Boeing Co. — 2010 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2010. Although the request specifies 2010 Q4, this filing is an annual report; quarterly figures below are identified separately. Dollar amounts are in U.S. dollars.
Business context and financial results
Boeing operates Commercial Airplanes, three Boeing Defense, Space & Security businesses, and Boeing Capital Corporation. Its results are driven by aircraft deliveries and development programs, government contracts, and customer financing.
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $64.306 billion | $68.281 billion |
| Earnings from operations | $4.971 billion | $2.096 billion |
| Operating margin | 7.7% | 3.1% |
| Net earnings | $3.307 billion | $1.312 billion |
| Diluted EPS | $4.45 | $1.84 |
| Cash from operating activities | $2.952 billion | $5.603 billion |
| Capital expenditures | $1.125 billion | $1.186 billion |
At year-end, cash and cash equivalents were $5.359 billion, short-term and other investments were $5.158 billion, and total debt was $12.421 billion. Working capital was $5.177 billion, versus $2.392 billion a year earlier. Contractual backlog was $303.955 billion, up from $296.500 billion.
Commercial Airplanes generated $31.834 billion of revenue and $3.006 billion of operating earnings (9.4% margin). BDS revenue was $31.943 billion and operating earnings were $2.875 billion (9.0% margin). The filing reports a $9.854 billion GAAP pension-plan underfunding.
Fourth quarter: Revenue was $16.550 billion, operating earnings were $1.103 billion, net earnings were $1.164 billion, and diluted EPS was $1.56. In Q4 2009, the comparable figures were $17.937 billion, $1.693 billion, $1.268 billion, and $1.75, respectively.
Material changes from the prior year
- Full-year revenue fell 6%, principally because of fewer 777 deliveries following a production-rate reduction and the 747 program’s transition to the 747-8; BDS revenue also declined, led by Network & Space Systems.
- Operating earnings increased substantially from 2009, when Boeing recorded $2.693 billion of 787 flight-test aircraft costs in R&D and $1.352 billion of 747 reach-forward losses. The 2010 improvement therefore reflects, in significant part, the absence of those prior-year charges.
- Operating cash flow declined by $2.651 billion, primarily as inventory increased by $7.387 billion, including production buildup for the 787 and 747-8.
- Year-end cash declined by $3.856 billion, while investments rose; total debt decreased by $503 million.
- Commercial Airplanes backlog increased to $255.591 billion; BDS backlog increased to $48.364 billion. Total contractual backlog rose about 3% year over year.
Outlook, risks, contingencies, and unusual items
- 787 and 747-8 execution: Boeing disclosed substantial schedule, supplier, certification, cost, and customer-claim risks. In January 2011, it moved the 787’s expected first delivery to Q3 2011; the 747-8 Freighter’s expected first delivery had moved to mid-2011. Boeing said the 787 was not then in a reach-forward-loss position, but expected zero margin on initial deliveries. Further delays, rework, or unsaleable test aircraft could cause additional charges.
- Defense exposure: U.S. government contracts accounted for 43% of consolidated revenue; 82% of BDS revenue came from the U.S. Department of Defense. Boeing anticipated budget constraints and heightened pressure on affordability. Fixed-price development work may produce losses if costs exceed estimates.
- Pension and liquidity: Boeing expected 2011 discretionary pension contributions of approximately $500 million and warned that pension expense recognized in earnings could rise by approximately $650 million in 2011, largely due to actuarial-loss amortization. It reported $4.376 billion of unused revolving credit capacity and compliance with debt covenants.
- Customer financing: The financing portfolio was concentrated in certain customers and older aircraft types. Mexicana/Click’s bankruptcy led to recovery of leased aircraft and an $81 million net impairment charge; further charges could arise if aircraft are not re-leased at expected rates. AirTran represented about 27% of the gross customer financing portfolio and was subject to a proposed merger with Southwest.
- Contingencies: The filing reports a $721 million environmental remediation liability, a $1.198 billion net liability for uncertain tax positions, significant legal proceedings, and guarantees and financing commitments. Boeing’s A-12 litigation could result in substantial additional loss if resolved adversely; the filing describes potential exposure up to approximately $1.711 billion in pre-tax charges under specified outcomes.
- Other notable items: A $371 million tax benefit followed settlement of the 1998–2003 federal audit, partly offset by a $150 million health-care-law-related tax charge. Boeing acquired Argon ST for $782 million and reported a $55 million charitable contribution.
- Management’s market outlook: Boeing described a recovery in airline traffic and profitability and projected long-term growth in global air travel. It also highlighted exposure to fuel-price spikes, economic conditions, financing availability, competition, supplier performance, labor disruptions, and government budget decisions. The filing does not provide a clear consolidated 2011 revenue or earnings guidance figure.
Most important facts for investors to verify
- Whether 787 and 747-8 certification, delivery schedules, production ramp-up, and customer remedies remain consistent with the disclosed timelines and estimates.
- Whether higher aircraft inventory converts into deliveries and cash, and whether operating cash flow recovers from the 2010 decline.
- Whether program accounting estimates, especially the 787’s initial margins and the 747 program’s loss position, require revisions or additional charges.
- How pension assumptions, future contributions, and the projected 2011 pension-cost increase affect earnings, cash, and equity.
- Developments in the A-12 case, Sea Launch recovery claims, environmental matters, and other legal or guarantee exposures.
- Whether defense-budget reductions and customer-financing concentrations affect BDS demand, aircraft values, or Boeing’s funding commitments.