Boeing Company — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. Boeing operates Commercial Airplanes, Boeing Defense, Space & Security (BDS), Boeing Capital Corporation (BCC), and other activities. The filing also reports fourth-quarter results.
Financial performance and position
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $68.735 billion | $64.306 billion |
| Operating earnings | $5.844 billion | $4.971 billion |
| Net earnings | $4.018 billion | $3.307 billion |
| Diluted EPS | $5.34 | $4.45 |
| Operating margin | 8.5% | 7.7% |
| Operating cash flow | $4.023 billion | $2.952 billion |
| Capital expenditures | $1.713 billion | $1.125 billion |
| Cash and cash equivalents at year-end | $10.049 billion | $5.359 billion |
| Total debt at year-end | $12.371 billion | $12.421 billion |
| Working capital at year-end | $8.536 billion | $5.177 billion |
FY 2011 operating cash flow less capital expenditures was approximately $2.310 billion. The board-declared dividend was $1.70 per share for 2011.
- Commercial Airplanes revenue was $36.171 billion, up 13.6%; segment operating margin increased to 9.7% from 9.4%. Boeing delivered 477 commercial aircraft versus 462 in 2010, including the first three 787s and nine 747s.
- BDS revenue was nearly flat at $31.976 billion; segment operating margin improved to 9.9% from 9.0%. Network & Space Systems revenue fell, partly offset by growth in Boeing Military Aircraft and Global Services & Support.
- Contractual backlog rose to $339.657 billion from $303.955 billion, led by Commercial Airplanes backlog of $293.303 billion. BDS backlog declined to $46.354 billion.
- Gross inventories before advances and progress billings increased to $56.499 billion from $46.738 billion, principally reflecting investment in commercial aircraft programs, especially the 787.
Fourth-quarter results
Fourth-quarter 2011 revenue was $19.555 billion, versus $16.550 billion in fourth-quarter 2010. Net earnings were $1.393 billion versus $1.164 billion, and diluted EPS was $1.84 versus $1.56. Fourth-quarter 2011 included a $397 million tax benefit from settlement of the 2004–2006 federal tax audit.
Changes, outlook, risks, and unusual items
- Commercial aircraft execution: Boeing began 787 deliveries in September 2011 and opened a second 787 final-assembly line. It targeted 10 787s per month by the end of 2013, with deliveries at that rate expected in early 2014. The 787-9 first delivery shifted to early 2014 from late 2013. The 787 had a low-single-digit program margin, and the company warned that delays, production-rate shortfalls, claims, or cost changes could further pressure profitability or trigger a reach-forward loss.
- Other production plans: Boeing planned to raise 737 output to 42 per month in 2014 and launched the 737 MAX, with first delivery expected in 2017. The 747-8 Intercontinental first delivery moved to the first quarter of 2012; the company cited remaining engineering changes, supplier efficiency, and production ramp-up as risks. The 747 program remained in a reach-forward-loss position.
- Defense outlook: Boeing said U.S. defense budget pressures were expected to put significant downward pressure on BDS revenue and margins in 2012. The Budget Control Act outlined about $490 billion of DoD reductions over ten years beginning in FY2013, with further sequestration cuts possible. The U.S. Army terminated the BCTM program.
- Pensions: GAAP pension plans were underfunded by $16.6 billion at year-end, compared with $9.854 billion a year earlier. Boeing expected 2012 pension cost to rise by approximately $700 million and planned discretionary pension contributions of about $1.5 billion; ERISA-required contributions were expected to be minimal in 2012.
- Funding and commitments: Commercial aircraft financing commitments increased to $15.866 billion from $9.865 billion. Boeing said it expected not to fund a significant portion, but gave no assurance. Available revolving credit was $4.6 billion; no commercial paper was outstanding at year-end.
- Accounting estimates: Commercial airplane program accounting and long-term contract estimates depend on production quantities, costs, pricing, schedules, and supplier performance. Management noted that a 1% change in estimated BDS contract gross margin would affect pretax income by approximately $320 million; a 1% change in commercial program cost-of-sales percentages, excluding the 747 and 787, would affect pretax income by approximately $276 million.
- Contingencies: The company recorded $758 million for environmental remediation and $939 million for uncertain tax positions. The A-12 litigation could result in materially larger payments or charges if resolved adversely. Boeing also disclosed satellite-related litigation and other legal matters; outcomes and potential losses were uncertain.
- Customer financing exposure: AirTran represented approximately 26% of BCC’s gross customer financing portfolio, principally 717 aircraft. Boeing revised AirTran lease terms with a full Southwest guarantee and expected about $30 million lower revenue and earnings in 2012. American Airlines’ bankruptcy was being monitored; Boeing reported $653 million of related customer financing exposure and said it did not expect losses because receivables were sufficiently collateralized.
- Other one-time or nonroutine items: A $241 million reduction in the allowance for AirTran receivable losses contributed to improved Other segment earnings. A $161 million pension/postretirement expense adjustment was recorded in the third quarter, primarily for prior-year accumulated postretirement obligations. FY 2009 comparisons were affected by $2.693 billion of 787 flight-test aircraft costs and a $1.352 billion 747 reach-forward loss.
Most important facts for investors to verify
- Whether 787 and 747-8 production ramps, delivery schedules, and estimated program costs remain achievable, and whether program accounting assumptions or loss provisions change.
- How the 2012 defense budget, sequestration decisions, and contract funding affect BDS revenue, margins, and backlog.
- Whether pension assumptions, plan funding, and expected 2012 contributions develop as disclosed.
- Whether operating cash generation can keep pace with rising inventory, capital investment, and customer financing commitments.
- Developments in material litigation, environmental remediation, uncertain tax positions, and aircraft financing exposure, including American Airlines and AirTran.
- Whether the $397 million audit-settlement tax benefit and other favorable allowance changes materially affected comparisons with recurring earnings.
The consolidated financial statements received an unqualified audit opinion; the independent auditor also reported effective internal control over financial reporting as of December 31, 2011.