | 2/24/2020 | 3 years | 27.04 | % | 1.21 | % | $357.38 | |
| 2019 | 2/25/2019 | 3 years | 23.88 | % | 2.46 | % | 466.04 | |
| 2018 | 2/26/2018 | 3 years | 22.11 | % | 2.36 | % | 390.27 | |
PBRSU activity for the year ended December 31, 20182020 was as follows:
|
| | | | | | | |
| | Executive Long-Term Incentive Program |
|
| Number of units: | | |
| Outstanding at beginning of year | | 1,551,734826,126 |
|
| Granted | | 241,284290,202 |
|
Performance based adjustment(1) | | 374,406293,203 |
|
| Dividends | | 65,33927,299 |
|
| Forfeited | | (70,284(83,055) | ) |
Distributed | | (893,812 | ) |
| Distributed | | (732,216) | |
| Outstanding at end of year | | 1,268,667621,559 |
|
| Unrecognized compensation cost | |
| $86 |
|
Weighted average remaining contractual life (years) | | 1.8 |
|
| |
(1)Represents net incremental number of units issued at vesting based on TSR for units granted in 2017.
| Represents net incremental number of units issued at vesting based on TSR for units granted in 2015 |
Other Compensation Arrangements
Performance Awards
During 2020, 2019 and 2018, we granted Performance Awards to our executives, which are cash units that pay out based on the achievement of long-term financial goals at the end of a three-year period. Each unit has an initial value of $100$100 dollars. The amount payable at the end of the three-yearthree-year performance period may be anywhere from $0$0 to $200$200 dollars per unit for the 2019 and 2018 Performance Awards and $0 to $150 dollars for 2020 Performance Awards, depending on the Company’s performance against plan for a three-year period. The Compensation Committee has the discretion to pay these awards in cash, stock, or a combination of both after the three-year performance period. Compensation expense, based on the estimated performance payout, is recognized ratably over the performance period.
During 2018, 2017 and 2016, we granted Performance Awards to our executives as part of our long-term incentive program with the payout based on the achievement of financial goals for each three-year period following the grant date. The minimum payout amount is $0$0 and the maximum amount we could be required to pay out for the 2018, 20172020, 2019 and 20162018 Performance Awards is $369, $332$274, $341 and $310,$331, respectively. The 2016 grant is expected to be paid out in cash in March 2019.
Deferred Compensation
The Company has deferred compensation plans which permit certain employees to defer a portion of their salary, bonus, certain other incentive awards, and retirement contributions. Participants can diversify these amounts among 2223 investment funds including a Boeing stock unit account.
Total expense related to deferred compensation was $93, $174 and $19 $240in 2020, 2019 and $46 in 2018, 2017 and 2016, respectively. As of December 31, 20182020 and 2017,2019, the deferred compensation liability which is being marked to market was $1,572$1,718 and $1,547.$1,779.
Note 1918 – Shareholders’ Equity
On December 17, 2018, the Board approved a new repurchase plan for up to $20,000 of common stock, replacingstock. In March 2020, the previously authorized program. The program will expire when we have used all authorized funds or is otherwise terminated.Board of Directors terminated its prior authorization to repurchase shares under this plan.
As of December 31, 20182020 and 2017,2019, there were 1,200,000,000 shares of common stock and 20,000,000 shares of preferred stock authorized. No preferred stock has been issued.
Changes in Share Balances
The following table shows changes in each class of shares:
|
| | | | | |
| | Common Stock |
| | Treasury Stock |
|
| Balance at January 1, 2016 | 1,012,261,159 |
| | 345,637,354 |
|
| Issued | | | (6,376,868 | ) |
| Acquired | | | 55,849,082 |
|
| Balance at December 31, 2016 | 1,012,261,159 |
| | 395,109,568 |
|
| Issued | | | (20,746,426 | ) |
| Acquired | | | 46,859,184 |
|
| Balance at December 31, 2017 | 1,012,261,159 |
| | 421,222,326 |
|
| Issued | | | (3,409,330 | ) |
| Acquired | | | 26,806,974 |
|
| Balance at December 31, 2018 | 1,012,261,159 |
| | 444,619,970 |
|
| | | | | | | | | | | |
| Common
Stock | | Treasury
Stock |
| Balance at January 1, 2018 | 1,012,261,159 | | | 421,222,326 | |
| Issued | | | (3,409,330) | |
| Acquired | | | 26,806,974 | |
| Balance at December 31, 2018 | 1,012,261,159 | | | 444,619,970 | |
| Issued | | | (2,797,002) | |
| Acquired | | | 7,529,437 | |
| Balance at December 31, 2019 | 1,012,261,159 | | | 449,352,405 | |
| Issued | | | (19,986,868) | |
| Acquired | | | 575,484 | |
| Balance at December 31, 2020 | 1,012,261,159 | | | 429,941,021 | |
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss (AOCI) by component for the years ended December 31, 2018, 20172020, 2019 and 20162018 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency Translation Adjustments | | Unrealized Gains and Losses on Certain Investments | | Unrealized Gains and Losses on Derivative Instruments | | Defined Benefit Pension Plans & Other Postretirement Benefits | | Total (1) |
| Balance at January 1, 2018 | ($15) | | | ($2) | | | $54 | | | ($16,410) | | | ($16,373) | |
| Other comprehensive (loss)/income before reclassifications | (86) | | | 2 | | | (146) | | | 747 | | | 517 | |
| Amounts reclassified from AOCI | | | | | 30 | | | 743 | | (2) | 773 | |
| Net current period Other comprehensive (loss)/income | (86) | | | 2 | | | (116) | | | 1,490 | | | 1,290 | |
| Balance at December 31, 2018 | ($101) | | | $0 | | | ($62) | | | ($14,920) | | | ($15,083) | |
| Other comprehensive income/(loss) before reclassifications | (27) | | | 1 | | | (48) | | | (1,397) | | | (1,471) | |
| Amounts reclassified from AOCI | | | | | 26 | | | 375 | | (2) | 401 | |
| Net current period Other comprehensive (loss)/income | (27) | | | 1 | | | (22) | | | (1,022) | | | (1,070) | |
| Balance at December 31, 2019 | ($128) | | | $1 | | | ($84) | | | ($15,942) | | | ($16,153) | |
| Other comprehensive (loss)/income before reclassifications | 98 | | | 0 | | 14 | | | (1,929) | | | (1,817) | |
| Amounts reclassified from AOCI | 0 | | 0 | | 27 | | | 810 | | (2) | 837 | |
| Net current period Other comprehensive (loss)/income | 98 | | | 00 | | 41 | | | (1,119) | | | (980) | |
| Balance at December 31, 2020 | ($30) | | | $1 | | | ($43) | | | ($17,061) | | | ($17,133) | |
(1) Net of tax.
(2) Primarily relates to amortization of actuarial losses for the years ended December 31, 2020, 2019, and 2018 totaling $917, $464, and $878 (net of tax of ($52), ($133), and ($242)), respectively. These are included in the net periodic pension cost. See Note 16.
|
| | | | | | | | | | | | | | | | | | | |
| | Currency Translation Adjustments |
| | Unrealized Gains and Losses on Certain Investments |
| | Unrealized Gains and Losses on Derivative Instruments |
| | Defined Benefit Pension Plans & Other Postretirement Benefits |
| | Total (1) |
|
| Balance at January 1, 2016 |
| ($39 | ) | |
| $— |
| |
| ($197 | ) | |
| ($12,512 | ) | |
| ($12,748 | ) |
| Other comprehensive (loss)/income before reclassifications | (104 | ) | | (2 | ) | | (8 | ) | | (1,320 | ) | | (1,434 | ) |
| Amounts reclassified from AOCI |
| |
| | 78 |
| | 481 |
| (2) | 559 |
|
| Net current period Other comprehensive (loss)/income | (104 | ) | | (2 | ) | | 70 |
| | (839 | ) | | (875 | ) |
| Balance at December 31, 2016 |
| ($143 | ) | |
| ($2 | ) | |
| ($127 | ) | |
| ($13,351 | ) | |
| ($13,623 | ) |
| Other comprehensive income/(loss) before reclassifications | 128 |
| | 1 |
| | 119 |
| | (478 | ) | | (230 | ) |
| Amounts reclassified from AOCI |
| |
| | 52 |
| | 425 |
| (2) | 477 |
|
| Net current period Other comprehensive income/(loss) | 128 |
| | 1 |
| | 171 |
| | (53 | ) | | 247 |
|
Impact of ASU 2018-02
| | |
| ($1 | ) | |
| $10 |
| |
| ($3,006 | ) | |
| ($2,997 | ) |
| Balance at December 31, 2017 |
| ($15 | ) | |
| ($2 | ) | |
| $54 |
| |
| ($16,410 | ) | |
| ($16,373 | ) |
| Other comprehensive (loss)/income before reclassifications | (86 | ) | | 2 |
| | (146 | ) | | 747 |
| | 517 |
|
| Amounts reclassified from AOCI |
|
| |
|
| | 30 |
| | 743 |
| (2) | 773 |
|
| Net current period Other comprehensive (loss)/income | (86 | ) | | 2 |
| | (116 | ) | | 1,490 |
| | 1,290 |
|
| Balance at December 31, 2018 |
| ($101 | ) | |
| $— |
| |
| ($62 | ) | |
| ($14,920 | ) | |
| ($15,083 | ) |
| |
(2)
| Primarily relates to amortization of actuarial losses for the years ended December 31, 2018, 2017, and 2016 totaling $878, $542, and $524 (net of tax of ($242), ($272), and ($288)), respectively. These are included in the net periodic pension cost. See Note 17.
|
Note 2019 – Derivative Financial Instruments
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts, commodity swaps and commodity purchase contracts. We use foreign currency forward contracts to manage currency risk associated with certain transactions, specifically forecasted sales and purchases made in foreign currencies. Our foreign currency contracts hedge forecasted transactions through 2024.2025. We use commodity derivatives, such as fixed-price purchase commitments and swaps to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through 2021.2029.
Fair Value Hedges
Interest rate swaps under which we agreeWe continue to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair valuemonitor the effects of the derivatives andCOVID-19 pandemic on our cash flow hedges, including reductions in our forecasted purchases of certain commodities. As of December 31, 2020, the hedged items is reported in Boeing Capital interest expense.
Derivative Instruments Not Receiving Hedge Accounting Treatment
We have entered into agreements to purchase and sell aluminum to address long-term strategic sourcing objectives and non-U.S. business requirements. These agreements are derivative instruments for accounting purposes. The quantities of aluminum in these agreements offset and are priced at prevailing market prices. We also hold certain foreign currency forward contracts and commodity swaps which do not qualify for hedge accounting treatment.
Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the Consolidated Statements of Financial Position as of December 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notional amounts(1) | Other assets | Accrued
liabilities |
| 2020 | | 2019 | 2020 | | 2019 | 2020 | | 2019 |
| Derivatives designated as hedging instruments: | | | | | | | | | |
| Foreign exchange contracts | $2,594 | | | $2,590 | | $81 | | | $29 | | ($24) | | | ($60) | |
| | | | | | | | | |
| Commodity contracts | 404 | | | 645 | | 4 | | | 4 | | (43) | | | (72) | |
| Derivatives not receiving hedge accounting treatment: | | | | | | | | | |
| Foreign exchange contracts | 769 | | | 285 | | 22 | | | 1 | | (16) | | | (6) | |
| Commodity contracts | 904 | | | 1,644 | | | | | (17) | | | |
| Total derivatives | $4,671 | | | $5,164 | | 107 | | | 34 | | (100) | | | (138) | |
| Netting arrangements | | | | (31) | | | (20) | | 31 | | | 20 | |
| Net recorded balance | | | | $76 | | | $14 | | ($69) | | | ($118) | |
(1)Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
Gains/(losses) associated with our hedging transactions and forward points recognized in Other comprehensive income are presented in the following table:
| | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | | | |
| Recognized in Other comprehensive income, net of taxes: | | | | | | | |
| Foreign exchange contracts | $44 | | | $15 | | | | | |
| Commodity contracts | (30) | | | (63) | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Notional amounts(1) | Other assets | Accrued liabilities |
| | 2018 |
| | 2017 |
| 2018 |
| | 2017 |
| 2018 |
| | 2017 |
|
| Derivatives designated as hedging instruments: | | | | | | | | | |
| Foreign exchange contracts |
| $3,407 |
| |
| $2,930 |
|
| $32 |
| |
| $131 |
|
| ($132 | ) | |
| ($63 | ) |
| Interest rate contracts | 125 |
| | 125 |
|
|
| | 3 |
| | | |
| Commodity contracts | 57 |
| | 56 |
| 9 |
| | 4 |
| (2 | ) | | (6 | ) |
| Derivatives not receiving hedge accounting treatment: | | | | | | | | | |
| Foreign exchange contracts | 414 |
| | 406 |
| 11 |
| | 16 |
| (2 | ) | | (5 | ) |
| Commodity contracts | 478 |
| | 563 |
| | | | | |
|
|
| Total derivatives |
| $4,481 |
| |
| $4,080 |
| 52 |
| | 154 |
| (136 | ) | | (74 | ) |
| Netting arrangements | | | | (24 | ) | | (61 | ) | 24 |
| | 61 |
|
| Net recorded balance | | | |
| $28 |
| |
| $93 |
|
| ($112 | ) |
|
| ($13 | ) |
| |
(1)
| Notional amounts represent the gross contract/notional amount of the derivatives outstanding. |
Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effectforward points reclassified from AOCI to earnings are presented in the following table:
| | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 |
| Foreign exchange contracts | | | |
| Revenues | ($3) | | | 0 |
| Costs and expenses | (14) | | | ($26) | |
| General and administrative | (6) | | | (9) | |
| Commodity contracts | | | |
| | | |
| Costs and expenses | ($10) | | | $1 | |
| General and administrative expense | (1) | | | 1 | |
Gains/(losses) related to undesignated derivatives on foreign exchange and commodity cash flow hedging transactions recognized in Other comprehensive income/(loss)income, net were insignificant for the years ended December 31, 2020 and Net earnings were as follows:December 31, 2019.
|
| | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
|
| Effective portion recognized in Other comprehensive income/(loss), net of taxes: | | | |
| Foreign exchange contracts |
| ($156 | ) | |
| $123 |
|
| Commodity contracts | 10 |
| | (4 | ) |
| Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes: | | | |
| Foreign exchange contracts | (33 | ) | | (50 | ) |
| Commodity contracts | 3 |
| | (2 | ) |
| Forward points recognized in Other income/(loss), net: | | | |
| Foreign exchange contracts | 1 |
| | 8 |
|
| Undesignated derivatives recognized in Other income/(loss), net: | | | |
| Foreign exchange contracts |
|
| | 8 |
|
Based on our portfolio of cash flow hedges, we expect to reclassify lossesgains of $6$2 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges recognized in Other income/(loss), net was insignificant for the years ended December 31, 2018 and 2017.
We have derivative instruments with credit-risk-related contingent features. For foreign exchange contracts with original maturities of at least five years, our derivative counterparties could require settlement if we default on our five-year credit facility. For certain commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. The fair value of foreign exchange and commodity contracts that have credit-risk-related contingent features that are in a net liability position at December 31, 20182020 was $35.$3. At December 31, 2018,2020, there was no collateral posted related to our derivatives.
Note 2120 – Fair Value Measurements
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs. The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | December 31, 2017 |
| | Total |
| Level 1 |
| Level 2 |
| Total |
| Level 1 |
| Level 2 |
|
| Assets | | | | | | |
| Money market funds |
| $1,737 |
|
| $1,737 |
| |
| $1,582 |
|
| $1,582 |
| |
| Available-for-sale debt investments: | | | | | | |
| Commercial paper | 78 |
| | 78 |
| 70 |
| | 70 |
|
| Corporate notes | 420 |
| | 420 |
| 382 |
| | 382 |
|
| U.S. government agencies |
|
| |
|
| 47 |
| | 47 |
|
| Other equity investments | 12 |
| 12 |
| | 18 |
| 18 |
| |
| Derivatives | 28 |
| | 28 |
| 93 |
| |
| $93 |
|
| Total assets |
| $2,275 |
|
| $1,749 |
|
| $526 |
|
| $2,192 |
|
| $1,600 |
|
| $592 |
|
| | | | | | | |
| Liabilities | | | | | | |
| Derivatives |
| ($112 | ) | |
| ($112 | ) |
| ($13 | ) | |
| ($13 | ) |
| Total liabilities |
| ($112 | ) | |
| ($112 | ) |
| ($13 | ) | |
| ($13 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | December 31, 2019 |
| Total | Level 1 | Level 2 | | Total | Level 1 | Level 2 | |
| Assets | | | | | | | | |
| Money market funds | $2,230 | | $2,230 | | | | $2,562 | | $2,562 | | | |
| Available-for-sale debt investments: | | | | | | | | |
| Commercial paper | 149 | | | $149 | | | 108 | | | $108 | | |
| Corporate notes | 333 | | | 333 | | | 242 | | | 242 | | |
| U.S. government agencies | 114 | | | 114 | | | 55 | | 55 | | | |
| Other equity investments | 54 | | 54 | | | | 33 | | 33 | | | |
| Derivatives | 76 | | | 76 | | | 14 | | | $14 | | |
| Total assets | $2,956 | | $2,284 | | $672 | | | $3,014 | | $2,650 | | $364 | | |
| | | | | | | | |
| Liabilities | | | | | | | | |
| Derivatives | ($69) | | | ($69) | | | ($118) | | | ($118) | | |
| Total liabilities | ($69) | | | ($69) | | | ($118) | | | ($118) | | |
Money market funds, available-for-sale debt investments and equity securities are valued using a market approach based on the quoted market prices or broker/dealer quotes of identical or comparable instruments.
Derivatives include foreign currency commodity and interest ratecommodity contracts. Our foreign currency forward contracts are valued using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the present value of the commodity index prices less the contract rate multiplied by the notional amount. The fair value of our interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve.
Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents the nonrecurring losses recognized for the years ended December 31 due to long-lived asset impairment, and the fair value and asset classification of the related assets as of the impairment date:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| Fair Value | | Total Losses | | Fair Value | | Total Losses |
| Investments | $22 | | | ($81) | | | $27 | | | ($109) | |
| Customer financing assets | 105 | | | (24) | | | $111 | | | (20) | |
| Other assets and Acquired intangible assets | 298 | | | (221) | | | 4 | | | (310) | |
| Property, plant and equipment | 79 | | | (84) | | | 41 | | | (4) | |
| Total | $504 | | | ($410) | | | $183 | | | ($443) | |
|
| | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| | Fair Value |
| | Total Losses |
| | Fair Value |
| | Total Losses |
|
| Investments |
|
| |
| ($50 | ) | |
| $1 |
| |
| ($44 | ) |
| Operating lease equipment |
| $101 |
| | (39 | ) | | 90 |
| |
| ($32 | ) |
| Other assets and Acquired intangible assets |
|
| |
|
| | 14 |
| | (23 | ) |
| Property, plant and equipment | 44 |
| | (4 | ) | | 8 |
| | (2 | ) |
| Total |
| $145 |
| |
| ($93 | ) | |
| $113 |
| |
| ($101 | ) |
Investments, Acquired intangible assets and Property, plant and equipment, Other assets and Acquired intangible assets were primarily valued using an income approach based on the discounted cash flows associated with the underlying assets. The fair value of the impaired customer financing assets includes operating lease equipment and investments in sales type-leases/finance leases, and is derived by calculating a median collateral value from a consistent group of third party aircraft value publications. The values provided by the third party aircraft publications are derived from their knowledge of market trades and other market factors. Management reviews the publications quarterly to assess the continued appropriateness and consistency with market trends. Under certain circumstances, we adjust values based on the attributes and condition of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by third party publications, or on the expected net sales price for the aircraft.
For Level 3 assets that were measured at fair value on a nonrecurring basis during the year ended December 31, 2018,2020, the following table presents the fair value of those assets as of the measurement date, valuation techniques and related unobservable inputs of those assets.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Fair
Value
| | Valuation
Technique(s)
| | Unobservable Input | | Range
Median or Average
|
| Customer financing assets | $105 | | Market approach | | Aircraft value publications | | $85 - $169(1) Median $116 |
Operating lease equipment | $101 | | Market approach | | Aircraft value publications | | $103 - $164(1)
Median $123
|
| | Aircraft condition adjustments | | ($25)14) - $3(2) Net ($22)11) |
| |
(1)(1)The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process. | The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process. |
| |
(2)
| The negative amount represents the sum, for all aircraft subject to fair value measurement, of all downward adjustments based on consideration of individual aircraft attributes and condition. The positive amount represents the sum of all such upward adjustments. |
Fair Value Disclosures
The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the Consolidated Statements of Financial Position at December 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Carrying Amount | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | | |
| | | | | | | | | |
| Notes receivable, net | $420 | | | $488 | | | | | $488 | | | |
| Liabilities | | | | | | | | | |
| Debt, excluding finance lease obligations | (63,380) | | | (72,357) | | | | | (72,342) | | | ($15) | |
| | | | December 31, 2018 | | December 31, 2019 |
| | Carrying Amount |
| | Total Fair Value |
| | Level 1 | | Level 2 |
| | Level 3 |
| | Carrying Amount | | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | Assets | |
| | Notes receivable, net |
| $730 |
| |
| $735 |
| |
| $735 |
| | | Notes receivable, net | $443 | | | $444 | | | $444 | | |
| Liabilities | | | | | | | | Liabilities | |
| Debt, excluding capital lease obligations and commercial paper | (11,796 | ) | | (12,746 | ) | | (12,682 | ) | |
| ($64 | ) | |
| Debt, excluding finance lease obligations and commercial paper | | Debt, excluding finance lease obligations and commercial paper | (20,964) | | | (23,119) | | | (23,081) | | | ($38) | |
|
| | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Carrying Amount |
| | Total Fair Value |
| | Level 1 | | Level 2 |
| | Level 3 |
|
| Assets | | | | | | | | | |
| Notes receivable, net |
| $1,022 |
| |
| $1,046 |
| | | |
| $1,046 |
| | |
| Liabilities | | | | | | | | | |
| Debt, excluding capital lease obligations and commercial paper | (10,380 | ) | | (11,923 | ) | | | | (11,823 | ) | |
| ($100 | ) |
The fair values of notes receivable are estimated with discounted cash flow analysis using interest rates currently offered on loans with similar terms to borrowers of similar credit quality. The fair value of our debt that is traded in the secondary market is classified as Level 2 and is based on current market yields. For our debt that is not traded in the secondary market, the fair value is classified as Level 2 and is based on our indicative borrowing cost derived from dealer quotes or discounted cash flows. The fair values of our debt classified as Level 3 are based on discounted cash flow models using the implied yield from similar securities. With regard to other financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of our indemnifications and financing commitments because the amount and timing of those arrangements are uncertain. Items not included in the above disclosures include cash, restricted cash, time deposits and other deposits, commercial paper, money market funds, Accounts receivable, Unbilled receivables, Other current assets, Accounts payable and long-term payables. The carrying values of those items, as reflected in the Consolidated Statements of Financial Position, approximate their fair value at December 31, 20182020 and 2017.2019. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash (Level 1).
Note 2221 – Legal Proceedings
Various legal proceedings, claims and investigations related to products, contracts, employment and other matters are pending against us.
In addition, we are subject to various U.S. government inquiries and investigations from which civil, criminal or administrative proceedings could result or have resulted in the past. Such proceedings involve or could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. WeExcept as described below, we believe, based upon current information, that the outcome of any such legal proceeding, claim, or government dispute and investigation will not have a material effect on our financial position, results of operations, or cash flows. Where it is reasonably possible that we will incur losses in excess of recorded amounts in connection with any of the matters set forth below, we will disclose either the amount or range of reasonably possible losses in excess of such amounts or, where no such amount or range can be reasonably estimated, the reasons why no such estimate can be made.
During 2019, we entered into agreements with Embraer S.A. (Embraer) to establish joint ventures that included the commercial aircraft and services operations of Embraer, of which we were expected to acquire an 80 percent ownership stake for $4,200, as well as a joint venture to promote and develop new markets for the C-390 Millennium. In 2020, we exercised our contractual right to terminate these agreements based on Embraer’s failure to meet certain required closing conditions. Embraer has disputed our right to terminate the agreements, and the dispute is currently in arbitration. We cannot reasonably estimate a range of loss, if any, that may result from the arbitration.
Note 2322 – Segment and Revenue Information
Effective at the beginning of 2020, certain programs were realigned between our BDS segment and Unallocated items, eliminations and other. Business segment data for 2019 and 2018 has been adjusted to reflect the realignment.
Our primary profitability measurements to review a segment’s operating results are EarningsEarnings/(loss) from operations and operating margins. We operate in four4 reportable segments: BCA,, BDS,, BGS,, and BCC.BCC. All other activities fall within Unallocated items, eliminations and other. See page 5367 for the Summary of Business Segment Data, which is an integral part of this note.
BCA develops, produces and markets commercial jet aircraft principally to the commercial airline industry worldwide. Revenue on commercial aircraft contracts is recognized at the point in time when an aircraft is completed and accepted by the customer. Revenue on certain military derivative aircraft contracts is recognized over the contract term (over time) as costs are incurred.
BDS engages in the research, development, production and modification of the following products and related services: manned and unmanned military aircraft and weapons systems, surveillance and engagement, strategic defense and intelligence systems, satellite systems and space exploration. BDS revenue is generally recognized over the contract term (over time) as costs are incurred.
BGS provides parts, maintenance, modifications, logistics support, training, data analytics and information-based services to commercial and government customers worldwide. BGS segment revenue and costs include certain products and services provided to other segments. Revenue on commercial spare parts contracts is recognized at the point in time when a spare part is delivered to the customer. Revenue on other contracts is generally recognized over the contract term (over time) as costs are incurred.
BCC facilitates, arranges, structures and provides selective financing solutions for our Boeing customers.
While our principal operations are in the United States, Canada and Australia, some key suppliers and subcontractors are located in Europe and Japan. Revenues, including foreign military sales, are reported by customer location and consistconsisted of the following:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Europe | $7,961 | | | $10,366 | | | $12,976 | |
| Asia, other than China | 4,128 | | | 10,662 | | | 12,141 | |
| Middle East | 5,308 | | | 9,272 | | | 9,745 | |
| China | 1,803 | | | 5,684 | | | 13,764 | |
| Canada | 1,302 | | | 2,019 | | | 2,583 | |
| Oceania | 832 | | | 2,006 | | | 2,298 | |
| Africa | 114 | | | 1,113 | | | 1,486 | |
| Latin America, Caribbean and other | 229 | | | 1,015 | | | 1,458 | |
| Total non-U.S. revenues | 21,677 | | | 42,137 | | | 56,451 | |
| United States | 36,979 | | | 42,681 | | | 44,676 | |
Estimated potential concessions and other considerations to 737 MAX customers, net(1) | (498) | | | (8,259) | | | |
| Total revenues | $58,158 | | | $76,559 | | | $101,127 | |
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Asia, other than China |
| $12,141 |
| |
| $9,195 |
| |
| $9,892 |
|
| Europe | 12,976 |
| | 11,240 |
| | 13,018 |
|
| China | 13,764 |
| | 11,932 |
| | 10,289 |
|
| Middle East | 9,745 |
| | 11,433 |
| | 12,251 |
|
| Oceania | 2,298 |
| | 1,931 |
| | 1,693 |
|
| Canada | 2,583 |
| | 2,212 |
| | 2,084 |
|
| Africa | 1,486 |
| | 815 |
| | 1,990 |
|
| Latin America, Caribbean and other | 1,458 |
| | 1,541 |
| | 1,972 |
|
| Total non-U.S. revenues | 56,451 |
| | 50,299 |
| | 53,189 |
|
| United States | 44,676 |
| | 43,706 |
| | 40,307 |
|
| Total revenues |
| $101,127 |
| |
| $94,005 |
| |
| $93,496 |
|
Revenues from the U.S. government (including foreign military sales through the U.S. government), primarily recorded at BDS and BGS, represented 31%51%, 31%39%, and 30%31% of consolidated revenues for 2018, 20172020, 2019, and 2016,2018, respectively. Approximately 4% of operating assets were located outside the United States as of December 31, 20182020 and 2017.2019.
The following tables present BCA, BDS and BGS revenues from contracts with customers disaggregated in a number of ways, such as geographic location, contract type and the method of revenue recognition. We believe these best depict how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors.
BCA revenues by customer location consistconsisted of the following:
| | | | | | | | | | | | | | | | | |
Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenue from contracts with customers: | | | | | |
| Europe | $3,872 | | | $5,829 | | | $9,719 | |
| Middle East | 1,647 | | | 5,761 | | | 5,876 | |
| Asia, other than China | 1,408 | | | 7,395 | | | 8,274 | |
| China | 1,271 | | | 5,051 | | | 13,068 | |
| Other | 513 | | | 3,450 | | | 5,185 | |
| Total non-U.S. revenues | 8,711 | | | 27,486 | | | 42,122 | |
| United States | 7,899 | | | 12,676 | | | 15,347 | |
Estimated potential concessions and other considerations to 737 MAX customers, net(1) | (498) | | | (8,259) | | | 0 |
| Total revenues from contracts with customers | 16,112 | | | 31,903 | | | 57,469 | |
| Intersegment revenues, eliminated on consolidation | 50 | | | 352 | | | 30 | |
| Total segment revenues | $16,162 | | | $32,255 | | | $57,499 | |
| | | | | |
| Revenue recognized on fixed-price contracts | 100 | % | | 100 | % | | 100 | % |
| | | | | |
| Revenue recognized at a point in time | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | | | | |
Years ended December 31, | 2018 | | 2017 | | 2016 |
| Revenue from contracts with customers: | | | | | |
| Europe |
| $9,719 |
| |
| $8,478 |
| |
| $10,124 |
|
| China | 13,068 |
| | 10,982 |
| | 9,819 |
|
| Asia, other than China | 8,274 |
| | 6,482 |
| | 7,438 |
|
| Middle East | 5,876 |
| | 8,927 |
| | 9,505 |
|
| Other | 5,185 |
| | 4,365 |
| | 5,730 |
|
| Total non-U.S. revenues | 42,122 |
| | 39,234 |
| | 42,616 |
|
| United States | 17,081 |
| | 16,861 |
| | 14,769 |
|
| Total revenues from contracts with customers | 59,203 |
| | 56,095 |
| | 57,385 |
|
| Intersegment revenues, eliminated on consolidation | 1,512 |
| | 1,919 |
| | 1,993 |
|
| Total segment revenues |
| $60,715 |
| |
| $58,014 |
| |
| $59,378 |
|
| | | | | | |
| Revenue recognized on fixed-price contracts | 100 | % | | 100 | % | | 100 | % |
| | | | | | |
| Revenue recognized at a point in time | 94 | % | | 95 | % | | 95 | % |
BDS revenues on contracts with customers, based on the customer's location, consistconsisted of the following:
| | | | | | | | | | | | | | | | | |
Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenue from contracts with customers: | | | | | |
| U.S. customers | $19,662 | | | $19,465 | | | $19,488 | |
Non-U.S. customers(1) | 6,595 | | | 6,630 | | | 6,812 | |
| Total segment revenue from contracts with customers | $26,257 | | | $26,095 | | | $26,300 | |
| | | | | |
| Revenue recognized over time | 98 | % | | 98 | % | | 98 | % |
| | | | | |
| Revenue recognized on fixed-price contracts | 69 | % | | 70 | % | | 70 | % |
| | | | | |
Revenue from the U.S. government(1) | 89 | % | | 89 | % | | 88 | % |
|
| | | | | | | | | | | |
Years ended December 31, | 2018 | | 2017 | | 2016 |
| Revenue from contracts with customers: | | | | | |
| U.S. customers |
| $16,492 |
| |
| $15,889 |
| |
| $15,227 |
|
Non U.S. customers(1) | 6,703 |
| | 4,672 |
| | 4,953 |
|
| Total segment revenue from contracts with customers |
| $23,195 |
| |
| $20,561 |
| |
| $20,180 |
|
| | | | | | |
| Revenue recognized over time | 98 | % | | 97 | % | | 99 | % |
| | | | | | |
| Revenue recognized on fixed-price contracts | 65 | % | | 63 | % | | 64 | % |
| | | | | | |
Revenue from the U.S. government(1) | 86 | % | | 87 | % | | 88 | % |
| |
(1)(1)Includes revenues earned from foreign military sales through the U.S. government.
| Includes revenues earned from foreign military sales through the U.S. government. |
BGS revenues consistconsisted of the following:
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Revenue from contracts with customers: | | | | | |
| Commercial | $6,936 | | | $10,167 | | | $9,227 | |
| Government | 8,368 | | | 8,107 | | | 7,658 | |
| Total revenues from contracts with customers | 15,304 | | | 18,274 | | | 16,885 | |
| Intersegment revenues eliminated on consolidation | 239 | | | 194 | | | 171 | |
| Total segment revenues | $15,543 | | | $18,468 | | | $17,056 | |
| | | | | |
| Revenue recognized at a point in time | 47 | % | | 55 | % | | 54 | % |
| | | | | |
| Revenue recognized on fixed-price contracts | 87 | % | | 90 | % | | 90 | % |
| | | | | |
Revenue from the U.S. government(1) | 41 | % | | 34 | % | | 36 | % |
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 | | 2017 | | 2016 |
| Revenue from contracts with customers: | | | | | |
| Commercial |
| $9,227 |
| |
| $7,622 |
| |
| $6,918 |
|
| Government | 7,620 |
| | 6,910 |
| | 6,860 |
|
| Total revenues from contracts with customers | 16,847 |
| | 14,532 |
| | 13,778 |
|
| Intersegment revenues eliminated on consolidation | 171 |
| | 49 |
| | 41 |
|
| Total segment revenues |
| $17,018 |
| |
| $14,581 |
| |
| $13,819 |
|
| | | | | | |
| Revenue recognized at a point in time | 54 | % | | 50 | % | | 43 | % |
| | | | | | |
| Revenue recognized on fixed-price contracts | 90 | % | | 89 | % | | 87 | % |
| | | | | | |
Revenue from the U.S. government(1) | 36 | % | | 39 | % | | 41 | % |
| |
(1)Earnings in Equity Method Investments We recorded Earnings from operations associated with our equity method investments of $86, $90 and $167, primarily in our BDS segment, for the years ended December 31, 2020, 2019 and 2018, respectively. | Includes revenues earned from foreign military sales through the U.S. government. |
Backlog
Our total backlog represents the estimated transaction prices on performance obligations to our customers for which work remains to be performed. Backlog is converted into revenue in future periods as work is performed, primarily based on the cost incurred or at delivery and acceptance of products, depending on the applicable accounting method.
Our backlog at December 31, 20182020 was $490,481.$363,404. We expect approximately 19%20% to be converted to revenue through 20192021 and approximately 65%66% through 2022,2024, with the remainder thereafter. There is significant uncertainty regarding the timing of when backlog will convert into revenue due to the 737 MAX grounding in non-U.S. jurisdictions, entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10, and COVID-19 impacts.
Depreciation and Amortization
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Commercial Airplanes |
| $565 |
| |
| $521 |
| |
| $442 |
|
Defense, Space & Security
| 290 |
| | 252 |
| | 220 |
|
| Global Services | 348 |
| | 322 |
| | 312 |
|
| Boeing Capital Corporation | 58 |
| | 70 |
| | 83 |
|
| Unallocated items, eliminations and other | 853 |
| | 882 |
| | 832 |
|
| Total |
| $2,114 |
| |
| $2,047 |
| |
| $1,889 |
|
Capital Expenditures
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Commercial Airplanes |
| $604 |
| |
| $636 |
| |
| $830 |
|
| Defense, Space & Security | 208 |
| | 210 |
| | 290 |
|
| Global Services | 231 |
| | 180 |
| | 209 |
|
| Unallocated items, eliminations and other | 679 |
| | 713 |
| | 1,284 |
|
| Total |
| $1,722 |
| |
| $1,739 |
| |
| $2,613 |
|
Unallocated capital expenditures relate primarily to assets managed centrally on behalf of the four principal segments.
We recorded Earnings from operations associated with our equity method investments of $167, $233 and $303, primarily in our BDS segment, for the years ended December 31, 2018, 2017 and 2016, respectively.
Unallocated Items, Eliminations and other
Unallocated items, eliminations and other include common internal services that support Boeing’s global business operations, intercompany guarantees provided to BCC and eliminations of certain sales between segments. Such sales include airplanes accounted for as operating leases and considered transferred to the BCC segment and airplanes transferred to the BDS segment for further modification prior to delivery to the customer. The revenues and cost of sales for these transfers are eliminated in the Unallocated items, eliminations and other caption.segment. We generally allocate costs to business segments based on the U.S. federal cost accounting standards. Components of Unallocated items, eliminations and other are shown in the following table.
|
| | | | | | | | | | | |
| Years ended December 31, | 2018 |
| | 2017 |
| | 2016 |
|
| Share-based plans |
| ($76 | ) | |
| ($77 | ) | |
| ($66 | ) |
| Deferred compensation | (19 | ) | | (240 | ) | | (46 | ) |
| Amortization of previously capitalized interest | (92 | ) | | (96 | ) | | (106 | ) |
| Eliminations and other unallocated items | (1,227 | ) | | (686 | ) | | (489 | ) |
| Unallocated items, eliminations and other | (1,414 | ) | | (1,099 | ) | | (707 | ) |
| | | | | | |
| Pension FAS/CAS service cost adjustment | 1,005 |
| | 1,127 |
| | 1,029 |
|
| Postretirement FAS/CAS service cost adjustment | 322 |
| | 311 |
| | 328 |
|
| FAS/CAS service cost adjustment |
| $1,327 |
| |
| $1,438 |
| |
| $1,357 |
|
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Share-based plans | ($120) | | | ($65) | | | ($76) | |
| Deferred compensation | (93) | | | (174) | | | (19) | |
| Amortization of previously capitalized interest | (95) | | | (89) | | | (92) | |
| Research and development expense, net | (240) | | | (401) | | | (144) | |
| Customer financing impairment | | | (250) | | | |
| Litigation | | | (109) | | | (148) | |
| Eliminations and other unallocated items | (1,807) | | | (985) | | | (998) | |
| Unallocated items, eliminations and other | ($2,355) | | | ($2,073) | | | ($1,477) | |
| | | | | |
| Pension FAS/CAS service cost adjustment | $1,024 | | | $1,071 | | | $1,005 | |
| Postretirement FAS/CAS service cost adjustment | 359 | | | 344 | | | 322 | |
| FAS/CAS service cost adjustment | $1,383 | | | $1,415 | | | $1,327 | |
Pension and Other Postretirement Benefit Expense
Pension costs, comprising GAAP service and prior service costs, are allocated to BCA and the commercial operations at BGS. Pension costs are allocated to BDS and BGS businesses supporting government customers using U.S. Government Cost Accounting Standards (CAS) (CAS), which employ different actuarial assumptions and accounting conventions than GAAP.GAAP. These costs are allocable to government contracts. Other postretirement benefit costs are allocated to business segments based on CAS,, which is generally based on benefits paid. FAS/CAS service cost adjustment represents the difference between the FASFinancial Accounting Standards (FAS) pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. These expenses are included in Other income/(loss), net.
Assets
Segment assets are summarized in the table below.
|
| | | | | | | |
| December 31, | 2018 |
| | 2017 |
|
| Commercial Airplanes |
| $64,670 |
| |
| $64,647 |
|
| Defense, Space & Security | 19,794 |
| | 18,476 |
|
| Global Services | 17,910 |
| | 12,491 |
|
| Boeing Capital | 2,809 |
| | 3,156 |
|
| Unallocated items, eliminations and other | 12,176 |
| | 13,592 |
|
| Total |
| $117,359 |
| |
| $112,362 |
|
| | | | | | | | | | | | | |
| December 31, | 2020 | | 2019 | | |
| Commercial Airplanes | $77,973 | | | $73,995 | | | |
| Defense, Space & Security | 14,256 | | | 15,757 | | | |
| Global Services | 17,399 | | | 18,605 | | | |
| Boeing Capital | 1,978 | | | 2,269 | | | |
| Unallocated items, eliminations and other | 40,530 | | | 22,999 | | | |
| Total | $152,136 | | | $133,625 | | | |
Assets included in Unallocated items, eliminations and other primarily consist of Cash and cash equivalents, Short-term and other investments, deferred tax assets, capitalized interest, assets heldmanaged centrally on behalf of the four principal business segments and intercompany eliminations. From December 31, 2019 to December 31, 2020, assets in BCA increased primarily due to higher inventory balances and assets in Unallocated items, eliminations, and other increased due to higher cash and short-term investment balances from debt issued throughout 2020.
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Commercial Airplanes | $322 | | | $433 | | | $604 | |
| Defense, Space & Security | 172 | | | 189 | | | 201 | |
| Global Services | 127 | | | 218 | | | 231 | |
| Unallocated items, eliminations and other | 682 | | | 994 | | | 686 | |
| Total | $1,303 | | | $1,834 | | | $1,722 | |
Capital expenditures for Unallocated items, eliminations and other relate primarily to assets managed centrally on behalf of the four principal business segments.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | |
| Years ended December 31, | 2020 | | 2019 | | 2018 |
| Commercial Airplanes | $559 | | | $580 | | | $565 | |
Defense, Space & Security
| 251 | | | 256 | | | 270 | |
| Global Services | 408 | | | 424 | | | 348 | |
| Boeing Capital Corporation | 66 | | | 64 | | | 58 | |
Centrally Managed Assets (1) | 962 | | | 947 | | | 873 | |
| Total | $2,246 | | | $2,271 | | | $2,114 | |
(1)Amounts shown in the table represent depreciation and amortization expense recorded by the individual business segments. Depreciation and amortization for centrally managed assets are included in segment operating earnings based on usage and occupancy. In 2020, $689 was included in the primary business segments, of which $397, $236, and $56 was included in BCA, BDS and BGS, respectively. In 2019, $717 was included in the primary business segments, of which $407, $257, and $53 was included in BCA, BDS and BGS, respectively. In 2018, $692 was included in the primary business segments, of which $417, $213, and $62 was included in BCA, BDS and BGS, respectively.
112
Note 2423 – Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | 2017 |
| | 4th |
| 3rd |
| 2nd |
| 1st |
| 4th |
| 3rd |
| 2nd |
| 1st |
|
| Total revenues |
| $28,341 |
|
| $25,146 |
|
| $24,258 |
|
| $23,382 |
|
| $24,770 |
|
| $24,223 |
|
| $23,051 |
|
| $21,961 |
|
| Total costs and expenses | (22,090 | ) | (21,040 | ) | (19,536 | ) | (18,824 | ) | (19,881 | ) | (19,956 | ) | (18,702 | ) | (18,073 | ) |
| Earnings from operations | 4,175 |
| 2,227 |
| 2,710 |
| 2,875 |
| 2,978 |
| 2,630 |
| 2,530 |
| 2,206 |
|
| Net earnings | 3,424 |
| 2,363 |
| 2,196 |
| 2,477 |
| 3,320 |
| 1,810 |
| 1,749 |
| 1,579 |
|
| Basic earnings per share | 6.00 |
| 4.11 |
| 3.77 |
| 4.19 |
| 5.57 |
| 3.03 |
| 2.91 |
| 2.57 |
|
| Diluted earnings per share | 5.93 |
| 4.07 |
| 3.73 |
| 4.15 |
| 5.49 |
| 2.99 |
| 2.87 |
| 2.54 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | 2019 |
| 4th | 3rd | 2nd | 1st | 4th | 3rd | 2nd | 1st |
| Total revenues | $15,304 | | $14,139 | | $11,807 | | $16,908 | | $17,911 | | $19,980 | | $15,751 | | $22,917 | |
| Total costs and expenses | (20,992) | | (13,105) | | (12,978) | | (16,768) | | (18,708) | | (16,930) | | (17,810) | | (18,645) | |
| (Loss)/earnings from operations | (8,049) | | (401) | | (2,964) | | (1,353) | | (2,204) | | 1,259 | | (3,380) | | 2,350 | |
| | | | | | | | |
| | | | | | | | |
| Net (loss)/earnings attributable to Boeing Shareholders | (8,420) | | (449) | | (2,376) | | (628) | | (1,010) | | 1,167 | | (2,942) | | 2,149 | |
| | | | | | | | |
| Basic (loss)/earnings per share | (14.65) | | (0.79) | | (4.20) | | (1.11) | | (1.79) | | 2.07 | | (5.21) | | 3.79 | |
| | | | | | | | |
| Diluted (loss)/earnings per share | (14.65) | | (0.79) | | (4.20) | | (1.11) | | (1.79) | | 2.05 | | (5.21) | | 3.75 | |
Gross profit is calculated as Total revenues minus Total costs and expenses. Total costs and expenses includes Cost of products, Cost of services and Boeing Capital interest expense.
During the first quarter of 2020, we recorded $797 of abnormal production costs related to 737 MAX, $336 related to 737NG frame fitting component repair costs, $137 of abnormal production costs from the temporary suspension of Puget Sound production in response to COVID-19, and a $168 reach-forward loss on VC-25B. During the first quarter of 2019, we concluded that lease incentives granted to a customer that experienced liquidity issues were impaired and recorded a charge of $250.
During the second quarter of 2020, we recorded $859 of charges at BGS related to asset impairments, $712 of abnormal production costs related to the 737 MAX, $652 of severance costs, and $133 of abnormal production costs from the temporary suspension of Puget Sound production in response to COVID-19. During the second quarter of 2019, we recorded a charge of $109 related to ongoing litigation associated with recoverable costs on U.S. government contracts.
During the third quarter of 2018,2020, we recorded $590 of abnormal production costs related to the 737 MAX and $328 of severance costs.
During the fourth quarter of 2020, we recorded a reach-forward loss on the 777X program of $6,493, abnormal production costs related to the 737 MAX of $468 and asset impairments of $290 at BGS. Additionally, we recorded an increase to our valuation allowances and a tax benefit of $412$587 related to the settlement of the 2013-20142015-2017 federal tax audit. See Note 4. During the fourth quarter of 2017,2019, we recorded a divestiture gain of $395 and a tax benefit of $371 related to the settlement of state tax audits spanning 15 tax years. Additionally, we recorded an impairment of $293 as a result of our decision to retire the enactmentAviall brand and trade name, and an increase to the reach-forward loss on Commercial Crew of $410.
We recorded a reduction to revenue in the TCJA,second and fourth quarters of 2020 of $551 and $128 for 737 MAX customer considerations. In the third quarter of 2020, we recorded provisional tax benefitsan increase to revenue of $1,271, primarily related$151 for 737 MAX customer considerations. During the second and fourth quarters of 2019, we recorded a reduction to revenue of $5,610 and $2,619 for 737 MAX customer considerations, net of insurance recoveries.
We recorded an increase to the remeasurement of net U.S. deferred tax liabilities.
During 2018 and 2017, higher estimated costs to complete thereach-forward loss on KC-46A Tanker contract for the U.S. Air Force resulted in reach-forward losses. We recorded $81, $426, $179 and $50 in the first, second, third, and fourth quarters of 2018,2020 of $827, $151, $67 and $275, respectively. We recorded $138 and $314 inIn the first and third quarters of 2017.
During the thirdfourth quarter of 2018, upon contract award,2019, we recorded charges of $400 associated with anticipated losses on the T-X Trainer and $291 on the MQ-25 Stingray.
During the second quarter of 2018, we recorded a charge of $148 relatedan increase to the outcomereach-forward loss on KC-46A Tanker of the Spirit litigation, including the write-off of $108.
$137 of receivables.
We increased our quarterly dividend from $1.42 to $1.71 in December 2017 and to $2.06 in December 2018.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of The Boeing Company
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of The Boeing Company and subsidiaries (the “Company”"Company") as of December 31, 20182020 and 2017,2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control –— Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2019,1, 2021, expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1 and 2 to the financial statements, in 2018 the Company changed its method of accounting for revenue from contracts with customers.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Cost Estimates for Fixed-Price Development Contracts – Refer to Notes 1 and 13 to the financial statements
Critical Audit Matter Description
As more fully described in Notes 1 and 13 to the consolidated financial statements, the Company recognizes revenue over time for long-term contracts as goods are produced or services are rendered. The Company uses costs incurred as the method for determining progress, and revenue is recognized based on costs incurred to date plus an estimate of margin at completion. The process of estimating margin at completion involves estimating the costs to complete production of goods or rendering of services and comparing those costs to the estimated final revenue amount. Fixed-price development contracts are inherently uncertain in that revenue is fixed while the estimates of costs required to complete these contracts are subject to significant variability. Due to the technical performance requirements in many of these contracts, changes to cost estimates could occur, resulting in lower margins or material reach-forward losses.
Given the complexity of certain of the Company’s fixed-price development contracts, including the KC-46A Tanker, Commercial Crew, and United States Air Force VC-25B Presidential Aircraft contracts, the limited amount of historical data available in certain instances and significant judgments necessary to estimate future costs at completion, auditing these estimates involved extensive audit effort and a high degree of auditor judgment and required audit professionals with specialized industry experience.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to the cost estimates for the KC-46A Tanker, Commercial Crew, and United States Air Force VC-25B Presidential Aircraft fixed-price development contracts included the following, among others:
•We evaluated the appropriateness and consistency of management’s methods used in developing its estimates.
•We evaluated the reasonableness of judgments made and significant assumptions used by management relating to key estimates, including the range and probability of possible outcomes.
•We performed inquiries of the Company’s project managers and others directly involved with the contracts to evaluate project status and project challenges which may affect total estimated costs to complete. We also observed the project work site when key estimates related to tangible or physical progress of the project.
•We tested the accuracy and completeness of the data used in developing key estimates. We developed independent expectations of likely outcomes using, in part, the program’s data and compared our expectations to management’s estimates.
•We tested the effectiveness of controls over the review of judgments made and significant assumptions used to develop key estimates, including controls over the data used in developing the estimates and the mathematical extrapolation of such data.
•We performed retrospective reviews, comparing actual performance to estimated performance and the related financial statement impact, when evaluating the thoroughness and precision of management’s estimation process and effectiveness of related internal controls.
Program Accounting Estimates for the 777X Program – Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
The introduction of new aircraft programs involves increased risk associated with meeting development, certification and production schedules. The Company uses program accounting in order to compute cost of sales and margin for each commercial airplane sold. The use of program accounting requires estimating and demonstrating customer demand for the number of units included in the program (program accounting quantity) and estimating the sales and costs over the expected life of each program. In particular, estimating the initial program accounting quantity and revenue for unsold units within the program accounting quantity involves measurement uncertainty resulting in a range of possible outcomes. Additionally, the level of effort to meet regulatory requirements and achieve certification may be challenging to predict, resulting in delays in the timing of entry into service and corresponding increases in estimated costs. Changes to the program accounting quantity or revenue and cost estimates could occur, resulting in lower margins or material reach-forward losses. Auditing the estimated revenues and costs for the 777X program involved extensive audit effort and required professionals with specialized industry experience given the high degree of complexity and subjectivity related to management’s estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures over the estimated revenues and costs for the 777X program accounting quantity included the following, among others:
•We inquired of the Company’s management, including individuals responsible for sales and pricing, to evaluate the status of current sales campaigns, short and long-term market demand, and status of negotiations with individual sold firm customers.
•We compared management’s estimate of market demand to external industry sources of expected demand.
•We evaluated the appropriateness and consistency of management’s methods and significant assumptions used in developing its estimates related to the initial program accounting quantity and revenue for unsold units.
•We evaluated management’s ability to estimate program revenue by comparison to historical estimates and actual results on similar programs.
•We evaluated the appropriateness and consistency of management’s methods used in developing its cost estimates.
•Performed inquiries of those directly involved with the certification of the aircraft to evaluate project status and challenges which may affect total estimated costs to certify the aircraft.
•We tested the effectiveness of controls including those over the data used in developing the estimates, the mathematical extrapolation of such data, and management’s judgment regarding the range of possible outcomes relating to the specific estimates.
Liabilities related to the 737 MAX Grounding – Refer to Notes 13 and 21 to the financial statements
Critical Audit Matter Description
In 2019, following two fatal 737 MAX accidents, the Federal Aviation Administration (FAA) and non-U.S. civil aviation authorities issued orders suspending commercial operations of 737 MAX aircraft (the “737 MAX Grounding”). Deliveries resumed in the U.S. in late 2020 following rescission by the FAA of its grounding order. The 737 MAX remains grounded in certain non-U.S. jurisdictions. In addition, multiple legal actions have been filed against the Company following the fatal accidents and various governmental and regulatory investigations and inquiries continue relating to the accidents and the 737 MAX aircraft.
During 2019, the Company recorded an initial liability in connection with estimated payments, concessions and other in-kind consideration it intends to provide to customers for disruptions related to the 737 MAX Grounding and associated delivery delays. This liability totaled $5.5 billion at December 31, 2020 and is reflected in the financial statements in Accrued liabilities. This represents the Company’s best estimate of future concessions and other consideration to its customers, and is necessarily based on individual negotiations with customers and the substance of such negotiations.
Significant judgment is involved in management’s ability to assess and reasonably estimate potential additional financial statement effects or a range of loss, if any, resulting from the outcome of 737 MAX-related litigation and the results of the various ongoing governmental and regulatory investigations and inquiries related to the 737 MAX.
The subjectivity of the liability associated with providing consideration to customers resulting from the 737 MAX Grounding and the complexity of assessing the outcome of the ongoing litigation and investigations related to the 737 MAX required a high degree of auditor judgment and increased audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures associated with liabilities related to the 737 MAX Grounding included the following, among others:
•We inquired of management to understand developments with the 737 MAX Grounding, including the status of regulatory approval for return to service in various foreign jurisdictions and the status of consideration negotiations with individual customers.
•We obtained written representations from management concerning its intent to provide consideration to customers and the extent of that consideration.
•We tested the effectiveness of controls related to nonrecurring items and loss contingencies associated with litigation, claims and assessments.
•We evaluated the significant assumptions used by management to estimate the liability for customer consideration, including the timing and conditions of 737 MAX return to service in various foreign jurisdictions, and, where possible, we corroborated the significant assumptions with management outside of the accounting and finance organizations.
•We reviewed the terms of customer contracts and correspondence with customers concerning potential consideration as a result of the 737 MAX Grounding.
•We evaluated the terms of settlement agreements with customers for the allocation of value provided between consideration as a result of the 737 MAX Grounding and for consideration related to the impact of current economic conditions resulting from COVID-19.
•We evaluated delivery documents for 737 MAX deliveries for incremental value provided at delivery as potential consideration as a result of the 737 MAX Grounding.
•We inquired of internal and external legal counsel to understand developments related to contractual obligations to customers, litigation and other claims relating to the 737 MAX Grounding and progression in potential settlement discussions.
•We read minutes of meetings of the Board of Directors and its committees for evidence of unrecorded loss contingencies.
•We evaluated the Company’s disclosures for consistency with our knowledge of matters related to the 737 MAX Grounding.
Income Taxes – Realizability of Deferred Tax Assets– Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
As more fully described in Notes 1 and 4 to the consolidated financial statements, the Company recognizes deferred income taxes for differences between the financial statement carrying amount and tax basis of assets and liabilities, measured using enacted statutory rates in effect for the years in which the basis differences are expected to reverse. A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character. Sources of taxable income typically include future reversals of deferred tax liabilities, future taxable income exclusive of reversals of deferred tax liabilities, and tax planning strategies. During 2020 the Company determined that it is not more likely than not that sufficient taxable income of the appropriate character will be generated in the future to realize all of its deferred tax assets; therefore, a valuation allowance has been recorded.
We identified the Company’s determination that it is not more likely than not that sufficient taxable income will be generated in the future to realize all of its deferred tax assets as a critical audit matter because of the significant judgments and estimates made related to the timing of future reversals of deferred tax assets and liabilities. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the reasonableness of management’s methodologies and estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to the timing of future reversals of deferred tax assets and liabilities included the following, among others:
•With the assistance of our income tax specialists, we evaluated the reasonableness of the methods, significant assumptions, and judgments used by management to determine whether it was more likely than not that the Company would be able to realize its deferred tax assets.
•We tested the Company’s methodologies for scheduling the reversal of existing taxable and deductible temporary differences.
•We evaluated whether the estimates considered when determining future taxable income were consistent with the evidence obtained in other areas of the audit.
•We tested the effectiveness of controls over deferred tax assets and liabilities, including management’s controls over determining the pattern of the reversals of deferred tax assets and liabilities.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 8, 20191, 2021
We have served as the Company's auditor since at least 1934; however, an earlier year could not be reliably determined.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of The Boeing Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Boeing Company and subsidiaries (the “Company”) as of December 31, 2018,2020, based on criteria established in Internal Control –— Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,2020 of the Company, and our report dated February 8, 2019,1, 2021 expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company’s change in method of accounting for revenue from contracts with customers.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at KLX Inc., which was acquired on October 9, 2018 and whose financial statements constitute approximately 4% of Total assets and less than 1% of each Total revenues and Earnings from operations of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting at KLX Inc.statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 8, 2019
116
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
| |
(a) | Evaluation of Disclosure Controls and Procedures. |
(a)Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of December 31, 20182020 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
| |
(b) | Management’s Report on Internal Control Over Financial Reporting. |
(b)Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.
Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018 did not include an assessment of the effectiveness of internal control over financial reporting of KLX Inc. (KLX), which was acquired on October 9, 2018. The operating results of KLX are included in our consolidated financial statements from the period subsequent to the acquisition date and represent approximately 4 percent of our Total assets as of December 31, 2018 and less than 1 percent of each our Total revenues and Earnings from operations for the year then ended. We will perform an assessment of the effectiveness of KLX’s internal control over financial reporting within one year of the date of acquisition.2020.
Our internal control over financial reporting as of December 31, 2018,2020, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this report and is incorporated by reference herein.
| |
(c) | Changes in Internal Controls Over Financial Reporting. |
(c)Changes in Internal Controls Over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 20182020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officers and their ages as of February 1, 2019,2021, are as follows: |
| | | | | | | |
| Name | Age | Principal Occupation or Employment/Other Business Affiliations |
Bertrand-Marc Allen
| 4547 | Chief Strategy Officer and Senior Vice President, Strategy and Corporate Development since October 2020. Mr. Allen previously served as Senior Vice President and President, Embraer Partnership and Group Operations from April 2019 to October 2020, Senior Vice President and President, Boeing International sincefrom February 2015. Mr. Allen previously served as2015 to April 2019; President of Boeing Capital Corporation from March 2014 to February 2015; Corporate Vice President, Boeing International and Chairman and President of Boeing (China) Co., Ltd. from March 2011 to March 2014; and Vice President, Global Law Affairs from May 2007 to March 2011. |
Heidi B. CapozziMichael A. Arthur | 4970 | Senior Vice President Human Resourcesand President, Boeing International since March 2016. Ms. CapozziApril 2019. Mr. Arthur previously served as Vice President of Leadership Development, Talent ManagementBoeing Europe from March 2016 to April 2019 and Organization Effectiveness from April 2013 to March 2016;as Managing Director of Human Resources for the Airplane Programs division of Commercial AirplanesBoeing United Kingdom and Ireland from April 2011September 2014 to April 2013;2019. |
| David L. Calhoun | 63 | President and Chief Executive Officer since January 2020 and a member of the Board of Directors since June 2009. Previously, Mr. Calhoun served as Senior Managing Director & Head of Human Resources forPrivate Equity Portfolio Operations at The Blackstone Group from January 2014 to January 2020. Prior to that, Mr. Calhoun served as Chairman of the Surveillance and Engagement divisionBoard of Boeing Military AircraftNielsen Holdings plc from January 2014 to January 2016, as Chief Executive Officer of Nielsen Holdings plc from May 20092010 to April 2011.January 2014, and as Chairman of the Executive Board and Chief Executive Officer of The Nielsen Company B.V. from August 2006 to January 2014. Prior to joining Nielsen, he served as Vice Chairman of General Electric Company and President and Chief Executive Officer of GE Infrastructure. During his 26-year tenure at GE, he ran multiple business units including GE Transportation, GE Aircraft Engines, GE Employers Reinsurance Corporation, GE Lighting and GE Transportation Systems. Mr. Calhoun also serves on the board of Caterpillar Inc. |
| Leanne G. Caret | 5254 | Executive Vice President, President and Chief Executive Officer, Boeing Defense, Space & Security since March 2016. Ms. Caret joined Boeing in 1988, and her previous positions include President of Global Services & Support from February 2015 to March 2016; Chief Financial Officer and Vice President, Finance, for BDS from March 2014 to February 2015; Vice President and General Manager, Vertical Lift from November 2012 to February 2014; and Vice President and Program Manager, Chinook from November 2009 to October 2012. |
| | | | | | | | |
| Name | Age | Principal Occupation or Employment/Other Business Affiliations |
| Theodore Colbert III | 4547 | Executive Vice President, President and Chief Executive Officer, Boeing Global Services since October 2019. Mr. Colbert previously served as Chief Information Officer and Senior Vice President, Information Technology & Data Analytics sincefrom April 2016. Mr. Colbert previously served as2016 to October 2019; Chief Information Officer and Vice President of Information Technology from November 2013 to April 2016; Vice President of Information Technology Infrastructure from December 2011 to November 2013; and Vice President of IT Business Systems from September 2010 to December 2011. |
| Michael D’Ambrose | 63 | Executive Vice President, Human Resources since July 2020. Prior to joining Boeing, Mr. D'Ambrose served as Senior Vice President and Chief Human Resources Officer for Archer-Daniels-Midland Company from October 2006 to June 2020. Previously, he served in a series of executive-level business and human resources positions, including chief human resources officer at Citigroup, First Data Corporation and Toys 'R' Us, Inc. |
| Edward L. Dandridge | 56 | Senior Vice President, Communications since September 2020. Mr. Dandridge’s prior experience includes serving as Global Chief Marketing and Communications Officer of AIG General Insurance from April 2018 to September 2020; Chief Marketing and Communications Officer of Marsh & McLennan Companies from March 2014 to April 2018; and Chief Marketing Officer of Collective from February 2013 to February 2014. |
| Stanley A. Deal | 5456 | Executive Vice President, President and Chief Executive Officer, Boeing Commercial Airplanes since October 2019. Mr. Deal joined Boeing in 1986, and his previous positions include Executive Vice President, President and Chief Executive Officer, Boeing Global Services sincefrom November 2016. Mr. Deal joined Boeing in 1986, and his previous positions include2016 to October 2019; Senior Vice President of Commercial Aviation Services from March 2014 to November 2016; Vice President and General Manager of Supply Chain Management and Operations for Commercial Airplanes from September 2011 to February 2014; Vice President of Supplier Management from February 2010 to August 2011; and Vice President of Asia Pacific Sales from December 2006 to January 2010. |
| Susan Doniz | 51 | Chief Information Officer and Senior Vice President, Information Technology & Data Analytics since May 2020. Prior to joining Boeing, Ms. Doniz served as Global Chief Information Officer of Qantas Airways Limited from January 2017 to April 2020; as strategic advisor to the Global CEO of SAP SE on transformation and technology issues in support of customers from September 2015 to December 2017; and Global Product, Digital Strategy and Chief Information Officer of AIMIA Inc. from June 2011 to January 2015. |
| Brett C. Gerry | 49 | Chief Legal Officer and Executive Vice President, Global Compliance since May 2020. Mr. Gerry previously served as Senior Vice President and General Counsel from May 2019 to May 2020 President of Boeing Japan from February 2016 to May 2019; Vice President and General Counsel, Boeing Commercial Airplanes from March 2009 to March 2016; and Chief Counsel, Network and Space Systems from September 2008 to March 2009. |
| | | | | | | | |
| Name | Age | Principal Occupation or Employment/Other Business Affiliations |
| Gregory L. Hyslop | 6062 | Chief Engineer and Executive Vice President, Engineering Test and Technology since December 2020. Dr. Hyslop's previous positions include Chief Engineer and Senior Vice President, Engineering Test and Technology from August 2019 to December 2020;Chief Technology Officer and Senior Vice President, Boeing Engineering Test &and Technology since July 2016. Mr. Hyslop was named Senior Vice President, Boeing Engineering, Test & Technology infrom March 2016 and his previous positions includeto August 2019; Vice Presidentpresident and General Manager of Boeing Research &and Technology from February 2013 to March 2016 and Vice President and General Manager of Boeing Strategic Missile & Defense Systems from March 2009 to February 2013. |
|
| | |
Name | Age | Principal Occupation or Employment/Other Business Affiliations |
| Timothy J. Keating | 5759 | Executive Vice President, Government Operations since February 2018. Mr. Keating joined Boeing in June 2008 as Senior Vice President, Government Operations. From October 2002 to May 2008 he served as Senior Vice President, Global Government Relations at Honeywell International Inc. Prior thereto, Mr. Keating was Chairman of the Board and Managing Partner of Timmons and Company (a Washington, D.C. lobbying firm). |
J. Michael LuttigGregory D. Smith | 6453 | Executive Vice President, Enterprise Operations and General CounselChief Financial Officer since April 2009. Mr. Luttig joined Boeing in May 2006 as Senior Vice President, General Counsel. From October 1991 to May 2006, he served on the United States Court of Appeals for the Fourth Circuit. Mr. Luttig2020. He previously served as Assistant Attorney General of the United States, Counselor to the Attorney General at the Department of Justice and Principal Deputy Assistant Attorney General at the Department of Justice and was associated with Davis Polk & Wardwell LLP. Mr. Luttig serves as Director, Franklin Templeton Mutual Funds. |
Kevin G. McAllister | 55 | Executive Vice President, President and Chief Executive Officer, Boeing Commercial Airplanes since November 2016. Mr. McAllister served as President and Chief Executive Officer of GE Aviation Services from January 2014 to November 2016 and Vice President, Global Sales and Marketing of GE Aviation from June 2008 to January 2014. |
Dennis A. Muilenburg | 55 | Chairman, President and Chief Executive Officer since March 2016. Mr. Muilenburg was named President and Chief Executive Officer in July 2015. He joined Boeing in 1985, and his previous positions include Vice Chairman, President and Chief Operating Officer from December 2013 to July 2015; Executive Vice President, President and Chief Executive Officer of BDS from September 2009 to December 2013; President of Global Services & Support from February 2008 to August 2009; Vice President and General Manager of Combat Systems from May 2006 to February 2008; and Vice President and Program Manager for Future Combat Systems. Mr. Muilenburg also serves on the board of Caterpillar Inc. |
Jenette E. Ramos | 53 | Senior Vice President, Manufacturing, Supply Chain & Operations since April 2018. Ms. Ramos joined Boeing in 1988, and her previous positions include Senior Vice President, Supply Chain and Operations from June 2017 to April 2018; Vice President and General Manager, BCA Fabrication from April 2014 to May 2017; Vice President, Supply Chain Management from January 2012 to April 2014; Vice President, Operations Supply Chain Rate, Supplier Management Capability for Boeing Commercial Airplanes from June 2011 to January 2012; director of Business Operations for Boeing Fabrication from June 2009 to May 2011; and General Manager of Boeing Portland from February 2005 to May 2009.
|
Diana L. Sands | 53 | Senior Vice President, Office of Internal Governance and Administration since March 2016. Ms. Sands previously served as Senior Vice President, Office of Internal Governance from April 2014 to March 2016; Vice President of Finance and Corporate Controller from February 2012 to April 2014 and Vice President of Investor Relations, Financial Planning & Analysis from February 2010 to February 2012. Prior to that, she held positions in Investor Relations, Financial Planning and in Corporate Treasury. |
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| | |
Name | Age | Principal Occupation or Employment/Other Business Affiliations |
Gregory D. Smith | 52 | Chief Financial Officer and Executive Vice President, Enterprise Performance and Strategy sincefrom July 2017 to May 2020; Interim President and Chief Executive Officer from December 2019 to January 2020; Chief Financial Officer and Executive Vice President, Corporate Development and Strategy from February 2015. Mr. Smith previously served as2015 to June 2017; Executive Vice President, Chief Financial Officer from February 2012 to February 2015; Vice President of Finance and Corporate Controller from February 2010 to February 2012; and Vice President of Financial Planning & Analysis from June 2008 to February 2010. From August 2004 until June 2008, he served as Vice President of Global Investor Relations at Raytheon Company. Prior to that, he held a number of positions at Boeing including CFO, Shared Services Group; Controller, Shared Services Group; Senior Director, Internal Audit; and leadership roles in supply chain, factory operations and program management. Mr. Smith serves on the board of Intel Corporation. |
Information relating to our directors and nominees will be included under the caption “Election of Directors” in our proxy statement involving the election of directors, which will be filed with the SEC no later than 120 days after December 31, 20192020 and is incorporated by reference herein. The informationInformation required by Items 405, 407(d)(4) and 407(d)(5) of Regulation S-K will be included under the captions “Stock Ownership Information – Section 16(a) Beneficial Ownership Reporting Compliance”Information” and “Board Committees” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
Codes of Ethics. We have adopted (1) The Boeing Company Code of Ethical Business Conduct for the Board of Directors; (2) The Boeing Company Code of Conduct for Finance Employees which is applicable to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), Controller and all finance employees; and (3) The Boeing Code of Conduct that applies to all employees, including our CEO (collectively, the Codes of Conduct). The Codes of Conduct are posted on our website, www.boeing.com/company/general-info/corporate-governance.page, and printed copies may be obtained, without charge, by contacting the Office of Internal Governance, The Boeing Company, 100
N. Riverside Plaza, Chicago, IL 60606. We intend to disclose promptly on our website any amendments to, or waivers of, the Codes of Conduct covering our CEO, CFO and/or Controller.
No family relationships exist among any of the executive officers, directors or director nominees.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K will be included under the captions “Compensation Discussion and Analysis,” “Compensation of Executive Officers,” and “Compensation of Directors” in the 20192021 Proxy Statement, and that information is incorporated by reference herein. The information required by Item 407(e)(4) and 407(e)(5) of Regulation S-K will be included under the captions “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 403 of Regulation S-K will be included under the caption “Stock Ownership Information” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
Equity Compensation Plan Information
We currently maintain two equity compensation plans that provide for the issuance of common stock to officers and other employees, directors and consultants. Each of these compensation plans was approved by our shareholders. The following table sets forth information regarding outstanding options and shares available for future issuance under these plans as of December 31, 2018:2020:
| | | | | | | | | | | | | | | | | |
| Plan Category | Number of shares
to be issued upon exercise of outstanding
options, warrants
and rights | | Weighted-average
exercise price of
outstanding
options, warrants
and rights | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
shares reflected
in column (a)) |
| (a) | | (b) | | (c) |
| Equity compensation plans approved by shareholders | | | | | |
| Stock options | 1,860,520 | | | $75.71 | | | |
| Deferred compensation | 1,365,292 | | | | | |
Other stock units(1) | 8,579,463 | | | | | |
| Equity compensation plans not approved by shareholders | None | | None | | None |
Total(2) | 11,805,275 | | | $75.71 | | | 8,367,025 | |
|
| | | | | | | | | |
| Plan Category | Number of shares to be issued upon exercise of outstanding options, warrants and rights |
| | Weighted-average exercise price of outstanding options, warrants and rights |
| | Number of securities remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) |
|
| | (a) | | (b) | | (c) |
| Equity compensation plans approved by shareholders | | | | | |
| Stock options | 3,252,083 |
| |
| $72.47 |
| | |
| Deferred compensation | 1,849,852 |
| | | | |
Other stock units(1) | 4,843,820 |
| | | | |
| Equity compensation plans not approved by shareholders | None |
| | None |
| | None |
|
Total(2) | 9,945,755 |
| |
| $72.47 |
| | 14,244,836 |
|
| |
(1) | Includes 2,537,334Includes 1,243,118 shares issuable in respect of PBRSUs subject to the satisfaction of performance criteria and assumes payout at maximum levels.
|
| |
(2)
| Excludes the potential performance awards which the Compensation Committee has the discretion to pay in cash, stock or a combination of both after the three-year performance periods which end in 2018, 2019 and 2020. |
(2) Excludes the potential performance awards which the Compensation Committee has the discretion to pay in cash, stock or a combination of both after the three-year performance periods which end in 2020, 2021 and 2022.
For further information, see Note 1817 to our Consolidated Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 404 of Regulation S-K will be included under the caption “Related Person Transactions” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
The information required by Item 407(a) of Regulation S-K will be included under the caption “Director Independence” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
Item 14. Principal Accounting Fees and Services
The information required by this Item will be included under the caption “Independent Auditor Fees” in the 20192021 Proxy Statement, and that information is incorporated by reference herein.
PART IV
Item 15. Exhibits, Financial Statement Schedules
| |
(a) | List of documents filed as part of this report: |
(a)List of documents filed as part of this report:
1.Financial Statements
Our consolidated financial statements are as set forth under Item 8 of this report on Form 10-K.
| |
2. | Financial Statement Schedules |
2.Financial Statement Schedules
All schedules are omitted because they are not applicable, not required, or the information is included in the consolidated financial statements.
3.Exhibits
|
| |
| 3.1 | |
| |
| 3.2 | |
| |
10.14.1 | |
| |
| 10.1 | 364-Day Credit Agreement, dated as of October 31, 2018,26, 2020, among The Boeing Company, for itself and on behalf of its Subsidiaries, as a Borrower, the Lenders party hereto, Citibank, N.A. and JPMorgan Chase Bank, N.A., as joint lead arrangers and joint book managers,administrative agent, JPMorgan Chase Bank, N.A. as syndication agent and Citibank, N.A. and JPMorgan Chase Bank N.A., as administrative agentJoint Lead Arrangers and Joint Book Managers (Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 29, 2018).26, 2020) |
| |
| 10.2 | Five-Year Credit Agreement, dated as of November 10, 2011,October 30, 2019, among The Boeing Company, for itself and on behalf of its Subsidiaries, as a Borrower, the Lenders party thereto, Citigroup Global Markets Inc. and J.P. Morgan Securities LLChereto, Citibank, N.A., as joint lead arrangers and joint book managers,administrative agent, JPMorgan Chase Bank, N.A., as syndication agent and Citibank N.A. as administrative agent (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 10, 2011). |
| |
10.3 | Amendment No. 1 dated as of October 9, 2014 to the Five-Year Credit Agreement, dated as of November 10, 2011, among The Boeing Company, the Lenders party thereto, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC as joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A., as syndication agentJoint Lead Arrangers and Citibank, N.A. as administrative agentJoint Book Managers (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 14, 2014).30, 2019 |
| |
10.410.3 | Amendment No. 2 dated as of November 4, 2015 to the Five-YearThree-Year Credit Agreement, dated as of November 10, 2011,October 30, 2019, among The Boeing Company, for itself and on behalf of its Subsidiaries, as a Borrower, the Lenders party thereto, Citigroup Global Markets Inc. and J.P. Morgan Securities LLChereto, Citibank, N.A., as joint lead arrangers and joint book managers,administrative agent, JPMorgan Chase Bank, N.A., as syndication agent and Citibank N.A. as administrative agent (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 4, 2015). |
| |
10.5 | Amendment No. 3 dated as of November 2, 2016 to the Five-Year Credit Agreement, dated as of November 10, 2011, among The Boeing Company, the Lenders party thereto, Citigroup Global Markets Inc. and JPMorgan Chase Bank, N.A., as joint lead arrangersJoint Lead Arrangers and joint book managers, JPMorgan Chase Bank, N.A. as syndication agent and Citibank, N.A. as administrative agentJoint Book Managers (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 2, 2016). |
| |
10.6 | Amendment No. 4 dated as of November 1, 2017 to the Five-Year Credit Agreement, dated as of November 10, 2011, among The Boeing Company, the Lenders party thereto, Citigroup Global Markets Inc. and JPMorgan Chase Bank, N.A. as joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A. as syndication agent and Citibank, N.A. as administrative agent (Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 1, 2017). |
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|
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10.7 | Amendment No. 5 dated as of October 31, 2018 to the Five-Year Credit Agreement, dated as of November 10, 2011, among The Boeing Company, the Lenders party thereto, Citibank, N.A. and JPMorgan Chase Bank, N.A. as joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A. as syndication agent and Citibank, N.A. as administrative agent (Exhibit 10.210.3 to the Company’s Current Report on Form 8-K dated October 29, 2018).30, 2019) |
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10.810.4 | |
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| 10.5 | |
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| | | | | |
10.910.6 | |
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10.1010.7 | |
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| 10.8 | |
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10.1110.9 | |
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10.1210.10 | |
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10.1310.11 | |
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10.1410.12 | |
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10.15 | |
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10.1610.13 | |
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10.17 | |
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10.18 | |
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10.1910.14 | |
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| 10.15 | |
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10.2010.16 | |
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10.2110.17 | |
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10.2210.18 | |
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10.2310.19 | |
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|
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10.2410.20 | |
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10.2510.21 | |
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10.2610.22 |
|
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| | | | | |
10.2710.23 | |
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| 10.24 | |
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| 10.25 | |
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2110.26 | |
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| 10.27 | |
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| 10.28 | |
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| 10.29 | |
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| 10.30 | |
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| 10.31 | |
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| 10.32 | |
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| 21 | |
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| 23 | |
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| 31.1 | |
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| 31.2 | |
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| 32.1 | |
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| 32.2 | |
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| 99.1 | |
| |
101.INS101.SCH | XBRL Instance Document |
| |
101.SCH | XBRL Taxonomy Extension Schema Document |
| |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| |
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101 |
* Management contract or compensatory plan
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term debt of the Company are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request.
Item 16. Form 10-K Summary
None
124
Signatures
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 8, 2019.
| | | | | | | | |
| | |
| | THE BOEING COMPANY |
| | (Registrant) |
| By: | | /s/ Robert E. Verbeck |
| | Robert E. Verbeck – Senior Vice President Finance and Corporate Controller |
125
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 8, 2019.
| | | | | | | | |
| | |
| | |
/s/ Dennis A. MuilenburgDavid L. Calhoun | | /s/ Lynn J. Good |
Dennis A. MuilenburgDavid L. Calhoun – Chairman, President and Chief Executive Officer | | Lynn J. Good – Director |
| (Principal Executive Officer) | | |
| | |
| /s/ Gregory D. Smith | | /s/ Akhil Johri |
| Gregory D. Smith – Executive Vice President, Enterprise Operations and Chief Financial Officer | | Akhil Johri – Director |
| (Principal Financial Officer) | | |
| | |
| /s/ Robert E. Verbeck | | /s/ Lawrence W. Kellner |
Gregory D. Smith – Chief Financial Officer and Executive Vice President, Enterprise Performance and Strategy | | Lawrence W. Kellner – Director |
(Principal Financial Officer) | | |
| | |
/s/ Robert E. Verbeck | | /s/ Caroline B. Kennedy |
Robert E. Verbeck – Senior Vice President Finance and Corporate Controller | | Caroline B. KennedyLawrence W. Kellner – DirectorChairman of the Board |
| (Principal Accounting Officer) | | |
| | |
| /s/ Robert A. Bradway | | /s/ EdwardSteven M. LiddyMollenkopf |
| Robert A. Bradway – Director | | EdwardSteven M. LiddyMollenkopf – Director |
| | |
/s/ David L. Calhoun | | /s/ Susan C. Schwab |
David L. Calhoun – Director | | Susan C. Schwab – Director |
| | |
| /s/ Arthur D. Collins, Jr. | | /s/ Ronald A. WilliamsJohn M. Richardson |
| Arthur D. Collins, Jr. – Director | | Ronald A. WilliamsJohn M. Richardson – Director |
| | |
/s/ KennethLynne M. DubersteinDoughtie | | /s/ Mike S. ZafirovskiSusan C. Schwab |
KennethLynne M. DubersteinDoughtie – Director | | Mike S. ZafirovskiSusan C. Schwab – Director |
| | |
| /s/ Edmund P. Giambastiani, Jr. | | /s/ Ronald A. Williams |
| Edmund P. Giambastiani, Jr. – Director | | Ronald A. Williams – Director |
| | |
| | |
