Boeing Company — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. Boeing operates Commercial Airplanes (BCA), Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC).
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $101.1 billion | $94.0 billion |
| GAAP earnings from operations / margin | $12.0 billion / 11.9% | $10.3 billion / 11.0% |
| Net earnings | $10.5 billion | $8.5 billion |
| Diluted EPS | $17.85 | $13.85 |
| Operating cash flow | $15.3 billion | $13.3 billion |
| Cash and cash equivalents, year-end | $7.6 billion | $8.8 billion |
| Total debt, year-end | $13.8 billion | $11.1 billion |
| Total backlog, year-end | $490.5 billion | $474.6 billion |
Fourth-quarter 2018 revenue was $28.3 billion versus $24.8 billion a year earlier; net earnings were $3.4 billion versus $3.3 billion, and diluted EPS was $5.93 versus $5.49. The effective tax rate for 2018 was 9.9%, compared with 16.3% in 2017; the 2018 rate included a $412 million benefit from settling a federal tax audit.
Cash used in investing activities was $4.6 billion, including $3.2 billion for acquisitions. Cash used in financing activities was $11.7 billion, including $9.0 billion of share repurchases and $3.9 billion of dividends paid. Shareholders’ equity was $410 million at year-end. Boeing reported $5.1 billion of unused revolving-credit capacity and said it was in compliance with debt covenants.
Material changes and business drivers
- Revenue increased 8%, supported by higher 737 and 787 deliveries and favorable mix, BDS contract activity, and BGS services growth, including the KLX acquisition.
- BCA revenue rose to $60.7 billion; operating earnings increased to $7.9 billion and margin to 13.0%, primarily on stronger 787 margins, cost performance, and delivery mix.
- BDS revenue increased to $23.2 billion, but operating earnings fell to $1.6 billion and margin to 6.9%. New-program losses and higher KC-46A charges outweighed revenue growth.
- BGS revenue grew to $17.0 billion, while operating earnings rose to $2.5 billion; margin eased to 14.8% from 15.4%.
- KLX was acquired in October 2018. Boeing also agreed definitive terms for an 80% stake in Embraer’s commercial aircraft and services operations for $4.2 billion; closing remained subject to approvals and other conditions.
Outlook, risks, and unusual items
- The filing does not provide a clear consolidated 2019 earnings or revenue guidance range. Boeing planned to increase 737 production to 57 per month in 2019 and 787 production to 14 per month; 777X first delivery was targeted for 2020.
- The KC-46A program recorded $736 million of reach-forward losses in 2018. Boeing delivered the first tanker to the U.S. Air Force in January 2019; further losses or delays remained possible if technical, quality, certification, or production issues continued.
- Boeing recorded $400 million of anticipated losses on T-X aircraft options and a $291 million loss on the MQ-25 development contract. Fixed-price development programs carry risk of further cost overruns and charges.
- Supply-chain disruptions affected 737 delivery timing. Boeing also identified production-rate execution, supplier performance, certification schedules, program estimates, and commercial-aircraft demand as significant risks.
- U.S. government budget uncertainty, international trade tariffs, and limited Export-Import Bank authority could affect contracts, costs, customer financing, and sales. Commercial-aircraft demand is also exposed to airline finances, economic conditions, fuel prices, and geopolitical events.
- GAAP pension underfunding was $15.3 billion. Boeing did not expect pension contributions in 2019, but future contributions depend on market and actuarial assumptions.
- Environmental remediation liabilities were $555 million; the high end of the reasonably possible cost range exceeded recorded liabilities by $796 million. A $148 million charge related to the Spirit litigation and receivable write-off was recorded in 2018.
Important facts for investors to verify
- Track 737 production, delivery timing, supplier performance, certification, and the 2019 planned rate increase.
- Monitor KC-46A certification, delivery progress, customer acceptance, and any additional reach-forward losses.
- Assess whether T-X and MQ-25 contract economics and other fixed-price development programs improve or require further charges.
- Review the quality and conversion of the $490.5 billion backlog into deliveries, revenue, and cash flow, including the effect of customer financing needs.
- Evaluate cash deployment, rising debt, year-end equity, pension assumptions, and the potential obligations associated with financing commitments and contingencies.
- Confirm required approvals and closing terms for the Embraer transaction, and the integration and expected contribution of KLX.