Boeing Co. 2013 Form 10-K Summary
Business context and reporting period
Boeing designs, manufactures, sells and supports commercial aircraft, defense and space systems, and related services and financing. Its principal reporting segments are Commercial Airplanes, Defense, Space & Security (BDS), and Boeing Capital. This filing covers the fiscal year ended December 31, 2013; fourth-quarter figures are identified separately below. Amounts are in U.S. dollars.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $86.623 billion | $81.698 billion |
| GAAP operating earnings / margin | $6.562 billion / 7.6% | $6.290 billion / 7.7% |
| Net earnings | $4.585 billion | $3.900 billion |
| Diluted EPS | $5.96 | $5.11 |
| Operating cash flow | $8.179 billion | $7.508 billion |
| Capital expenditures | $2.098 billion | $1.703 billion |
- Management’s non-GAAP core operating earnings were $7.876 billion, with a 9.1% margin, versus $7.189 billion and 8.8% in 2012. Core EPS was $7.07 versus $5.88. These measures exclude specified unallocated pension and other postretirement costs and should be considered alongside GAAP results.
- Commercial Airplanes revenue was $52.981 billion, up 8%; operating earnings were $5.795 billion and margin was 10.9%, versus 9.6% in 2012. BDS revenue was $33.197 billion, up 2%, and operating earnings were $3.235 billion.
- At year-end, cash and cash equivalents were $9.088 billion, short-term and other investments were $6.170 billion, working capital was $13.588 billion, and total debt was $9.635 billion, down from $10.409 billion. Shareholders’ equity was $14.875 billion, compared with $5.867 billion.
- Contractual backlog rose to $422.661 billion from $372.355 billion, primarily from commercial aircraft orders exceeding deliveries.
- Fourth-quarter revenue was $23.785 billion versus $22.302 billion in the prior-year quarter. Operating earnings were $1.515 billion versus $1.624 billion; net earnings were $1.233 billion versus $978 million; diluted EPS was $1.61 versus $1.28.
Material changes and unusual items
- FY 2013 revenue increased 6%, driven mainly by higher commercial airplane deliveries. Commercial Airplanes delivered 648 aircraft, up from 601 in 2012; 787 deliveries were 65 versus 46.
- Operating margin edged down to 7.6% from 7.7%, despite higher operating earnings. Higher unallocated pension costs, deferred compensation expense and a $406 million A-12 litigation settlement charge weighed on results.
- The $406 million pre-tax A-12 charge was recorded in fourth-quarter 2013. The settlement became effective in December 2013, with final contract and court dismissal steps completed in January 2014.
- The 2013 effective tax rate was 26.4%, compared with 34.0% in 2012. Research tax credits and $212 million of benefits recognized in the fourth quarter following IRS regulatory guidance contributed to the lower rate.
- GAAP pension underfunding declined to $10.5 billion from $19.7 billion, largely reflecting actuarial changes. Accumulated other comprehensive loss also improved substantially.
- Boeing announced the end of C-17 production in 2015 and recorded $92 million of charges, primarily pension curtailment costs. In November, it launched the 777X program.
Outlook, commentary and principal risks
- The filing provides no consolidated revenue or earnings guidance. Management forecast 2014 passenger traffic growth near the long-term trend of 5%, and described the long-term commercial aircraft market outlook as positive, while noting near-term economic, political and industry risks.
- Management planned to increase 737 production to 42 aircraft per month in the second quarter of 2014 and to 47 per month beginning in 2017. The 787 production rate reached 10 per month in late 2013, with deliveries at that rate expected in early 2014. First delivery targets were mid-2014 for the 787-9, 2017 for the 737 MAX, 2018 for the 787-10 and 2020 for the 777X.
- Management expected 2014 capital expenditures to remain above prior-year levels and expected approximately $750 million in discretionary pension contributions. Required pension contributions were expected to be minimal in 2014; future contributions remain sensitive to market and actuarial assumptions.
- The 787 and 747 programs had breakeven or near-breakeven gross margins in 2013. Boeing cited production, delivery, design-change and supplier risks for the 787, and weak freighter demand, pricing pressure and unsold production positions for the 747. Either program could face a material reach-forward loss if risks are not mitigated.
- Other major risks include U.S. defense-budget uncertainty and possible program delays or cuts; fixed-price contract cost overruns; supplier and production-rate constraints; commercial airline financing and demand; and estimation uncertainty in long-term contract and aircraft program accounting.
- Liquidity and commitments: unused revolving credit capacity was about $4.8 billion. Aircraft financing commitments totaled $17.987 billion, all for customers Boeing assessed as below investment grade. Total contractual obligations were $172.653 billion, including substantial purchase obligations.
- Contingencies include $649 million of recorded environmental remediation liabilities, with the high end of estimated reasonably possible costs exceeding the recorded amount by $928 million, and $1.141 billion of liabilities for uncertain tax positions. The filing also describes legal matters and guarantees; some potential losses cannot be reasonably estimated.
- The IAM-represented workforce voted in January 2014 to extend its agreement through September 2024. The agreement includes future changes to defined-benefit pension participation; Boeing expected a first-quarter 2014 non-cash charge of approximately $140 million.
Important facts for investors to verify
- Whether 787 production-rate increases, derivative aircraft schedules and supplier performance meet Boeing’s plans, and how these affect program inventory recovery and margins.
- Whether 747 demand and production actions avoid a reach-forward loss, and whether C-17 unsold aircraft receive customer orders or result in further charges.
- How U.S. defense appropriations and fixed-price development programs affect BDS backlog, contract estimates and earnings.
- Whether pension assumptions, funding requirements and the 2014 IAM agreement produce the expected expense, cash contributions and liability changes.
- Developments in environmental, tax, legal and guarantee exposures, including the realization of uncertain tax benefits and recovery of contested receivables.
The independent auditor issued an unqualified opinion on the financial statements and internal controls over financial reporting as of December 31, 2013.