BOEINGBLACKSMALL300A03.JPG
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or
¨
 
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
 
THE BOEING COMPANY
 
(Exact name of registrant as specified in its charter)
Delaware
 
91-0425694
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
100 N. Riverside Plaza, Chicago, IL
 
60606-1596
(Address of principal executive offices)
 
(Zip Code)
 
(312) 544-2000
 
(Registrant’s telephone number, including area code)
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):
Large accelerated filer  
ý
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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 ý
As of April 18, 2018 , there were 582,580,973 shares of common stock, $5.00 par value, issued and outstanding.


THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended March 31, 2018
INDEX
Part I. Financial Information (Unaudited)
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 

Item 3.
 
 
 
Item 4.
 
 
 
Part II. Other Information
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in millions, except per share data)
Three months ended March 31
   
2018

 
2017

Sales of products

$20,820

 

$19,367

Sales of services
2,562

 
2,594

Total revenues
23,382

 
21,961

 
 
 


Cost of products
(16,816
)
 
(16,062
)
Cost of services
(1,992
)
 
(1,998
)
Boeing Capital interest expense
(16
)
 
(13
)
Total costs and expenses
(18,824
)
 
(18,073
)
 
4,558

 
3,888

Income from operating investments, net
74

 
81

General and administrative expense
(997
)
 
(929
)
Research and development expense, net
(764
)
 
(836
)
Gain on dispositions, net
4

 
2

Earnings from operations
2,875

 
2,206

Other income, net
66

 
26

Interest and debt expense
(102
)
 
(87
)
Earnings before income taxes
2,839

 
2,145

Income tax expense
(362
)
 
(566
)
Net earnings

$2,477

 

$1,579

 
 
 
 
Basic earnings per share

$4.19

 

$2.57

 
 
 
 
Diluted earnings per share

$4.15

 

$2.54

 
 
 
 
Cash dividends paid per share

$1.71

 

$1.42

 
 
 
 
Weighted average diluted shares (millions)
597.2

 
621.2

See Notes to the Condensed Consolidated Financial Statements.

1
Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in millions)
Three months ended March 31
 
2018

 
2017

Net earnings

$2,477

 

$1,579

Other comprehensive income, net of tax:
 
 
 
Currency translation adjustments
27

 
34

Unrealized gain on certain investments, net of tax of $0 and ($1)
2

 
1

Unrealized gain on derivative instruments:
 
 
 
Unrealized (loss)/gain arising during period, net of tax of $0 and ($28)
(2
)
 
52

Reclassification adjustment for losses included in net earnings, net of tax of $(1) and ($9)
4

 
16

Total unrealized gain on derivative instruments, net of tax
2

 
68

Defined benefit pension plans and other postretirement benefits:
 
 
 
Amortization of prior service credits included in net periodic pension cost, net of tax of $10 and $16
(36
)
 
(28
)
Net actuarial gain arising during the period, net of tax of $0 and $(1)

 
3

Amortization of actuarial losses included in net periodic pension cost, net of tax of ($60) and ($72)
219

 
132

Pension and postretirement cost related to our equity method investments, net of tax of $1 and $1
(3
)
 
(2
)
Total defined benefit pension plans and other postretirement benefits, net of tax
180

 
105

Other comprehensive income, net of tax
211

 
208

Comprehensive income related to noncontrolling interests
(1
)
 

Comprehensive income, net of tax

$2,687

 

$1,787

See Notes to the Condensed Consolidated Financial Statements.

2
Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
(Dollars in millions, except per share data)
March 31
2018

 
December 31
2017

Assets
 
 
 
Cash and cash equivalents

$9,235

 

$8,813

Short-term and other investments
656

 
1,179

Accounts receivable, net
2,802

 
2,894

Unbilled receivables, net
9,822

 
8,194

Current portion of customer financing, net
244

 
309

Inventories
61,303

 
61,388

Other current assets
2,481

 
2,417

Total current assets
86,543

 
85,194

Customer financing, net
2,753

 
2,756

Property, plant and equipment, net of accumulated depreciation of $17,894 and $17,641
12,628

 
12,672

Goodwill
5,558

 
5,559

Acquired intangible assets, net
2,525

 
2,573

Deferred income taxes
325

 
321

Investments
1,248

 
1,260

Other assets, net of accumulated amortization of $514 and $482
1,969

 
2,027

Total assets

$113,549

 

$112,362

Liabilities and equity
 
 
 
Accounts payable

$12,613

 

$12,202

Accrued liabilities
10,983

 
13,069

Advances and progress billings
49,955

 
48,042

Short-term debt and current portion of long-term debt
1,981

 
1,335

Total current liabilities
75,532

 
74,648

Deferred income taxes
2,001

 
2,188

Accrued retiree health care
5,494

 
5,545

Accrued pension plan liability, net
16,279

 
16,471

Other long-term liabilities
2,474

 
2,015

Long-term debt
10,471

 
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
6,624

 
6,804

Treasury stock, at cost - 428,038,987 and 421,222,326 shares
(46,396
)
 
(43,454
)
Retained earnings
52,095

 
49,618

Accumulated other comprehensive loss
(16,162
)
 
(16,373
)
Total shareholders’ equity
1,222

 
1,656

Noncontrolling interests
76

 
57

Total equity
1,298

 
1,713

Total liabilities and equity

$113,549

 

$112,362

See Notes to the Condensed Consolidated Financial Statements.

3
Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions)
Three months ended March 31
  
2018


2017

Cash flows – operating activities:
 

 
Net earnings

$2,477



$1,579

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
Non-cash items – 
 

 
Share-based plans expense
45


50

Depreciation and amortization
501


468

Investment/asset impairment charges, net
20


23

Customer financing valuation (benefit)/expense
(1
)

7

Gain on dispositions, net
(4
)
 
(2
)
Other charges and credits, net
60


58

Changes in assets and liabilities – 
 

 
Accounts receivable
92


(264
)
Unbilled receivables
(1,628
)
 
(568
)
Advances and progress billings
1,917

 
1,375

Inventories
283


(1,491
)
Other current assets
(103
)
 
(117
)
Accounts payable
591


616

Accrued liabilities
(1,337
)

(282
)
Income taxes receivable, payable and deferred
348


552

Other long-term liabilities
(243
)

(72
)
Pension and other postretirement plans
(50
)

10

Customer financing, net
44


231

Other
124


(75
)
Net cash provided by operating activities
3,136


2,098

Cash flows – investing activities:
 
 
 
Property, plant and equipment additions
(394
)
 
(466
)
Property, plant and equipment reductions
27

 
9

Contributions to investments
(249
)
 
(605
)
Proceeds from investments
752

 
803

Purchase of distribution rights
(20
)
 
 
Other
3

 
(1
)
Net cash provided/(used) by investing activities
119

 
(260
)
Cash flows – financing activities:
 
 
 
New borrowings
2,687

 
872

Debt repayments
(1,371
)
 
(34
)
Contributions from noncontrolling interests
20

 


Stock options exercised
51

 
174

Employee taxes on certain share-based payment arrangements
(226
)
 
(107
)
Common shares repurchased
(3,000
)
 
(2,500
)
Dividends paid
(1,006
)
 
(868
)
Net cash used by financing activities
(2,845
)
 
(2,463
)
Effect of exchange rate changes on cash and cash equivalents, including restricted
8

 
20

Net increase/(decrease) in cash & cash equivalents, including restricted
418

 
(605
)
Cash & cash equivalents, including restricted, at beginning of year
8,887

 
8,869

Cash & cash equivalents, including restricted, at end of period
9,305

 
8,264

Less restricted cash & cash equivalents, included in Investments
70

 
74

Cash and cash equivalents at end of period

$9,235

 

$8,190

See Notes to the Condensed Consolidated Financial Statements.

4
Table of Contents

The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
(Unaudited)
 
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
Interests

Total

Balance at January 1, 2017

$5,061


$4,762


($36,097
)

$41,754


($13,623
)

$60


$1,917

Net earnings
 
 
 
1,579

 


1,579

Other comprehensive loss, net of tax of $(94)
 
 
 
 
208

 
208

Share-based compensation and related dividend equivalents
 
48

 


 
 
48

Treasury shares issued for stock options exercised, net
 
(42
)
215

 
 
 
173

Treasury shares issued for other share-based plans, net
 
(164
)
62

 
 
 
(102
)
Common shares repurchased
 
 
(2,500
)
 
 
 
(2,500
)
Balance at March 31, 2017

$5,061


$4,604


($38,320
)

$43,333


($13,415
)

$60


$1,323

 
 
 
 
 
 
 
 
Balance at January 1, 2018

$5,061


$6,804


($43,454
)

$49,618


($16,373
)

$57


$1,713

Net earnings
 
 
 
2,477

 
(1
)
2,476

Other comprehensive income, net of tax of ($50)
 
 
 
 
211

 
211

Share-based compensation and related dividend equivalents
 
45

 


 
 
45

Treasury shares issued for stock options exercised, net
 
(25
)
75

 
 
 
50

Treasury shares issued for other share-based plans, net
 
(200
)
(17
)
 
 
 
(217
)
Common shares repurchased
 
 
(3,000
)
 
 
 
(3,000
)
Changes in noncontrolling interests
 
 
 
 
 
20

20

Balance at March 31, 2018

$5,061


$6,624


($46,396
)

$52,095


($16,162
)

$76


$1,298

See Notes to the Condensed Consolidated Financial Statements.

5
Table of Contents

The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
(Dollars in millions)
Three months ended March 31

2018

 
2017

Revenues:
 
 
 
Commercial Airplanes

$13,652

 

$12,953

Defense, Space & Security
5,762

 
5,112

Global Services
3,943

 
3,653

Boeing Capital
65

 
92

Unallocated items, eliminations and other
(40
)
 
151

Total revenues

$23,382

 

$21,961

Earnings from operations:
 
 
 
Commercial Airplanes

$1,508

 

$870

Defense, Space & Security
649

 
549

Global Services
644

 
623

Boeing Capital
20

 
39

Segment operating profit
2,821

 
2,081

Unallocated items, eliminations and other
(311
)
 
(221
)
FAS/CAS service cost adjustment
365

 
346

Earnings from operations
2,875

 
2,206

Other income, net
66

 
26

Interest and debt expense
(102
)
 
(87
)
Earnings before income taxes
2,839

 
2,145

Income tax expense
(362
)
 
(566
)
Net earnings

$2,477

 

$1,579

This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 19 for further segment results.

6

The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)
Note 1 – Basis of Presentation
The condensed consolidated interim 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”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended March 31, 2018 are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our 2017 Annual Report on Form 10-K. Prior period amounts have been adjusted to conform with the current year presentation.
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 requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented. We plan to adopt the new lease standard in 2019 and do not expect it to have a material effect on our financial position, results of operations or cash flows.
Standards Issued and Implemented
In the first quarter of 2018, we adopted the following Accounting Standards Updates (ASU): ASU 2014-09 , Revenue from Contracts with Customers (Topic 606); ASU 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 ASU 2018-02 , Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The impact of the adoption of these standards to our unaudited Consolidated Financial Statements is presented in Note 2 and the additional disclosures are shown in Notes 6 and 19 .
ASU 2014-09 In the first quarter of 2018, we adopted ASU 2014-09 , Revenue from Contracts with Customers (Topic 606) , 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 Defense, Space & Security ( BDS ) and Global Services ( BGS ) segments and certain military derivative aircraft contracts at our Commercial Airplanes ( BCA ) segment now recognize revenue under the new standard as costs are incurred. Under previous U.S. generally accepted accounting principles (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 and an increase of $128 to Net earnings for the first quarter of 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 .

7

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 2016-18 In 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 a company 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 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.
Significant Accounting Policies - Update
Our significant accounting policies are described in "Note 1: Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2017. Our significant accounting policies described below reflect the impact of the adoption of Topic 606 in the first quarter of 2018.
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.
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.

8

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. Incentive and award fees that cannot be reasonably estimated are recorded when awarded.
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 reach-forward losses, across all long-term contracts were as follows:
 
Three months ended March 31
 
2018

 
2017

Increase to Revenue

$117

 

$207

Increase to Earnings from Operations

$78

 

$108

Increase to Diluted EPS

$0.11

 

$0.13

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

9

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. We allocate the transaction price to each distinct performance obligation, including each commercial spare part, based on relative standalone selling prices. 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 .

10

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; and ASU 2016-18 Statement of Cash Flows (Topic 230) Restricted Cash; and ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The impact to our unaudited Consolidated Financial Statements as a result of adopting these standards was as follows:
Condensed Consolidated Statement of Operations (Unaudited)
 
Three months ended March 31, 2017
(Dollars in millions)
Reported
 
Impact of New Standards
 
Restated
Sales of products

$18,512

 

$855

 

$19,367

Sales of services
2,464

 
130

 
2,594

Total revenues
20,976

 
985

 
21,961

 
 
 


 
 
Cost of products
(15,363
)
 
(699
)
 
(16,062
)
Cost of services
(1,888
)
 
(110
)
 
(1,998
)
Boeing Capital interest expense
(13
)
 


 
(13
)
Total costs and expenses
(17,264
)
 
(809
)
 
(18,073
)
 
3,712

 
176

 
3,888

Income from operating investments, net
81

 


 
81

General and administrative expense
(933
)
 
4

 
(929
)
Research and development expense, net
(838
)
 
2

 
(836
)
Gain on dispositions, net
2

 


 
2

Earnings from operations
2,024

 
182

 
2,206

Other income, net
22

 
4

 
26

Interest and debt expense
(87
)
 


 
(87
)
Earnings before income taxes
1,959

 
186

 
2,145

Income tax expense
(508
)
 
(58
)
 
(566
)
Net earnings

$1,451

 

$128

 

$1,579

 
 
 
 
 
 
Basic earnings per share

$2.36

 

$0.21

 

$2.57

 
 
 
 
 
 
Diluted earnings per share

$2.34

 

$0.20

 

$2.54


11

Condensed 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


12

Condensed Consolidated Statement of Cash Flows (Unaudited)
(Dollars in millions)
Three months ended March 31, 2017
 
Reported

 
Impact of New Standards
Restated

Cash flows - operating activities:
 
 
 
 
 
Net earnings

$1,451

 

$128

 

$1,579

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 

 
 
Non-cash items -
 
 

 
 
Share-based plans expense
50

 

 
50

Depreciation and amortization
471

 
(3
)
 
468

Investment/asset impairment charges, net
23

 

 
23

Customer financing valuation expense
7

 

 
7

Gain on dispositions, net
(2
)
 

 
(2
)
Other charges and credits, net
52

 
6

 
58

Changes in assets and liabilities -
 
 

 
 
Accounts receivable
(769
)
 
505

 
(264
)
Unbilled receivables

 
(568
)
 
(568
)
Advances and progress billings

 
1,375

 
1,375

Inventories
(31
)
 
(1,460
)
 
(1,491
)
Other current assets

 
(117
)
 
(117
)
Accounts payable
616

 

 
616

Accrued liabilities
(613
)
 
331

 
(282
)
Advances and billings in excess of related costs
249

 
(249
)
 

Income taxes receivable, payable and deferred
495

 
57

 
552

Other long-term liabilities
(72
)
 

 
(72
)
Pension and other postretirement plans
10

 

 
10

Customer financing, net
232

 
(1
)
 
231

Other
(75
)
 

 
(75
)
Net cash provided by operating activities
2,094

 
4

 
2,098

Cash flows - investing activities:
 
 

 
 
Property, plant and equipment additions
(466
)
 

 
(466
)
Property, plant and equipment reductions
9

 

 
9

Contributions to investments
(605
)
 

 
(605
)
Proceeds from investments
803

 

 
803

Other
(3
)
 
2

 
(1
)
Net cash used by investing activities
(262
)
 
2

 
(260
)
Cash flows - financing activities:
 
 

 
 
New borrowings
872

 

 
872

Debt repayments
(34
)
 

 
(34
)
Stock options exercised
174

 

 
174

Employee taxes on certain share-based payment arrangements
(107
)
 

 
(107
)
Common shares repurchased
(2,500
)
 

 
(2,500
)
Dividends paid
(868
)
 

 
(868
)
Net cash used by financing activities
(2,463
)
 

 
(2,463
)
Effect of exchange rate changes on cash & cash equivalents, including restricted
20

 

 
20

Net (decrease)/increase in cash & cash equivalents, including restricted
(611
)
 
6

 
(605
)
Cash & cash equivalents, including restricted*, at beginning of year
8,801

 
68

 
8,869

Cash & cash equivalents, including restricted*, at end of period

$8,190

 

$74

 
8,264

Less restricted cash & cash equivalents, included in Investments
 
 
 
 
74

Cash and cash equivalents at end of period
 
 
 
 

$8,190

* Reported balance excludes restricted amounts

13

Condensed Consolidated Statements of Equity (Unaudited)
 
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 – 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.

14

The elements used in the computation of basic and diluted earnings per share were as follows:
(In millions - except per share amounts)
Three months ended March 31

2018


2017

Net earnings

$2,477

 

$1,579

Less: earnings available to participating securities
3

 
2

Net earnings available to common shareholders

$2,474

 

$1,577

Basic
 
 
 
Basic weighted average shares outstanding
590.8

 
614.4

Less: participating securities
0.7

 
0.8

Basic weighted average common shares outstanding
590.1

 
613.6

Diluted
 
 
 
Basic weighted average shares outstanding
590.8

 
614.4

Dilutive potential common shares (1)
6.4

 
6.8

Diluted weighted average shares outstanding
597.2

 
621.2

Less: participating securities
0.7

 
0.8

Diluted weighted average common shares outstanding
596.5

 
620.4

Net earnings per share:
 
 
 
Basic

$4.19

 

$2.57

Diluted
4.15

 
2.54

(1)  
Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
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 earnings per share because the effect was either antidilutive or the performance condition was not met.
(Shares in millions)
Three months ended March 31
 
2018

 
2017

Performance awards
2.9

 
5.6

Performance-based restricted stock units
0.5

 
1.3

Note 4 – Income Taxes
Our effective income tax rate was 12.8% for the three months ended March 31, 2018 and 26.4% in the comparable period in 2017 . The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), which permanently reduced the U.S. corporate statutory rate from 35% to 21% effective January 1, 2018. The 2018 tax rate reflects tax benefits for sales of U.S. manufactured goods to non-U.S. customers and research and development credits as well as a 4% benefit from discrete tax benefits, primarily related to share-based payments recorded in the first quarter of 2018. The 2017 tax rate of 26.4% reflects the 35% statutory tax rate reduced by tax benefits for research and development credits, U.S. manufacturing activity and share-based payments.
In 2017, in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118, we recorded provisional amounts related to the TCJA, including the remeasurement of our U.S. net deferred tax liabilities and ancillary state tax effects, as well as the repatriation tax. We continue to assess available tax methods and elections, refine our computation of the repatriation tax and evaluate regulatory guidance, which may result in changes to our tax estimates.
Federal income tax audits have been settled for all years prior to 2013. The Internal Revenue Service (IRS) is currently examining the 2013-2014 tax years. We are also subject to examination in major state and international jurisdictions for the 2001-2016 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 federal and state matters under audit may decrease by up to $540 and $435 , respectively, based on current estimates.
Note 5 – Inventories
Inventories consisted of the following:
 
March 31
2018

 
December 31
2017

Long-term contracts in progress

$1,926

 

$1,854

Commercial aircraft programs
53,008

 
52,861

Commercial spare parts, used aircraft, general stock materials and other
6,369

 
6,673

Total

$61,303



$61,388

Long-Term Contracts in Progress
Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to United Launch Alliance ( ULA ) under an inventory supply agreement that terminates on March 31, 2021. The inventory balance was $267 and $284 at March 31, 2018 and December 31, 2017 . See indemnifications to ULA in Note 11 .
Included in inventories are capitalized precontract costs of $691 at March 31, 2018 primarily related to the KC-46A Tanker and F/A-18, and $933 at December 31, 2017 primarily related to the KC-46A Tanker, C-17 and F/A-18. See Note 10 .
Commercial Aircraft Programs
At March 31, 2018 and December 31, 2017 , commercial aircraft programs inventory included the following amounts related to the 787 program: $30,049 and $30,695 of work in process (including deferred production costs of $24,690 and $25,358 ), $2,839 and $3,189 of supplier advances, and $3,042 and $3,173 of unamortized tooling and other non-recurring costs. At March 31, 2018 , $22,034 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 $5,698 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At March 31, 2018 and December 31, 2017 , commercial aircraft programs inventory included $138 and $151 of unamortized tooling costs related to the 747 program. At March 31, 2018 , $133 of unamortized tooling costs are expected to be recovered from units included in the program accounting quantity that have firm orders or commitments. At March 31, 2018 , 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 $2,958 and $2,976 at March 31, 2018 and December 31, 2017 .

15

Note 6 – Contracts with Customers
Unbilled receivables increased from $8,194 at December 31, 2017 to $9,822 at March 31, 2018 , primarily driven by revenue recognized at BDS in excess of billings .
Advances and progress billings increased from $48,042 at December 31, 2017 to $49,955 during the three months ended March 31, 2018 , primarily driven by advances on orders received in excess of revenue recognized at BCA.
Revenues recognized during the three months ended March 31, 2018 and 2017 from amounts recorded as Advances and progress billings at the beginning of each year were $6,453 and $5,411 .
Note 7 – Customer Financing
Customer financing primarily relates to the Boeing Capital ( 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:
 
March 31
2018

 
December 31
2017

Financing receivables:
 
 
 
Investment in sales-type/finance leases

$1,265

 

$1,364

Notes
934

 
1,022

Total financing receivables
2,199

 
2,386

Operating lease equipment, at cost, less accumulated depreciation of $286 and $305
808

 
691

Gross customer financing
3,007

 
3,077

Less allowance for losses on receivables
(10
)
 
(12
)
Total

$2,997

 

$3,065

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 March 31, 2018 and December 31, 2017 , we individually evaluated for impairment customer financing receivables of $417 and $422 , of which $406 and $411 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.
The adequacy of the allowance for losses is assessed quarterly. Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. 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 by internal credit rating category are shown below:  
Rating categories
March 31
2018

 
December 31
2017

BBB

$1,130

 

$1,170

BB
490

 
627

B
173

 
177

CCC
406

 
412

Total carrying value of financing receivables

$2,199

 

$2,386

At March 31, 2018 , our allowance related to receivables with ratings of B, BB and BBB. We applied default rates that averaged 22.9% , 7.4% and 0.8% , respectively, to the exposure associated with those receivables.

16

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. 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 out-of-production aircraft and 747-8. 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:
 
March 31
2018

 
December 31
2017

717 Aircraft ($256 and $269 accounted for as operating leases)

$1,039

 

$1,081

747-8 Aircraft ($136 and $138 accounted for as operating leases)
481

 
483

737 Aircraft ($257 and $127 accounted for as operating leases)
289

 
161

MD-80 Aircraft (accounted for as sales-type finance leases)
235

 
231

757 Aircraft ($26 and $27 accounted for as operating leases)
213

 
217

747-400 Aircraft ($83 and $88 accounted for as operating leases)
162

 
170

767 Aircraft ($0 and $25 accounted for as operating leases)
16

 
98

777 Aircraft ($17 and $0 accounted for as operating leases)
30

 
14

Note 8 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
 
March 31
2018

 
December 31
2017

Equity method investments (1)

$1,203

 

$1,214

Time deposits
108

 
613

Available for sale debt instruments
478

 
490

Restricted cash & cash equivalents (2)
70

 
74

Equity and other investments
45

 
48

Total

$1,904

 

$2,439

(1)  
Dividends received were $88 and $96 for the three months ended March 31, 2018 and 2017 .
(2)  
Reflects amounts restricted in support of our workers’ compensation programs, employee benefit programs, and insurance premiums.

17

Note 9 – Other Assets
Sea Launch
At March 31, 2018 and December 31, 2017 , Other assets included $295 and $356 of receivables 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. At March 31, 2018 , the net amounts owed to Boeing by each of the partners were as follows: S.P. Koroley Rocket and Space Corporation Energia of Russia (RSC Energia) – $162 , 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
As of March 31, 2018 and December 31, 2017 , Other assets included $137 of receivables related to indemnifications from Spirit AeroSystems, Inc. (Spirit) for costs incurred related to pension and retiree medical obligations of former Boeing employees who were subsequently employed by Spirit. During the fourth quarter of 2014, Boeing filed a complaint against Spirit in the Delaware Superior Court seeking to enforce our rights to indemnification and to recover from Spirit amounts incurred by Boeing for pension and retiree medical obligations. During 2017, the court ruled against Boeing and denied our claim. In January 2018, Boeing filed a notice of appeal with the Delaware Supreme Court. We believe we have substantial arguments on appeal and expect to fully recover from Spirit.
Note 10 – Commitments and Contingencies
Environmental
The following table summarizes environmental remediation activity during the three months ended March 31, 2018 and 2017 .
 
2018

 
2017

Beginning balance – January 1

$524

 

$562

Reductions for payments made
(7
)
 
(11
)
Changes in estimates
22

 
(26
)
Ending balance – March 31

$539

 

$525

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 March 31, 2018 and December 31, 2017 , the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $820 and $868 .

18

Product Warranties
The following table summarizes product warranty activity recorded during the three months ended March 31, 2018 and 2017 .
 
2018

 
2017

Beginning balance – January 1

$1,211

 

$1,414

Additions for current year deliveries
70

 
70

Reductions for payments made
(32
)
 
(74
)
Changes in estimates
(101
)
 
(65
)
Ending balance – March 31

$1,148

 

$1,345

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 March 31, 2018 have expiration dates from 2018 through 2026 . At March 31, 2018 , and December 31, 2017 total contractual trade-in commitments were $1,483 and $1,462 . As of March 31, 2018 and December 31, 2017 , we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $385 and $155 and the fair value of the related trade-in aircraft was $364 and $155 .
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $10,038 and $10,221 as of March 31, 2018 and December 31, 2017 . The estimated earliest potential funding dates for these commitments as of March 31, 2018 are as follows:
   
Total

April through December 2018

$1,354

2019
2,960

2020
1,699

2021
1,632

2022
994

Thereafter
1,399

 

$10,038

As of March 31, 2018 , all of these financing commitments related 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.

19

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 $3,665 and $3,708 as of March 31, 2018 and December 31, 2017 .
Commitments to ULA
We and Lockheed Martin Corporation have each committed to provide ULA with additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. As of March 31, 2018 , ULA’s total remaining obligation to Boeing under the inventory supply agreement was $120 . See Note 5 .
United States Government Defense Environment Overview
The Bipartisan Budget Act of 2018, passed in February 2018, raised the 2011 Budget Control Act spending caps for fiscal years 2018 and 2019 (FY18 and FY19). In addition, the FY18 Omnibus spending bill signed into law on March 23, 2018 provides funding for the remainder of the fiscal year. However, the 2011 Budget Control Act continues to mandate limits on U.S. government discretionary spending and remains in effect after FY19. As a result, continued budget uncertainty and the risk of future sequestration cuts will remain unless Congress acts to repeal or suspend this law.
There continues to be uncertainty with respect to program-level appropriations for the U.S. DoD and other government agencies, including the National Aeronautics and Space Administration (NASA). Although FY19 spending topline levels have been agreed to, the lower budget caps and sequestration will take effect again in fiscal year 2020 and beyond unless Congress acts to repeal or suspend the law. Future budget cuts or investment priority changes could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the 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, 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 a reach-forward loss on the KC-46A Tanker program. Moreover, this and our other fixed-price development programs remain subject to additional reach-forward losses if we experience further 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 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, the USAF authorized two low rate initial production (LRIP) lots for 7 and 12 aircraft valued at $2.8 billion . In January 2017, the USAF authorized an additional LRIP lot for 15 aircraft valued at $2.1 billion . At March 31, 2018 , we had approximately $370 of capitalized precontract costs and $1,330 of potential termination liabilities to suppliers.

20

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.
Note 11 – 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
 
March 31
2018

December 31
2017

 
March 31
2018

December 31
2017

 
March 31
2018

December 31
2017

Contingent repurchase commitments

$1,527


$1,605

 

$1,527


$1,605

 




$9

Indemnifications to ULA:
 
 
 
 
 
 
 
 
Contributed Delta program launch inventory
67

72

 
 
 
 
 
 
Contract pricing
261

261

 
 
 
 
7

7

Other Delta contracts
191

191

 
 
 
 




Credit guarantees
117

109

 
57

55

 
13

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, we agreed to indemnify ULA through December 31, 2020 against potential non-recoverability and non-allowability of $1,360 of Boeing Delta launch program inventory included in contributed assets plus $1,860 of inventory subject to an inventory supply agreement which ends on March 31, 2021. Since inception, ULA has consumed $1,293 of the $1,360 of inventory that was contributed by us and has yet to consume $67 . Under the inventory supply agreement, we have recorded revenues and cost of sales of $1,545 through March 31, 2018 . ULA has made payments of $1,740 to us under the inventory supply agreement and we have made $48 of net indemnification payments to ULA.
We agreed to indemnify ULA against potential losses that ULA may incur in the event ULA is unable to obtain certain additional contract pricing from the USAF for four satellite missions. In 2009, ULA, through its subsidiary United Launch Services, filed a claim and notice of appeal before the Armed Services Board of Contract Appeals (ASBCA) for a contract adjustment for the price of two of these missions, followed in 2011 by a subsequent claim and appeal with respect to a third mission. The USAF did not exercise an option for a fourth mission prior to the expiration of the contract. During the second quarter of 2016, the ASBCA ruled that ULA is entitled to additional contract pricing for each of the three missions and remanded to the parties to negotiate appropriate pricing. During the fourth quarter of 2016, the USAF appealed the ASBCA's ruling. In April 2017, the USAF withdrew its appeal. If ULA is ultimately unsuccessful in obtaining additional pricing, we may be responsible for an indemnification payment up to $261 and may record up to $280 in pre-tax losses associated with the three missions.
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, and during the fourth quarter, Boeing filed a motion for summary judgment for full recovery of its costs. 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 10 .
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 .
Note 12 – Debt
On February 23, 2018 , we issued $1,400 of fixed rate senior notes consisting of $350 due March 1, 2023 that bear an annual interest rate of 2.8% , $350 due March 1, 2028 that bear an annual interest rate of 3.25% , $350 due March 1, 2038 that bear an annual interest rate of 3.55% , and $350 due March 1, 2048 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 $1,338 , after deducting underwriting discounts, commissions and offering expenses.

21

Note 13 – Postretirement Plans
The components of net periodic benefit cost for the three months ended March 31 were as follows:

Pension
 
Other Postretirement Benefits
Three months ended March 31
2018

 
2017

 
2018

 
2017

Service cost

$108

 

$101

 

$24

 

$26

Interest cost
695

 
748

 
49

 
57

Expected return on plan assets
(1,002
)
 
(961
)
 
(2
)
 
(2
)
Amortization of prior service credits
(14
)
 
(10
)
 
(32
)
 
(34
)
Recognized net actuarial loss/(gain)
282

 
201

 
(3
)
 
3

Settlement/curtailment/other losses


 
1

 


 


Net periodic benefit cost

$69

 

$80

 

$36

 

$50

 
 
 
 
 
 
 
 
Net periodic benefit cost included in Earnings from operations

$82

 

$131

 

$22

 

$28

Net periodic benefit cost included in Other income, net
(42
)
 
(34
)
 
24

 
30

Net periodic benefit cost included in Earnings before income taxes

$40

 

$97

 

$46

 

$58

Note 14 – Share-Based Compensation and Other Compensation Arrangements
Restricted Stock Units
On February 26, 2018 , we granted to our executives 260,730 restricted stock units ( RSU s) as part of our long-term incentive program with a grant date fair value of $361.13 per unit. The RSU s 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.
Performance-Based Restricted Stock Units
On February 26, 2018 , we granted to our executives 241,284 performance-based restricted stock units ( PBRSU s) as part of our long-term incentive program with a grant date fair value of $390.27 per unit. Compensation expense for the award is recognized over the three -year performance period based upon the grant date fair value estimated using a Monte-Carlo simulation model. The model used the following assumptions: expected volatility of 22.11% based upon historical stock volatility, a risk-free interest rate of 2.36% , and no expected dividend yield because the units earn dividend equivalents.
Performance Awards
On February 26, 2018 , we granted to our executives performance awards as part of our long-term incentive program with a payout based on the achievement of financial goals for the three -year period ending December 31, 2020 . At March 31, 2018 , the minimum payout amount is $0 and the maximum amount we could be required to pay out is $375 .

22

Note 15 – Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss (AOCI) by component for the three months ended March 31, 2018 and 2017 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, 2017

($143
)
 

($2
)
 

($127
)
 

($13,351
)
 

($13,623
)
Other comprehensive (loss)/income before reclassifications
34

 
1

 
52

 
1

 
88

Amounts reclassified from AOCI

 

 
16

 
104

(2)  
120

Net current period Other comprehensive (loss)/income
34

 
1

 
68

 
105

 
208

Balance at March 31, 2017

($109
)
 

($1
)
 

($59
)
 

($13,246
)
 

($13,415
)
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018

($15
)
 

($2
)
 

$54

 

($16,410
)
 

($16,373
)
Other comprehensive (loss)/income before reclassifications
27

 
2

 
(2
)
 
(3
)
 
24

Amounts reclassified from AOCI

 

 
4

 
183

(2)  
187

Net current period Other comprehensive income
27

 
2

 
2

 
180

 
211

Balance at March 31, 2018

$12

 

$—

 

$56

 

($16,230
)
 

($16,162
)
(1)      Net of tax.
(2)  
Primarily relates to amortization of actuarial losses for the three months ended March 31, 2018 and 2017 totaling $219 and $132 (net of tax of ($60) and ($72) ). These are included in the net periodic pension cost.
Note 16 – Derivative Financial Instruments
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts 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 . We use commodity derivatives, such as fixed-price purchase commitments to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through 2021 .
Fair Value Hedges
Interest rate swaps under which we agree to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and 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 which do not qualify for hedge accounting treatment.
Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the Condensed Consolidated Statements of Financial Position were as follows:
  
Notional amounts  (1)
Other assets
Accrued liabilities
  
March 31
2018

December 31
2017

March 31
2018

December 31
2017

March 31
2018

December 31
2017

Derivatives designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange contracts

$3,141


$2,930


$138


$131


($55
)

($63
)
Interest rate contracts
125

125

3

3




Commodity contracts
35

56

4

4

(6
)
(6
)
Derivatives not receiving hedge accounting treatment:
 
 
 
 
 
 
Foreign exchange contracts
270

406

14

16

(4
)
(5
)
Commodity contracts
676

563





 
 
Total derivatives

$4,247


$4,080


$159


$154


($65
)

($74
)
Netting arrangements
 
 
(53
)
(61
)
53

61

Net recorded balance
 
 

$106


$93


($12
)

($13
)
(1)  
Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

23

Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effect on Other comprehensive income/(loss) and Net earnings were as follows:  
   
Three months ended March 31
   
2018

 
2017

Effective portion recognized in Other comprehensive income, net of taxes:
 
 
 
Foreign exchange contracts

($2
)
 

$56

Commodity contracts


 
(4
)
Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes:
 
 
 
Foreign exchange contracts
(4
)
 
(15
)
Commodity contracts


 
(1
)
Forward points recognized in Other income, net:
 
 
 
Foreign exchange contracts
6

 
1

Undesignated derivatives recognized in Other income, net:
 
 
 
Foreign exchange contracts
3

 
5

Based on our portfolio of cash flow hedges, we expect to reclassify losses of $14 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges recognized in Other income was insignificant for the three months ended March 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 March 31, 2018 was $15 . At March 31, 2018 , there was no collateral posted related to our derivatives.
Note 17 – 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.
 
March 31, 2018
 
December 31, 2017
 
Total

 
Level 1

 
Level 2

 
Total

 
Level 1

 
Level 2

Assets
 
 
 
 
 
 
 
 
 
 
 
Money market funds

$1,983

 

$1,983

 
 
 

$1,582

 

$1,582

 
 
Available-for-sale debt investments:
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
126

 
 
 

$126

 
70

 
 
 

$70

Corporate notes
340

 
 
 
340

 
382

 
 
 
382

U.S. government agencies
33

 
 
 
33

 
47

 
 
 
47

Other equity investments
17

 
17

 
 
 
18

 
18

 
 
Derivatives
106

 
 
 
106

 
93

 
 
 
93

Total assets

$2,605

 

$2,000

 

$605

 

$2,192

 

$1,600

 

$592

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives

($12
)
 
 
 

($12
)
 

($13
)
 
 
 

($13
)
Total liabilities

($12
)
 

 

($12
)
 

($13
)
 

 

($13
)
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 rate 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 three months ended March 31 due to long-lived asset impairment and the fair value and asset classification of the related assets as of the impairment date:
  
2018
 
2017
 
Fair
Value

 
Total
Losses

 
Fair
Value

 
Total
Losses

Operating lease equipment

$20

 

($8
)
 

$31

 

($11
)
Investments

 
(12
)
 
1

 
(11
)
Property, plant and equipment


 


 
9

 
(1
)
Total

$20

 

($20
)
 

$41

 

($23
)
Investments and Property, plant and equipment were primarily valued using an income approach based on the discounted cash flows associated with the underlying assets. The fair value of the impaired operating lease equipment 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,

24

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 three months ended March 31, 2018 , 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
Operating lease equipment
$20
 
Market approach
 
Aircraft value publications
 
$20 - $32 (1)
Median $23
 
 
Aircraft condition adjustments
 
($3) - $0 (2)
Net ($3)
(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.
(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 Condensed Consolidated Statements of Financial Position were as follows:
 
March 31, 2018
 
Carrying
Amount

Total Fair
Value

Level 1
Level 2

Level 3

Assets
 
 
 
 
 
Notes receivable, net

$934


$956

 

$956

 
Liabilities
 
 
 
 
 
Debt, excluding capital lease obligations and commercial paper
(11,719
)
(12,943
)
 
(12,848
)

($95
)
 
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

25

deposits and other deposits, commercial paper, money market funds, Accounts receivable, Unbilled receivables, Accounts payable and long-term payables. The carrying values of those items, as reflected in the Condensed Consolidated Statements of Financial Position, approximate their fair value at March 31, 2018 and December 31, 2017 . 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 18 – 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. 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.
Note 19 – Segment and Revenue Information
Our primary profitability measurements to review a segment’s operating results are Earnings from operations and operating margins. We operate in four reportable segments: BCA, BDS, BGS, and BCC. All other activities fall within Unallocated items, eliminations and other. See page 6 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 time as costs are incurred.
BDS is engaged 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. 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.
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.


26

BCA revenues by customer location consist of the following:
(Dollars in millions)
Three months ended March 31
Revenue from contracts with customers:
2018
 
2017
Europe

$3,199

 

$2,132

China
2,047

 
1,179

Asia, other than China
1,731

 
1,235

Middle East
461

 
2,398

Other
1,494

 
1,058

Total non-U.S. revenues
8,932

 
8,002

United States
4,339

 
4,421

Total revenues from contracts with customers
13,271

 
12,423

Intersegment revenues, eliminated on consolidation
381

 
530

Total segment revenues

$13,652

 

$12,953

 
 
 
 
Revenue recognized on fixed price contracts
100
%
 
100
%
For the three months ended March 31, 2018 and 2017 , approximately 95% and 93% of revenue from BCA contracts with customers was recognized at the point-in-time when an aircraft is completed and accepted by the customer.
BDS revenues on contracts with customers, based on the customer's location, consist of the following:
(Dollars in millions)
Three months ended March 31
 
2018
 
2017
Revenue from contracts with customers:
 
 
 
U.S. customers

$4,226

 

$3,974

Non U.S. customers (1)
1,536

 
1,138

Total segment revenue from contracts with customers

$5,762

 

$5,112

 
 
 
 
Revenue recognized over time
98
%
 
96
%
 
 
 
 
Revenue recognized on fixed price contracts
67
%
 
64
%
 
 
 
 
Revenue from the U.S. government (1)
87
%
 
87
%
(1)  
Includes revenues earned from foreign military sales through the U.S. government.

27

BGS revenues consist of the following:
(Dollars in millions)
Three months ended March 31
 
2018
 
2017
Revenue from contracts with customers:
 
 
 
Commercial

$2,102

 

$1,848

Government
1,782

 
1,792

Total revenues from contracts with customers
3,884

 
3,640

Intersegment revenues eliminated on consolidation
59

 
13

Total segment revenues

$3,943

 

$3,653

 
 
 
 
Revenue recognized at a point in time
54
%
 
48
%
 
 
 
 
Revenue recognized on fixed price contracts
88
%
 
88
%
 
 
 
 
Revenue from the U.S. government (1)
37
%
 
42
%
(1)  
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 March 31, 2018 was $486,245 . We expect approximately 30% to be converted to revenue through 2019 and approximately 71% through 2022 , with the remainder thereafter.
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. 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.
 
Three months ended March 31

2018

 
2017

Share-based plans

($18
)
 

($21
)
Deferred compensation
(29
)
 
(50
)
Amortization of previously capitalized interest
(25
)
 
(24
)
Eliminations and other unallocated items
(239
)
 
(126
)
Unallocated items, eliminations and other

($311
)
 

($221
)
 
 
 
 
Pension FAS/CAS service cost adjustment

$283

 

$262

Postretirement FAS/CAS service cost adjustment
82

 
84

FAS/CAS service cost adjustment

$365

 

$346


28

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 ), which employ different actuarial assumptions and accounting conventions than 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 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, net .
Assets
Segment assets are summarized in the table below:
 
March 31
2018

 
December 31
2017

Commercial Airplanes

$64,846

 

$64,647

Defense, Space & Security
19,460

 
18,476

Global Services
12,636

 
12,491

Boeing Capital
3,007

 
3,156

Unallocated items, eliminations and other
13,600

 
13,592

Total

$113,549

 

$112,362

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 and assets held centrally as well as intercompany eliminations.

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Boeing Company
Chicago, Illinois
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated statement of financial position of The Boeing Company and subsidiaries (the “Company”) as of March 31, 2018 , the related condensed consolidated statements of operations, comprehensive income, cash flows, and equity for the three-month periods ended March 31, 2018 and 2017 , and the related notes and schedules (collectively referred to as the "condensed consolidated interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017 , and the related consolidated statements of operations, comprehensive income, cash flows, and equity for the year then ended prior to retrospective adjustment for changes in the Company’s method of accounting for (i) revenue from contracts with customers and (ii) reclassification of certain tax effects from Accumulated other comprehensive income (not presented herein); and in our report dated February 12, 2018, we expressed an unqualified opinion on those consolidated financial statements. We also audited the adjustments presented in Note 2 - Impact of Adoption of New Standards that were applied to retrospectively adjust the December 31, 2017 consolidated statement of financial position. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated statement of financial position in deriving the accompanying retrospectively adjusted condensed consolidated statement of financial position as of December 31, 2017 .
Basis for Review Results
This condensed consolidated interim financial information is the responsibility of the Company's management. 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 reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ Deloitte & Touche LLP

Chicago, Illinois
April 25, 2018

30

FORWARD-LOOKING STATEMENTS
This report contains “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 could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to:
 
 
(1)
general conditions in the economy and our industry, including those due to regulatory changes;
 
 
(2)
our reliance on our commercial airline customers;
 
 
(3)
the overall health of our aircraft production system, planned commercial aircraft production rate changes, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards;
 
 
(4)
changing budget and appropriation levels and acquisition priorities of the U.S. government;
 
 
(5)
our dependence on U.S. government contracts;
 
 
(6)
our reliance on fixed-price contracts;
 
 
(7)
our reliance on cost-type contracts;
 
 
(8)
uncertainties concerning contracts that include in-orbit incentive payments;
 
 
(9)
our dependence on our subcontractors and suppliers as well as the availability of raw materials;
 
 
(10)
changes in accounting estimates;
 
 
(11)
changes in the competitive landscape in our markets;
 
 
(12)
our non-U.S. operations, including sales to non-U.S. customers;
 
 
(13)
threats to the security of our or our customers' information;
 
 
(14)
potential adverse developments in new or pending litigation and/or government investigations;
 
 
(15)
customer and aircraft concentration in our customer financing portfolio;
 
 
(16)
changes in our ability to obtain debt on commercially reasonable terms and at competitive rates;
 
 
(17)
realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures;

31

(18)
the adequacy of our insurance coverage to cover significant risk exposures;
 
 
(19)
potential business disruptions, including those related to physical security threats, information technology or cyber attacks, epidemics, sanctions or natural disasters;
 
 
(20)
work stoppages or other labor disruptions;
 
 
(21)
substantial pension and other postretirement benefit obligations; and
 
 
(22)
potential environmental liabilities.
 
 
Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking information 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.
 
 
 
 
 
 
 
 
 
 

32

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Results of Operations and Financial Condition
Earnings From Operations and Core Operating Earnings (Non-GAAP) The following table summarizes key indicators of consolidated results of operations:
(Dollars in millions, except per share data)
Three months ended March 31

2018

 
2017

Revenues

$23,382

 

$21,961

 
 
 
 
GAAP
 
 
 
Earnings from operations

$2,875

 

$2,206

Operating margins
12.3
%
 
10.0
%
Effective income tax rate
12.8
%
 
26.4
%
Net earnings

$2,477

 

$1,579

Diluted earnings per share

$4.15

 

$2.54

 
 
 
 
Non-GAAP   (1)
 
 
 
Core operating earnings

$2,510

 

$1,860

Core operating margins
10.7
%
 
8.5
%
Core earnings per share

$3.64

 

$2.17

(1)  
These measures exclude certain components of pension and other postretirement benefit expense. See page 49 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)
Three months ended March 31

2018

 
2017

Commercial Airplanes

$13,652

 

$12,953

Defense, Space & Security
5,762

 
5,112

Global Services
3,943

 
3,653

Boeing Capital
65

 
92

Unallocated items, eliminations and other
(40
)
 
151

Total

$23,382

 

$21,961

Revenues for the three months ended March 31, 2018 increased by $1,421 million compared with the same period in 2017 . Commercial Airplanes ( BCA ) revenues increased by $699 million primarily due to higher deliveries and mix. Defense, Space & Security ( BDS ) revenues increased by $650 million primarily due to international c ontract awards for fighters and C-17 aircraft as well as higher weapons revenue . Global Services ( BGS ) revenues increased by $290 million , primarily due to higher commercial services revenue and supply chain services to government customers, partially offset by lower C-17 support services revenue . The higher revenues at BCA , BDS and BGS were partially offset by changes in unallocated items and eliminations, which primarily reflect the timing of eliminations for intercompany aircraft deliveries and the sale of aircraft previously leased to customers.

33
Table of Contents

Earnings From Operations
The following table summarizes Earnings from operations:
(Dollars in millions)
Three months ended March 31

2018

 
2017

Commercial Airplanes

$1,508

 

$870

Defense, Space & Security
649

 
549

Global Services
644

 
623

Boeing Capital
20

 
39

Segment operating profit
2,821

 
2,081

Pension FAS/CAS service cost adjustment
283

 
262

Postretirement FAS/CAS service cost adjustment
82

 
84

Unallocated Items, Eliminations and Other
(311
)
 
(221
)
Earnings from operations (GAAP)

$2,875

 

$2,206

FAS/CAS service cost adjustment *
(365
)
 
(346
)
Core operating earnings (Non-GAAP) **

$2,510

 

$1,860

*
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 49 .
Earnings from operations for the three months ended March 31, 2018 increased by $669 million compared with the same period in 2017 , primarily due to higher earnings at BCA and BDS , partially offset by other unallocated items and eliminations. BCA's earnings increased $638 million primarily due to improved cost performance on airplane programs, higher deliveries and mix, and lower spending on research and development. BDS earnings increased $100 million primarily due to improved performance on satellite services, and international contract awards for fighters and C-17 aircraft.
Core operating earnings for the three months ended March 31, 2018 increased by $650 million compared with the same period in 2017 primarily due to higher earnings at BCA and BDS , partially offset by changes in unallocated items and eliminations.
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)
Three months ended March 31

2018

 
2017

Share-based plans

($18
)
 

($21
)
Deferred compensation
(29
)
 
(50
)
Eliminations and other unallocated items
(264
)
 
(150
)
Unallocated items, eliminations and other

($311
)
 

($221
)
The deferred compensation expense of $29 million and $50 million for the three months ended March 31, 2018 and 2017 reflect increases in broad market conditions and our stock price.
Eliminations and other unallocated items increased by $114 million for the three months ended March 31, 2018 , compared with the same period in 2017 primarily due to the timing of expense allocations and the elimination of profit on intercompany aircraft deliveries.

34
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The components of net periodic benefit cost are shown in the following table:
(Dollars in millions)
Three months ended March 31
Pension Plans
2018

 
2017

Service cost

$108

 

$101

Interest cost
695

 
748

Expected return on plan assets
(1,002
)
 
(961
)
Amortization of prior service (credits)/costs
(14
)
 
(10
)
Recognized net actuarial loss/(gain)
282

 
201

Settlement/curtailment/other losses


 
1

Net periodic benefit cost

$69

 

$80

The decrease in net periodic pension benefit cost for the three months ended March 31, 2018 of $11 million compared with the same period in 2017 is primarily due to lower interest costs and improved expected returns, as a result of the higher value of plan assets at December 31, 2017 compared to 2016. These are partially offset by higher amortization of actuarial losses driven by lower discount rates of 3.6% at December 31, 2017 compared with 4.0% at December 31, 2016.
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 from operations were as follows:
(Dollars in millions)
Three months ended March 31
Pension Plans
2018

 
2017

Allocated to business segments

($365
)
 

($393
)
Pension FAS/CAS service cost adjustment
283

 
262

Net periodic benefit cost included in Earnings from operations

($82
)
 

($131
)
The pension FAS/CAS service cost adjustment recognized in earnings in 2018 is largely consistent with the same period in the prior year.
Other Earnings Items  
(Dollars in millions)
Three months ended March 31

2018

 
2017

Earnings from operations

$2,875

 

$2,206

Other income, net
66

 
26

Interest and debt expense
(102
)
 
(87
)
Earnings from operations
2,839

 
2,145

Income tax expense
(362
)
 
(566
)
Net earnings from continuing operations

$2,477

 

$1,579

Other income, net increased by $40 million during the three months ended March 31, 2018 , primarily due to higher non-operating pension benefits and higher gains from interest income and foreign exchange.
For discussion related to Income Taxes, see Note 4 to our Condensed 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,

35
Table of Contents

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 BCA and 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 are recorded as incurred. Cost of sales for commercial spare parts is recorded at average cost. The following table summarizes cost of sales:
(Dollars in millions)
Three months ended March 31

2018

 
2017

Change

Cost of sales

$18,824

 

$18,073


$751

Cost of sales as a % of Revenues
80.5
%
 
82.3
%
(1.8
%)
Cost of sales for the three months ended March 31, 2018 increased by $751 million , or 4% compared with the same period in 2017 , primarily due to the 6% increase in revenue, partially offset by improved performance.
Research and Development The following table summarizes our Research and development expense:
(Dollars in millions)
Three months ended March 31

2018

 
2017

Commercial Airplanes

$549

 

$625

Defense, Space & Security
183

 
196

Global Services
34

 
28

Other
(2
)
 
(13
)
Total

$764

 

$836

Research and development expense for the three months ended March 31, 2018 decreased by $72 million compared with the same period in 2017 , primarily due to lower 777X spend.
Backlog The following table summarizes our backlog, restated for the adoption of ASU 2014-09, Revenue from Contracts with Customers ( Topic 606):
Total Backlog  (Dollars in millions)
March 31
2018

 
December 31
2017

Commercial Airplanes

$415,377

 

$411,188

Defense, Space & Security
50,404

 
44,049

Global Services
20,464

 
19,605

Total Backlog

$486,245

 

$474,842

 
 
 
 
Contractual backlog

$461,742

 

$457,186

Unobligated backlog
24,503

 
17,656

Total Backlog

$486,245

 

$474,842

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 increase during the three months ended March 31, 2018 was primarily due to orders and funding in excess of deliveries.
Unobligated backlog includes U.S. and non-U.S. government definitive contracts for which funding has not been authorized. The increase during the three months ended March 31, 2018 was primarily due to contract awards, partially offset by reclassifications to contractual backlog related to BDS and BGS contracts.

36
Table of Contents

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 2015, we began work on low rate initial production (LRIP) aircraft for the USAF. 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. 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. The EMD contract is currently in the certification and flight testing phases and we expect 18 fully operational aircraft to be delivered in 2018.
During 2017, we recorded further reach-forward losses of $446 million primarily reflecting higher estimated costs associated with certification and incorporating changes into LRIP aircraft. In the first quarter of 2018, we recorded additional reach-forward losses of $81 million primarily reflecting higher estimated costs associated with certification and continued flight testing. As with any development program, this program remains subject to additional reach-forward losses or delivery delays if we experience further production, technical or quality issues, and delays in certification and/or flight testing.
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 During the first quarter of 2018, the U.S. Government imposed tariffs on steel and aluminum imports. Several major U.S. trading partners are currently exempt from these tariffs; we are monitoring the potential for any extra costs that may result from them.
In addition, during the first quarter, the U.S. Government announced potential tariffs on certain imports from China. According to a proposal issued by the U.S. Trade Representative, certain aviation parts and components could be subject to these tariffs. In response, China issued a list of imports that could be subject to tariffs, including aviation products manufactured in the U.S. The U.S. Government has also recently announced that sanctions would be imposed against certain businesses and individuals in Russia, and Russia may impose retaliatory sanctions that include restrictions on titanium exports. While no such tariffs or sanctions have been imposed to date by China or Russia, we continue to monitor the ongoing discussions between the governments and explore mitigation opportunities in the event that tariffs and/or sanctions are imposed.

37
Table of Contents

Segment Results of Operations and Financial Condition
Commercial Airplanes
Results of Operations
(Dollars in millions)
Three months ended March 31

2018
 
2017
Revenues

$13,652

 

$12,953

Earnings from operations:

$1,508

 

$870

Operating margins
11.0
%
 
6.7
%
Revenues
Revenues for the three months ended March 31, 2018 increased by $699 million , or 5% , compared with the same period in 2017 primarily due to higher deliveries and mix.
Commercial airplane deliveries, including intercompany deliveries, were as follows:

737

*
747

†
767

 
777

 
787

 
Total

Deliveries during the first three months of 2018
132

(5)
2


4

 
12

 
34

 
184

Deliveries during the first three months of 2017
113

(5)
1

(1)
2

 
21

 
32

 
169

Cumulative deliveries as of 3/31/2018
6,864

 
1,544

 
1,110

 
1,546

 
670

 

Cumulative deliveries as of 12/31/2017
6,732

 
1,542

 
1,106

 
1,534

 
636

 

*     Intercompany deliveries identified by parentheses
†
Aircraft accounted for as revenues by BCA and as a note receivable in consolidation identified by parentheses
Earnings From Operations
Earnings from operations for the three months ended March 31, 2018 increased by $638 million compared with the same period in 2017 . The increase reflects improved cost performance on airplane programs, higher deliveries and mix, lower spending on research and development and lower KC-46A Tanker charges.
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. A number of our customers may have contractual remedies that may be implicated by program delays. We address customer claims and requests for other contractual relief as they arise. However, once orders are included in firm backlog, orders remain in backlog until canceled or fulfilled, although the value of orders is adjusted as changes to price and schedule are agreed to with customers.
BCA total backlog increased from $411,188 million as of December 31, 2017 to $415,377 million at March 31, 2018 primarily due to orders in excess of deliveries.

38

Accounting Quantity
The following table provides details of the accounting quantities and firm orders by program. Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders.
 
Program
As of 3/31/2018
737

 
747*

 
767

 
777

 
777X

 
787

Program accounting quantities
10,000

 
1,570

 
1,195

 
1,625

 
**

 
1,400

Undelivered units under firm orders
4,656

 
24


101

 
90

 
326

 
638

Cumulative firm orders
11,520

 
1,568

 
1,211

 
1,636

 
326

 
1,308

 
Program
As of 12/31/2017
737

 
747

 
767

 
777

 
777X

 
787

Program accounting quantities
9,800

 
1,570

 
1,171

 
1,625

 
**

 
1,400

Undelivered units under firm orders***
4,617

 
12

 
98

 
97

 
326

 
648

Cumulative firm orders ***
11,349

 
1,554

 
1,204

 
1,631

 
326

 
1,284

*
At March 31, 2018 , the 747 accounting quantity has 25 undelivered aircraft, including one already completed aircraft that has not been sold and is being remarketed.
**
The accounting quantity for the 777X will be determined in the year of first airplane delivery, targeted for 2020.
***
Cumulative firm orders adjusted to reflect the adoption of Topic 606 in the first quarter of 2018.
Program Highlights
737 Program The accounting quantity for the 737 program increased by 200 units during the three months ended March 31, 2018 due to the program’s normal progress of obtaining additional orders and delivering airplanes. We are currently producing at a rate of 47 per month and plan to increase to 52 per month in the second half of 2018. We plan to further increase the rate to 57 per month in 2019. We delivered the first 737 MAX 9 in March 2018.
747 Program During the fourth quarter of 2017, we received firm orders and commitments for 15 aircraft and we increased the program accounting quantity by 15 aircraft. The program accounting quantity now includes aircraft scheduled to be produced through 2021. We are currently producing at a rate of 0.5 aircraft per month. We continue to evaluate the viability of the 747 program and it is reasonably possible that we could decide to end production of the 747 .
767 Program The accounting quantity for the 767 program increased by 24 units during the three months ended March 31, 2018 due to the program’s normal progress of obtaining additional orders and delivering airplanes. The 767 assembly line includes a 767 derivative to support the tanker program. We are currently producing at a rate of 2.5 per month and plan to increase to 3 per month in 2020.
777 Program We are currently producing at a rate of 5 per month. In 2013, we launched the 777X, which features a new composite wing, new engines and folding wing-tips. The 777X will have a separate program accounting quantity, which will be determined in the year of first airplane delivery, targeted for 2020.
787 Program We are currently producing at a rate of 12 per month and plan to increase to 14 per month in 2019. We delivered our first 787-10 aircraft in March of 2018.
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,

39

can be costly and technologically challenging. In addition, the introduction of new aircraft and derivatives, such as the 787-10 and 777X, involves increased risks associated with meeting development, production and certification schedules. 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, flight test and certification schedules, costs, schedule and demand for new airplanes and derivatives and status of customer claims, supplier 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, passed in February 2018, raised the 2011 Budget Control Act spending caps for fiscal years 2018 and 2019 (FY18 and FY19). In addition, the FY18 Omnibus spending bill signed into law on March 23, 2018 provides funding for the remainder of the fiscal year. However, the 2011 Budget Control Act continues to mandate limits on U.S. government discretionary spending and remains in effect after FY19. As a result, continued budget uncertainty and the risk of future sequestration cuts will remain unless Congress acts to repeal or suspend this law.
There continues to be uncertainty with respect to program-level appropriations for the U.S. DoD and other government agencies, including the National Aeronautics and Space Administration (NASA). Although FY19 spending topline levels have been agreed to, the lower budget caps and sequestration will take effect again in fiscal year 2020 and beyond unless Congress acts to repeal or suspend the law. Future budget cuts or investment priority changes could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company’s operations, financial position and/or cash flows.
Results of Operations
(Dollars in millions)
Three months ended March 31

2018

 
2017

Revenues

$5,762

 

$5,112

Earnings from operations

$649

 

$549

Operating margins
11.3
%
 
10.7
%
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 period 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:
 
Three months ended March 31

2018
 
2017
F/A-18 Models
5
 
6
F-15 Models
2
 
3
CH-47 Chinook (New)
4
 
3
CH-47 Chinook (Renewed)
4
 
9
AH-64 Apache (New)

 
3
AH-64 Apache (Remanufactured)
6
 
13
P-8 Models
4
 
4
Total
25
 
41

40

Revenues
BDS revenues for the three months ended March 31, 2018 increased by $650 million , or 13% compared with the same period in 2017 , primarily due to international c ontract awards for fighters and C-17 aircraft as well as higher weapons revenue . Net favorable cumulative contract catch-up adjustments to revenue for the three months ended March 31, 2018 , were $ 83 million lower compared with the same period in 2017 .
Earnings From Operations
BDS earnings from operations for the three months ended March 31, 2018 increased by $100 million , or 18% compared with the same period in 2017 primarily due to improved performance on satellite services, and international contract awards for fighters and C-17 aircraft. Net favorable cumulative contract catch-up adjustments for the three months ended March 31, 2018 , were $ 83 million lower compared with the same period in 2017 .
BDS earnings from operations include equity earnings of $80 million for the three months ended March 31, 2018 compared to $76 million for the same period in 2017 primarily from our United Launch Alliance ( ULA ) joint venture.
Backlog
Total backlog increased from $44,049 million at December 31, 2017 to $50,404 million at March 31, 2018 primarily due to current year contract awards, including Ground-based Midcourse Defense, weapons and fighters, partially offset by revenue recognized on contracts awarded in prior years.
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. Many of these 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. Examples of significant fixed-price development programs include USAF KC-46A Tanker, Commercial Crew, Saudi F-15, and commercial and military satellites.
KC-46A Tanker See the discussion of the KC-46A Tanker program on page 40 .
United Launch Alliance See the discussion of Indemnifications to ULA and Financing Commitments in Notes 5 , 10 and 11 of our Condensed Consolidated Financial Statements.
Sea Launch See the discussion of the Sea Launch receivables in Note 9 to our Condensed Consolidated Financial Statements .
Commercial Crew See the discussion of Fixed-Price Development Contracts in Note 10 to our Condensed Consolidated Financial Statements .
Global Services
Results of Operations
(Dollars in millions)
Three months ended March 31

2018

 
2017

Revenues

$3,943

 

$3,653

Earnings from operations

$644

 

$623

Operating margins
16.3
%
 
17.1
%
Revenues
BGS revenues for the three months ended March 31, 2018 increased by $290 million compared with the same period in 2017 primarily due to higher commercial services revenue and supply chain services to government customers, partially offset by lower C-17 support services revenue . Net favorable cumulative contract catch-up adjustments to revenue were $14 million lower for the three months ended March 31, 2018 compared with the same period in 2017 .
Earnings From Operations
BGS earnings from operations for the three months ended March 31, 2018 increased by $21 million compared with the same period in 2017 primarily due to higher revenues. Net favorable cumulative contract catch-up adjustments for the three months ended March 31, 2018 were $28 million lower compared with the same period in 2017 .
Backlog
BGS total backlog increased from $19,605 million as of December 31, 2017 to $20,464 million at March 31, 2018 , primarily due to current year contract awards, partially offset by revenue recognized on contracts awarded in prior years.

41

Boeing Capital
Results of Operations
(Dollars in millions)
Three months ended March 31

2018

 
2017

Revenues

$65

 

$92

Earnings from operations

$20

 

$39

Operating margins
31
%
 
42
%
Revenues
Boeing Capital ( 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 for the three months ended March 31, 2018 decreased by $27 million compared with the same period in 2017 primarily due to lower lease income driven by a smaller portfolio.
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 for the three months ended March 31, 2018 decreased by $19 million compared with the same period in 2017 , primarily due to lower revenues.
Financial Position
The following table presents selected financial data for BCC :
(Dollars in millions)
March 31
2018

 
December 31
2017

Customer financing and investment portfolio, net

$2,922

 

$3,003

Other assets, primarily cash and short-term investments
653

 
677

Total assets

$3,575

 

$3,680

 
 
 
 
Other liabilities, primarily deferred income taxes

$533

 

$653

Debt, including intercompany loans
2,522

 
2,523

Equity
520

 
504

Total liabilities and equity

$3,575

 

$3,680

 
 
 
 
Debt-to-equity ratio
4.9-to-1

 
5.0-to-1

BCC ’s customer financing and investment portfolio at March 31, 2018 decreased from December 31, 2017 primarily due to $215 million of note payoffs, asset sales and portfolio run-off, partially offset by new volume.
At March 31, 2018, BCC had $135 million of assets that were held for sale or re-lease. In addition, aircraft subject to leases with a carrying value of approximately $30 million are scheduled to be returned off lease in the next 12 months. We are seeking to remarket these aircraft or have the leases extended.
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.

42

Liquidity and Capital Resources
Cash Flow Summary
(Dollars in millions)
Three months ended March 31
 
2018

 
2017

Net earnings

$2,477

 

$1,579

Non-cash items
621

 
604

Changes in working capital
38

 
(85
)
Net cash provided by operating activities
3,136

 
2,098

Net cash provided/(used) by investing activities
119

 
(260
)
Net cash used by financing activities
(2,845
)
 
(2,463
)
Effect of exchange rate changes on cash and cash equivalents
8

 
20

Net increase/(decrease) in cash & cash equivalents, including restricted
418

 
(605
)
Cash & cash equivalents, including restricted, at beginning of year
8,887

 
8,869

Cash & cash equivalents, including restricted, at end of period

$9,305

 

$8,264

Operating Activities Net cash provided by operating activities was $3.1 billion during the three months ended March 31, 2018 , compared with $2.1 billion during the same period in 2017 . The year-over-year improvement reflects lower spending on inventory and higher advances, which were partially offset by increases in unbilled receivables and a reduction in other accrued compensation liabilities. Advances and progress billings increased by $1.9 billion and $1.4 billion during the three months ended March 31, 2018 and 2017 . Inventories decreased by $0.1 billion during the three months ended March 31, 2018 , primarily due to lower expenditures on commercial airplane program inventory, primarily 787 compared with an increase of $1.5 billion during the same period in the prior year. Unbilled receivables increased by $1.6 billion during the three months ended March 31, 2018 , reflecting revenue recognized on contracts awarded in the first quarter of 2018 compared with an increase of $0.6 billion during the comparable period in the prior year.
Investing Activities Cash provided by investing activities was $0.1 billion during the three months ended March 31, 2018 , compared with cash used of $0.3 billion during the same period in 2017 , primarily due to the timing of investments and capital expenditures. In the three months ended March 31, 2018 and 2017 , capital expenditures totaled $0.4 billion and $0.5 billion . We expect capital expenditures in 2018 to be higher than 2017 .
Financing Activities Cash used by financing activities was $2.8 billion , compared with $2.5 billion during the same period in 2017 . During the three months ended March 31, 2018 , net borrowings increased to $1.3 billion from $0.8 billion in the same period in 2017 .
At March 31, 2018 , the recorded balance of debt was $12.5 billion , of which $2.0 billion was classified as short-term. Debt, including intercompany loans, attributable to BCC totaled $2.5 billion , of which $0.9 billion was classified as short-term.
During the three months ended March 31, 2018 we repurchased 8.9 million shares totaling $3.0 billion through our open market share repurchase program. In addition, 0.7 million shares were transferred to us from employees for tax withholdings. At March 31, 2018 , the amount available under the share repurchase plan, announced on December 11, 2017, totaled $15.0 billion .
Capital Resources We have substantial borrowing capacity. Any future borrowings may affect our credit ratings and are subject to various debt covenants as described below. We have a commercial paper program that serves as a source of short-term liquidity. At March 31, 2018 and December 31, 2017 commercial paper borrowings totaling $600 million were supported by unused commitments under the revolving credit agreement. Currently, we have $5.0 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.

43

Financing commitments totaled $10.0 billion and $10.2 billion at March 31, 2018 and December 31, 2017 . 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. 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 event we require additional funding to support strategic business opportunities, our commercial aircraft financing commitments, unfavorable resolution of litigation or other loss contingencies, or other business requirements, we expect to meet increased funding requirements by issuing commercial paper or term debt. We believe our ability to access external capital resources should be sufficient to satisfy existing short-term and long-term commitments and plans, and also to provide adequate financial flexibility 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 of future borrowings, if any, under our commercial paper program, in the debt markets or our credit facilities.
At March 31, 2018 , 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.
Off-Balance Sheet Arrangements
We are a party to certain off-balance sheet arrangements including certain guarantees. For discussion of these arrangements, see Note 11 to our Condensed 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 18 to our Condensed Consolidated Financial Statements.
Environmental Remediation We are involved with various environmental remediation activities and have recorded a liability of $539 million at March 31, 2018 . For additional information, see Note 10 to our Condensed Consolidated Financial Statements.

44

Non-GAAP Measures
Core Operating Earnings, Core Operating Margin and Core Earnings Per Share
Our unaudited condensed consolidated interim financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (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, and 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 adjustments recognized in earnings was a benefit of $283 million for the three months ended March 31, 2018 , largely consistent with the benefit of $262 million during the same period in the prior year. The non-operating pension expenses included in Other income, net was a benefit of $42 million and $34 million for the three months ended March 31, 2018 and 2017 . The higher benefit is primarily due to lower interest costs and improved expected returns, as a result of the higher value of plan assets at December 31, 2017 compared to 2016. These are partially offset by higher amortization of actuarial losses driven by lower discount rates.
For further discussion of pension and other postretirement costs see the Management’s Discussion and Analysis on page 38 of this Form 10-Q and on page 43 of our 2017 Annual Report on Form 10-K. 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.

45

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)
Three months ended March 31

2018

 
2017

Revenues

$23,382

 

$21,961

Earnings from operations, as reported

$2,875

 

$2,206

Operating margins
12.3
%
 
10.0
%
 
 
 
 
Pension FAS/CAS service cost adjustment  (1)

($283
)
 

($262
)
Postretirement FAS/CAS service cost adjustment  (1)

($82
)
 

($84
)
FAS/CAS service cost adjustment  (1)

($365
)
 

($346
)
Core operating earnings (non-GAAP)

$2,510

 

$1,860

Core operating margins (non-GAAP)
10.7
%
 
8.5
%
 
 
 
 
Diluted earnings per share, as reported

$4.15

 

$2.54

Pension FAS/CAS service cost adjustment  (1)
(0.47
)
 
(0.42
)
Postretirement FAS/CAS service cost adjustment  (1)
(0.14
)
 
(0.14
)
Non-operating pension expense  (2)
(0.07
)
 
(0.06
)
Non-operating postretirement expense (2)
0.04

 
0.05

Provision for deferred income taxes on adjustments (3)
0.13

 
0.20

Core earnings per share (non-GAAP)

$3.64

 

$2.17

 
 
 
 
Weighted average diluted shares (in millions)
597.2

 
621.2

(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 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our market risk since December 31, 2017 .

46

Item 4. 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 March 31, 2018 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) Changes in Internal Control Over Financial Reporting.
There were no changes that occurred during the first quarter of 2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

47

Part II. Other Information
Item 1. Legal Proceedings
Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 18 to our Condensed Consolidated Financial Statements, which is hereby incorporated by reference.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information about purchases we made during the quarter ended March 31, 2018 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)

1/1/2018 thru 1/31/2018
3,213,288

 

$323.21

 
3,084,293

 

$17,000

2/1/2018 thru 2/28/2018
3,388,557

 
350.57

 
2,895,175

 
15,988

3/1/2018 thru 3/31/2018
2,931,076

 
341.19

 
2,895,626

 
15,000

Total
9,532,921

 

$338.46

 
8,875,094

 
 
(1)  
We purchased an aggregate of 8,875,094 shares of our common stock in the open market pursuant to our repurchase program and 657,827 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 11, 2017, we announced a new repurchase plan for up to $18 billion of common stock, replacing the plan previously authorized in 2016.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.

48
Table of Contents

Item 6. Exhibits
 
 
10.1
 
 
10.2
 
 
10.3
 
 
10.4
 
 
12
 
 
15
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
101.INS
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


49
Table of Contents

Signature
Pursuant to the requirements 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.
 
 
THE BOEING COMPANY
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
April 25, 2018
 
/s/ Robert E. Verbeck
(Date)
 
Robert E. Verbeck – Senior Vice President, Finance and Corporate Controller

50


Exhibit 10.1
Notice of Terms of
Restricted Stock Units


To:
BEMSID:
Grant Date:

As part of its executive compensation program, The Boeing Company (the “Company”) has awarded you a Restricted Stock Unit award pursuant to The Boeing Company 2003 Incentive Stock Plan, as amended and restated from time to time (the “Plan”), and the provisions contained herein (the “Notice”). The terms and conditions of the award are as follows:

1.
RSU Award. You have been awarded «RSU_Units» Restricted Stock Units. Each Restricted Stock Unit (“RSU”) corresponds to one share of Boeing stock. Your RSUs are subject to the terms of the Plan. If there is any inconsistency between the terms of this Notice and the terms of the Plan, the Plan’s terms will control. A summary of the Plan accompanies this Notice.

2.
RSU Account. The Company will maintain a record of the number of awarded RSUs in an account established in your name.

3.
Vesting of RSUs. Subject to Sections 6 and 7, your RSUs will vest on _______________ (the “Vesting Date”). At the time your RSUs vest, the Company will issue to you shares of Boeing stock equal in number to the vested number of whole RSUs in your account, after deduction of shares to cover appropriate taxes and other charges as described in Section 10.2.

4.
Dividend Equivalents.

4.1 While RSUs are in your account, they will earn dividend equivalents in the form of additional RSUs. Specifically, as of each dividend payment date for Boeing stock, your RSU account will be credited with additional RSUs (“dividend equivalent RSUs”) equal in number to the number of shares of Boeing stock that could be bought with the cash dividends that would be paid on the RSUs in your account if each RSU were one share of Boeing stock.

4.2 The number of shares of Boeing stock that could be bought with the cash dividends will be calculated to two decimal places and will be based on the “Fair Market Value” of Boeing stock on the applicable dividend payment date. For purposes of this award, “Fair Market Value” means the average of the high and the low per share trading prices for Boeing stock as reported by The Wall Street Journal for the specific dividend payment date, or by such other source as the Company deems reliable.

4.3 Dividend equivalent RSUs will vest at the same time and in the same manner as the RSUs with which they are associated.

5.
Adjustment in Number of RSUs. The number of RSUs in your account will be adjusted proportionately for any increase or decrease in the number of issued shares of Boeing stock resulting from any stock split, combination or exchange of shares, consolidation, spin-off or recapitalization of shares, or any similar capital adjustment or the payment of any stock dividend.

6.
Termination Due to Retirement, Layoff, Disability, or Death. In the event your employment is terminated by reason of retirement, layoff, disability, or death, your RSU payout, including any dividend equivalent RSUs, will be prorated based on the number of full and partial calendar months you spent on the active payroll during the vesting period (beginning with the first full calendar month after the Grant Date). Payment for this award will be made as soon as administratively possible, but not later than 60 days after your termination of employment. For purposes of this award, “retirement” means a voluntary termination of employment under the conditions that satisfy the definition of “retirement” under the terms of a defined benefit pension plan maintained by the Company or one of its subsidiaries in which you participate. If you are not eligible to participate in such a defined benefit pension plan, “retirement” means termination of employment voluntarily by you after you have attained either (i) age 55 with 10 years of service,




or (ii) age 62 with one year of service. For purposes of this award, “disability” means a disability entitling you to benefits under any long-term disability policy sponsored by the Company or one of its subsidiaries.

7.
Forfeiture Upon Other Terminations. In the event your employment is terminated prior to the Vesting Date for any reason (including for cause and resignation) other than those reasons described in Section 6, all RSUs (and all associated dividend equivalent RSUs) granted hereunder shall immediately be forfeited by you and canceled.
8.
Specified Employees. If you are a Specified Employee (as defined in the Deferred Compensation Plan for Employees of The Boeing Company) on the Vesting Date, and were eligible for retirement on the Grant Date or became so eligible between the Grant Date and the Vesting Date, distributions upon vesting due to retirement, layoff or disability will be delayed until six months after the date of vesting based on Internal Revenue Code Section 409A.

9.
Leave of Absence. Unless otherwise required by law, in the event you have an authorized leave of absence at any time during the vesting period which absence extends beyond three full calendar months (including any absence that began before the Grant Date), your RSU payout, including any dividend equivalent RSUs, will be prorated based on the number of full and partial calendar months you spent on the active payroll during the vesting period (beginning with the first full calendar month after the Grant Date).

10.
RSU Award Payable in Stock.

10.1 Distribution from your RSU account will be made as soon as reasonably possible, but not later than 60 days, after the Vesting Date. The number of shares distributed will be equal to the number of whole vested RSUs in your account, subject to deductions described in Section 10.2. Fractional share values will be applied to Federal income tax withholding.
10.2 The Company will deduct from the distribution of your vested RSUs any withholding or other taxes required by law and may deduct any amounts due from you to the Company or to any subsidiary of the Company.
10.3 In the event you transfer from the US based payroll to an international payroll, your distribution will be paid in cash to comply with certain international security trading regulations.

11.
Transfer. RSUs are not transferable except by will or by laws of descent and distribution. You may designate a beneficiary to receive your award in the event of your death.

12.
Clawback and Forfeiture Policy.

12.1 This award and any stock, cash or other proceeds resulting from the vesting of this award are subject to the Clawback Policy adopted by the Company’s Board of Directors, as amended from time to time.
12.2 In addition, RSUs issued pursuant to this award and any stock, cash or other proceeds resulting from the vesting of this award are subject to clawback and forfeiture in the event you engage in any of the following conduct, as determined by the Company or its delegate in its sole discretion, prior to the second anniversary of the later of the Vesting Date or receipt of payment of the RSUs: you (i) are convicted of a felony involving theft, fraud, embezzlement, or other similar unlawful acts against the Company or against the Company’s interests; (ii) directly or indirectly engage in competition with any significant aspect of Company business; (iii) induce or attempt to induce, directly or indirectly, any of the Company’s employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, you or any third party; (iv) disparage the Company or its products or employees; or (v) use or disclose Company proprietary or confidential information. For purposes of this Section 12.2, the Company shall include the Company and its subsidiaries.
12.3 Nothing in this Section 12 will apply to legally protected communications to government agencies or statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings.





Exhibit 10.2

Notice of Terms of
Performance-Based Restricted Stock Units


To:
BEMSID:
Grant Date:

As part of its executive compensation program, The Boeing Company (the “Company”) has awarded you a Performance-Based Restricted Stock Unit award pursuant to The Boeing Company 2003 Incentive Stock Plan, as amended and restated from time to time (the “Plan”), and the provisions contained herein (the “Notice”). The terms and conditions of the award are as follows:

1.
PBRSU Award. You have been awarded «PBRSU_Units» Performance-Based Restricted Stock Units. Each Performance-Based Restricted Stock Unit (“PBRSU”) corresponds to one share of Boeing stock. Your PBRSUs are subject to the terms of the Plan, including the maximum award provisions. If there is any inconsistency between the terms of this Notice and the terms of the Plan, the Plan’s terms will control. A summary of the Plan accompanies this Notice.

2.
PBRSU Account. The Company will maintain a record of the number of awarded PBRSUs in an account established in your name.

3.
Vesting Provisions:
3.1 General. Subject to your continued employment with the Company or its subsidiaries through the date the Compensation Committee of the Board of Directors of the Company (the “Committee”) certifies the relative performance of the PBRSUs as described below in or about _____________ (the “Vesting Date”) (except as otherwise provided herein), the Award shall become vested based upon the Company’s “Relative Total Shareholder Return” in terms of percentile ranking as compared to the Peer Companies (as defined in Exhibit A) over the period beginning immediately after the Grant Date and ending immediately prior to the Vesting Date (the “Measurement Period”) in accordance with the following:

Relative Total Shareholder Return Ranking over Measurement Period
Payout % Level
91st Percentile or Higher
200%
81st - 90th Percentile
175%
71st - 80th Percentile
150%
61st - 70th Percentile
125%
51st - 60th Percentile
100%
41st - 50th Percentile
75%
31st - 40th Percentile
50%
21st - 30th Percentile
25%
0 - 20th Percentile
—%


In the event of a payout percentage level above 100%, you will be awarded additional PBRSUs so that the total number of PBRSUs which vest as of the Vesting Date (excluding dividend equivalent PBRSUs) equals the original PBRSU award amount multiplied by the payout percentage level. In the event of a payout percentage level below 100%, your PBRSUs awarded under Section 1 will be forfeited to the extent necessary to provide that the total number of PBRSUs which vest as of the Vesting Date (excluding dividend equivalent PBRSUs) equals the original PBRSU award amount multiplied by the payout percentage level.







4.
Dividend Equivalents.

4.1 While PBRSUs are in your account, they will earn dividend equivalents in the form of additional PBRSUs. Specifically, as of each dividend payment date for Boeing stock, your PBRSU account will be credited with additional PBRSUs (“dividend equivalent PBRSUs”) equal in number to the number of shares of Boeing stock that could be bought with the cash dividends that would be paid on the PBRSUs in your account if each PBRSU were one share of Boeing stock.

4.2 The number of shares of Boeing stock that could be bought with the cash dividends will be calculated to two decimal places and will be based on the “Fair Market Value” of Boeing stock on the applicable dividend payment date. For purposes of this award, “Fair Market Value” means the average of the high and the low per share trading prices for Boeing stock as reported by The Wall Street Journal for the specific dividend payment date, or by such other source as the Company deems reliable.

4.3 Dividend equivalent PBRSUs will vest at the same time and in the same manner as the PBRSUs with which they are associated. Dividend equivalent PBRSUs will be adjusted in accordance with the payout level percentage determined under Section 3.1 in the same manner as the PBRSUs with which they are associated. Accumulated dividend equivalent PBRSUs will be multiplied by the same payout percentage level and dividend equivalent PBRSUs will be added or forfeited, as necessary, so that the total dividend equivalent PRBSUs which vest as of the Vesting Date will equal the dividend equivalent PBRSUs which accumulate during the Measurement Period multiplied by the payout percentage level.

5.
Adjustment in Number of PBRSUs. The number of PBRSUs in your account will be adjusted proportionately for any increase or decrease in the number of issued shares of Boeing stock resulting from any stock split, combination or exchange of shares, consolidation, spin - off or recapitalization of shares, or any similar capital adjustment or the payment of any stock dividend.

6.
Termination Due to Retirement, Layoff, Disability, or Death. In the event your employment is terminated by reason of retirement, layoff, disability, or death, your PBRSU payout, including any dividend equivalent PBRSUs, will be prorated based on the number of full and partial calendar months you spent on the active payroll during the Measurement Period (beginning with the first full calendar month after the Grant Date). Payout for the award will be made at the same time as payment would have been made had you not had a termination of employment and will in all respects be subject to the Company’s actual Relative Total Shareholder Return achievement for the full Measurement Period. For purposes of this award, “retirement” means a voluntary termination of employment under the conditions that satisfy the definition of “retirement” under the terms of a defined benefit pension plan maintained by the Company or one of its subsidiaries in which you participate. If you are not eligible to participate in such a defined benefit pension plan, “retirement” means termination of employment voluntarily by you after you have attained either (i) age 55 with 10 years of service, or (ii) age 62 with one year of service. For purposes of this award, “disability” means a disability entitling you to benefits under any long - term disability policy sponsored by the Company or one of its subsidiaries.

7.
Forfeiture Upon Other Terminations. In the event your employment is terminated prior to the Vesting Date for any reason (including for cause and resignation) other than those reasons described in Section 6, all PBRSUs (and all associated dividend equivalent PBRSUs) granted hereunder shall immediately be forfeited by you and canceled.
8.
Leave of Absence. Unless otherwise required by law, in the event you have an authorized leave of absence at any time during the Measurement Period which absence extends beyond three full calendar months (including any absence that began before the Grant Date), your PBRSU payout, including any dividend equivalent PBRSUs, will be prorated based on the number of full and partial calendar months you spent on the active payroll during the Measurement Period (beginning with the first full calendar month after the Grant Date). Payout for the award will be made at the same time as payment would have been made without regard to any leave of absence, and will in all respects be subject to the Company’s actual Relative Total Shareholder Return achievement for the full Measurement Period.

9.
PBRSU Award Payable in Stock.

9.1 Distribution from your PBRSU account will be made as soon as reasonably possible, but not later than 60 days, after the Vesting Date. Distribution will be in whole shares of Boeing stock, provided that in the event you are on an international payroll as of the distribution date, your distribution will instead be paid in cash. The number of shares




distributed will be equal to the number of whole vested PBRSUs in your account, subject to deductions described in Section 9.2. Fractional share values will be applied to Federal income tax withholding.

9.2 The Company will deduct from the distribution of your vested PBRSUs any withholding or other taxes required by law and may deduct any amounts due from you to the Company or to any subsidiary of the Company.

10.
Transfer. PBRSUs are not transferable except by will or by laws of descent and distribution. You may designate a beneficiary to receive your award in the event of your death.

11.
Clawback and Forfeiture Policy.
11.1 This award and any stock, cash or other proceeds resulting from the vesting of this award are subject to the Clawback Policy adopted by the Company’s Board of Directors, as amended from time to time

11.2 In addition, PBRSUs issued pursuant to this award and any stock, cash or other proceeds resulting from the vesting of this award are subject to clawback and forfeiture in the event you engage in any of the following conduct, as determined by the Company or its delegate in its sole discretion, prior to the second anniversary of the later of the Vesting Date or receipt of payment of the PBRSUs: you (i) are convicted of a felony involving theft, fraud, embezzlement, or other similar unlawful acts against the Company or against the Company’s interests; (ii) directly or indirectly engage in competition with any significant aspect of Company business;  (iii) induce or attempt to induce, directly or indirectly, any of the Company’s employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, you or any third party; (iv) disparage the Company or its products or employees; or (v) use or disclose Company proprietary or confidential information. For purposes of this Section 11.2, the Company shall include the Company and its subsidiaries.

11.3 Nothing in this Section 11 will apply to legally protected communications to government agencies or statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings.






































The Boeing Company
Performance-Based Restricted Stock Unit
Exhibit A - Calculation of Relative Total Shareholder Return
•
“ Relative Total Shareholder Return ” means Boeing’s TSR relative to the TSR of the Peer Companies. Relative Total Shareholder Return will be determined by ranking Boeing and the Peer Companies from highest to lowest according to their respective TSRs. After this ranking, the percentile performance of Boeing relative to the Peer Companies will be determined as follows:

P = 1
—
R - 1
N - 1

where:
“P” represents the percentile performance which will be rounded, if necessary, to the nearest whole percentile by application of regular rounding.
“N” represents the number of Peer Companies as of the Vesting Date, plus Boeing.
“R” represents Boeing’s ranking among the Peer Companies.
Example: If there are 22 Peer Companies, and Boeing ranked 8 th , the performance would be at the 68 th percentile: .68 = 1 - ((8-1)/(23-1)).
The final determination of Relative Total Shareholder Return shall be made by the Compensation Committee of the Board of Directors of Boeing based on the terms set forth in this Exhibit A subject to the Compensation Committee’s sole and absolute discretion.
•
“ TSR ” means, for Boeing and each of the Peer Companies, the company’s total shareholder return, expressed as a percentage, which will be calculated by dividing (i) the Closing Average Share Value by (ii) the Opening Average Share Value and subtracting one from the quotient.

Example : An illustrative example of a TSR calculation is attached at the end of this Exhibit.

•
“ Opening Average Share Value ” means the average Share Value over the trading days in the Opening Average Period.

•
“ Opening Average Period ” means the 20 trading days immediately following the Grant Date.

•
“ Accumulated Shares ” means, for a given trading day, the sum of (i) one (1) share and (ii) the cumulative number of shares of the company’s common stock purchasable with dividends declared on the company’s common stock to that point during the Measurement Period, assuming same day reinvestment of such dividends at the closing price on the ex-dividend date.

•
“ Closing Average Share Value ” means the average Share Value over the trading days in the Closing Average Period.

•
“ Closing Average Period ” means the 20 trading days immediately preceding the Vesting Date.

•
“ Share Value ” means, with respect to a given trading day, the closing price of the company’s common stock multiplied by the Accumulated Shares for such trading day.

•
“ Peer Companies ” means the following companies:





3M
General Dynamics
Northrop Grumman
AT&T
General Electric
Procter & Gamble
Caterpillar
Honeywell
Raytheon
Chevron
IBM
United Parcel Services
Cisco Systems
Intel
United Technologies
EADS (Airbus)

Johnson & Johnson
Verizon Communications
Exxon Mobil
Lockheed Martin
 
Ford
Microsoft
 

The Peer Companies may be changed as follows, subject to the discretion of the Compensation Committee:

(i)    In the event of a merger, acquisition or business combination transaction of a Peer Company with or by another Peer Company, the surviving entity shall remain a Peer Company.
(ii)     In the event of a merger of a Peer Company with an entity that is not a Peer Company, or the acquisition or business combination transaction by or with a Peer Company, or with an entity that is not a Peer Company, in each case where the Peer Company is the surviving entity and remains publicly traded, the surviving entity shall remain a Peer Company.
(iii)     In the event of a merger or acquisition or business combination transaction of a Peer Company by or with an entity that is not a Peer Company or a “going private” transaction involving a Peer Company where the Peer Company is not the surviving entity or is otherwise no longer publicly traded, the company shall no longer be a Peer Company.
(iv)     In the event of a bankruptcy, liquidation or delisting of a Peer Company, such company shall remain a Peer Company.
(v) In the event of a stock distribution from a Peer Company consisting of the shares of a new publicly traded company (a “spin-off”), the Peer Company shall remain a Peer Company and the stock distribution shall be treated as a dividend from the Peer Company based on the closing price of the shares of the spun-off company on its first day of trading.  The performance of the shares of the spun-off company shall not thereafter be tracked for purposes of calculating TSR.

•
Each Peer Company’s “common stock” shall mean that series of common stock that is publicly traded on a registered U.S. exchange or, in the case of a non-U.S. company, an equivalent non-U.S. exchange. For purposes of calculating TSR, the value on any given trading day of any Peer Company shares traded on a foreign exchange will be converted to U.S. dollars.

•
The following example illustrates the calculation of TSR for Boeing with Grant Date of January 1, 2015 and Vesting Date of January 1, 2018.


Opening Average Share Value (1/2/2015 - 1/30/2015)        $133.30
Closing Average Share Value (12/1/2017 - 12/29/2017)    $315.38
TSR (expressed as percentage)                 136.60%






Opening Average
 
Closing Average
Date
Close
Ex- Div.
Accum.
Shares
Share
Value
 
Date
Close
Ex- Div.
Accum.
Shares
Share
Value
1/30/2015
$145.37
$—
1
$145.37
 
12/29/2017
$294.91
$—
1.089871
$321.41
1/29/2015
$147.78
$—
1
$147.78
 
12/28/2017
$296.35
$—
1.089871
$322.98
1/28/2015
$139.64
$—
1
$139.64
 
12/27/2017
$295.62
$—
1.089871
$322.19
1/27/2015
$132.48
$—
1
$132.48
 
12/26/2017
$295.36
$—
1.089871
$321.90
1/26/2015
$134.07
$—
1
$134.07
 
12/22/2017
$295.10
$—
1.089871
$321.62
1/23/2015
$134.62
$—
1
$134.62
 
12/21/2017
$295.03
$—
1.089871
$321.54
1/22/2015
$135.64
$—
1
$135.64
 
12/20/2017
$297.90
$—
1.089871
$324.67
1/21/2015
$132.41
$—
1
$132.41
 
12/19/2017
$297.25
$—
1.089871
$323.96
1/20/2015
$131.22
$—
1
$131.22
 
12/18/2017
$296.14
$—
1.089871
$322.75
1/16/2015
$130.78
$—
1
$130.78
 
12/15/2017
$293.94
$—
1.089871
$320.36
1/15/2015
$130.14
$—
1
$130.14
 
12/14/2017
$293.88
$—
1.089871
$320.29
1/14/2015
$130.38
$—
1
$130.38
 
12/13/2017
$291.84
$—
1.089871
$318.07
1/13/2015
$131.17
$—
1
$131.17
 
12/12/2017
$289.94
$—
1.089871
$316.00
1/12/2015
$130.87
$—
1
$130.87
 
12/11/2017
$283.16
$—
1.089871
$308.61
1/9/2015
$131.54
$—
1
$131.54
 
12/8/2017
$285.90
$—
1.089871
$311.59
1/8/2015
$131.80
$—
1
$131.80
 
12/7/2017
$281.97
$—
1.089871
$307.31
1/7/2015
$129.51
$—
1
$129.51
 
12/6/2017
$278.27
$—
1.089871
$303.28
1/6/2015
$127.53
$—
1
$127.53
 
12/5/2017
$275.54
$—
1.089871
$300.30
1/5/2015
$129.05
$—
1
$129.05
 
12/4/2017
$277.97
$—
1.089871
$302.95
1/2/2015
$129.95
$—
1
$129.95
 
12/1/2017
$271.38
$—
1.089871
$295.77







Exhibit 10.3
Notice of Terms of Performance Award
To:     
BEMS ID:
This Performance Award consists of units that will be paid in either cash or Boeing stock, subject to the Compensation Committee’s (the “Committee”) discretion, if earned at the end of a three-year performance period. Your Performance Award is granted pursuant to The Boeing Company 2003 Incentive Stock Plan, as amended and restated from time to time (the “Plan”), and the award is subject to the terms and conditions of the Plan. If there is any inconsistency between the terms of this Notice and the terms of the Plan, the Plan's terms shall control. A summary of the Plan accompanies this Notice.
Overview of Your Performance Award Grant

Grant Date:
Number of Units Granted:
Performance Period:
1.
Target Value of Performance Awards. The Performance Award target value (or “initial value”) will be based on (i) your base salary as of December 31, _____ (or, if you were hired after that date but prior to the Grant Date, your new hire salary), (ii) your target Performance Awards multiple based on your E - series grade as of March 1 of the year of the award or, if you were hired or promoted into E-series after that date but prior to the Grant Date, your new E-series grade, and (iii) your _____ Integrated Performance Score (IPS) or if you don’t have such an IPS, 100%. The target value will be expressed as a number of units (rounded to the nearest unit), each of which has an initial value equal to $100.
2.
Performance Measure . For the ____________Performance Period, the performance measure will be based on the 2018 Long-Range Business Plan. The Committee retains discretion in calculating actual performance to exclude the impact of extraordinary and/or non-recurring items deemed not reflective of the Company’s core operating performance. Such non-recurring items may include, but are not limited to, exogenous events, acquisitions, divestitures, changes in accounting principles, or “extraordinary items” determined under generally accepted accounting principles (GAAP).
3.
Final Award Determination. Final amounts payable will be determined following the end of the Performance Period. The amount payable may be anywhere from $0 to $200 per unit, depending on the Company’s performance against plan for the period ending on December 31, ________. The final award will range from 0% to a maximum of 200% of the Performance Award target value, as outlined below. There will be straight-line interpolation to determine payouts between minimum and target, and target and maximum.

 
 
Achievement (% of Plan)
 
Level of Performance
Final Performance Award Unit Value
Free Cash Flow
(50% Weighting)
Core Earnings Per Share
(25% Weighting)
Revenue
(25% Weighting)
Payout Factor
(% of Target Award)
Maximum
$200
____%
____%
____%
200%
Target
$100
Plan
Plan
Plan
100%
Minimum
$—
____%
____%
____%
—%

4.
Continued Employment. Subject to the terms and conditions outlined under Section 5, this Performance Award is granted on the condition that you remain employed by the Company from the Grant Date through the entire Performance Period. You will not have any right to payment of any award unless and until all terms, conditions, and provisions of the Performance Award program that affect you have been complied with as specified herein, including




certification of the final award amount by the Committee. Your Performance Awards, however, shall not impose upon the Company any obligation to retain you in its employ for any given period or upon any specific terms of employment .
5.
Termination Due to Retirement, Layoff, Disability, or Death. In the event your employment is terminated by reason of retirement, layoff, disability, or death, you shall continue to be eligible to participate in the Performance Period, provided you were on the active payroll on the Grant Date. Your Performance Award payout will be prorated based on the number of full and partial calendar months you spent on the active payroll during the Performance Period. Payment for the award will be made at the same time as payment would have been made had you not had a termination of employment. For purposes of this award, “retirement” means a voluntary termination of employment under the conditions that satisfy the definition of “retirement” under the terms of a defined benefit pension plan maintained by the Company or one of its subsidiaries in which you participate. If you are not eligible to participate in such a defined benefit pension plan, “retirement” means termination of employment voluntarily by you after you have attained either (i) age 55 with 10 years of service, or (ii) age 62 with one year of service. For purposes of this award, “disability” means a disability entitling you to benefits under any long-term disability policy sponsored by the Company or one of its subsidiaries.
6.
Forfeiture Upon Other Terminations. In the event your employment is terminated prior to payment of the Performance Award for any reason (including for cause and resignation) other than those reasons described in Section 5, the Performance Award granted hereunder shall immediately be forfeited by you and canceled.
7.
Leave of Absence. Unless otherwise required by law, in the event you have an authorized leave of absence at any time during the Performance Period which absence extends beyond three full calendar months (including any absence that began before the Grant Date), your Performance Award payout will be prorated based on the number of full and partial calendar months you spent on the active payroll during the Performance Period.
8.
Form and Timing of Payment of Performance Awards. Any payment of the Performance Awards shall be made in either cash or shares of Boeing stock, at the Committee’s discretion. The Performance Award payment shall be made within a reasonable time following the end of the Performance Period. For certain eligible participants, amounts to be paid in connection with Performance Awards may be deferred in accordance with the Company’s deferred compensation plan then in place.
The Company will deduct from your Performance Award distribution any withholding or other taxes required by law and may deduct any amounts due from you to the Company or to any subsidiary of the Company. In the event of a stock distribution, shares will be in a number equal to the whole number of shares that could be purchased with the total Performance Award cash payout, based on the average of the high and low per share trading prices for the common stock of the Company as reported by The Wall Street Journal on the date of distribution, or by such other source as the Company deems reliable , after reduction to pay the applicable withholding amounts. Fractional share values will be applied to Federal income tax withholding.
9.
Transferability. This Performance Award is not transferable except by will or by laws of descent and distribution. You may designate a beneficiary to receive your award in the event of your death.
10.
Successors. All obligations of the Company under the Performance Award program shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, or consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.
11.
Clawback and Forfeiture Policy .
11.1 This award and any stock, cash or other proceeds resulting from the vesting of this award are subject to the Clawback Policy adopted by the Company’s Board of Directors, as amended from time to time.
11.2 In addition, this award and any stock, cash or other proceeds resulting from the vesting of this award are subject to clawback and forfeiture in the event you engage in any of the following conduct, as determined by the Company or its delegate in its sole discretion, prior to the second anniversary of the later of the vesting or receipt of payment of the PerformanceAward: you (i) are convicted of a felony involving theft, fraud, embezzlement, or other similar unlawful acts against the Company or against the Company’s interests; (ii) directly or indirectly engage in competition with any significant aspect of Company business;  (iii) induce or attempt to induce, directly or indirectly, any of the Company’s




employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, you or any third party; (iv) disparage the Company or its products or employees; or (v) use or disclose Company proprietary or confidential information. For purposes of this Section 11.2, the Company shall include the Company and its subsidiaries.
11.3 Nothing in this Section 11 will apply to legally protected communications to government agencies or statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings.






Exhibit 10.4



Notice of Terms of
Supplemental Restricted Stock Units


To:        
BEMSID:    
Grant Date:    

As part of its executive compensation program, The Boeing Company (the “Company”) has awarded you a Restricted Stock Unit award pursuant to The Boeing Company 2003 Incentive Stock Plan, as amended and restated from time to time (the “Plan”), and the provisions contained herein (the “Notice”). The terms and conditions of the award are as follows:

1.
RSU Award . You have been awarded ______________ Restricted Stock Units. Each Restricted Stock Unit (“RSU”) corresponds to one share of Boeing stock. Your RSUs are subject to the terms of the Plan. If there is any inconsistency between the terms of this Notice and the terms of the Plan, the Plan’s terms will control. A summary of the Plan accompanies this Notice.

2.
RSU Account . The Company will maintain a record of the number of awarded RSUs in an account established in your name.

3.
Vesting of RSUs . Subject to Sections 6 and 7, ______________. At the time your RSUs vest, the Company will issue to you shares of Boeing stock equal in number to the vested number of whole RSUs in your account, after deduction of shares to cover appropriate taxes and other charges as described in Section 8.2.

4.
Dividend Equivalents.

4.1 While RSUs are in your account, they will earn dividend equivalents in the form of additional RSUs. Specifically, as of each dividend payment date for Boeing stock, your RSU account will be credited with additional RSUs (“dividend equivalent RSUs”) equal in number to the number of shares of Boeing stock that could be bought with the cash dividends that would be paid on the RSUs in your account if each RSU were one share of Boeing stock.

4.2 The number of shares of Boeing stock that could be bought with such cash dividends will be calculated to two decimal places and will be based on the “Fair Market Value” of Boeing stock on the applicable dividend payment date. For purposes of this award, “Fair Market Value” means the average of the high and the low per share trading prices for Boeing stock as reported by The Wall Street Journal for the specific dividend payment date, or by such other source as the Company deems reliable.

4.3 Dividend equivalent RSUs will vest at the same time and in the same manner as the RSUs with which they are associated.

5.
Adjustment in Number of RSUs . The number of RSUs in your account will be adjusted proportionately for any increase or decrease in the number of issued shares of Boeing stock resulting from any stock split, combination or exchange of shares, consolidation, spin-off or recapitalization of shares, or any similar capital adjustment or the payment of any stock dividend.

6.
Termination Due to Layoff, Disability, or Death . In the event your employment is terminated by reason of layoff, disability, or death, before your RSUs are fully vested, your RSU payout, including any dividend equivalent RSUs, will be made as soon as administratively possible, but not later than 60 days after your termination of employment. For purposes of this award, “disability” means a disability entitling you to benefits under any long-term disability policy sponsored by the Company or one of its subsidiaries.





7.
Forfeiture Upon Other Terminations . In the event your employment is terminated prior to the Vesting Date for any reason (including for cause and resignation) other than those reasons described in Section 6, all RSUs (and all associated dividend equivalent RSUs) granted hereunder shall immediately be forfeited by you and canceled.

8.
RSU Award Payable in Stock.

8.1 Distribution from your RSU account will be made as soon as reasonably possible, but not later than 60 days, after the applicable vesting of your RSUs. Distribution will be in whole shares of Boeing stock. The number of shares distributed will be equal to the number of whole vested RSUs in your account, subject to deductions described in Section 8.2. Fractional share values will be applied to Federal income tax withholding.

8.2 The Company will deduct from the distribution of your vested RSUs any withholding or other taxes required by law and may deduct any amounts due from you to the Company or to a subsidiary of the Company.

8.3 In the event you transfer from the US based payroll to an international payroll, your distribution will be paid in cash to comply with certain international security trading regulations.

9.
Transfer. RSUs are not transferable except by will or by laws of descent and distribution. You may designate a beneficiary to receive your award in the event of your death.

10.
Clawback and Forfeiture Policy.

10.1 This award and any stock, cash or other proceeds resulting from the vesting of this award are subject to the Clawback Policy adopted by the Company’s Board of Directors, as amended from time to time.
10.2 In addition, RSUs issued pursuant to this award and any stock, cash or other proceeds resulting from the vesting of this award are subject to clawback and forfeiture in the event you engage in any of the following conduct, as determined by the Company or its delegate in its sole discretion, prior to the second anniversary of the later of the Vesting Date or receipt of payment of the RSUs: you (i) are convicted of a felony involving theft, fraud, embezzlement, or other similar unlawful acts against the Company or against the Company’s interests; (ii) directly or indirectly engage in competition with any significant aspect of Company business; (iii) induce or attempt to induce, directly or indirectly, any of the Company’s employees, representatives or consultants to terminate, discontinue or cease working with or for the Company, or to breach any contract with the Company, in order to work with or for, or enter into a contract with, you or any third party; (iv) disparage the Company or its products or employees; or (v) use or disclose Company proprietary or confidential information. For purposes of this Section 10.2, the Company shall include the Company and its subsidiaries.
10.3 Nothing in this Section 10 will apply to legally protected communications to government agencies or statements made in the course of sworn testimony in administrative, judicial or arbitral proceedings.





EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
The Boeing Company and Subsidiaries
(Dollars in millions)
 
Three months ended

Years ended December 31,
 
March 31, 2018

2017

2016

2015

2014

Earnings before income taxes  (1)

$2,839


$10,107


$5,783


$7,155


$7,137

Fixed charges excluding capitalized interest
131

486

422

391

455

Amortization of previously capitalized interest
25

96

106

90

72

Net adjustment for earnings from affiliates
(8
)
14

11

(34
)
7

Earnings available for fixed charges

$2,987


$10,703


$6,322


$7,602


$7,671

Fixed charges:
 
 
 
 
 
Interest and debt expense (2)

$118


$430


$365


$339


$402

Interest capitalized during the period
21

110

170

158

102

Rentals deemed representative of an interest factor
13

56

57

52

53

Total fixed charges

$152


$596


$592


$549


$557

Ratio of earnings to fixed charges
19.7

18.0

10.7

13.8

13.8

(1)  
We adopted ASU 2014-09 , Revenue from Contracts with Customers (Topic 606) on January 1, 2018, using the full retrospective method. 2017 and 2016 amounts have been adjusted to conform with the current year presentation. Amounts prior to 2016 have not been adjusted. See Note 1 – Basis of Presentation and and Note 2 - Impact of Adoption of New Standards of the Notes to the Condensed Consolidated Financial Statements for more information.
(2)  
Amount does not include tax-related interest expense which is reported as a component of Income tax expense in our Condensed Consolidated Financial Statements .




EXHIBIT 15
Letter from Independent Registered Public Accounting Firm Regarding
Unaudited Interim Financial Information
LETTER IN LIEU OF CONSENT FOR REVIEW REPORT
April 25, 2018
To the Board of Directors and Shareholders of
The Boeing Company
Chicago, Illinois
We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of The Boeing Company and subsidiaries for the periods ended three months ended March 31, 2018 and 2017 , as indicated in our report dated April 25, 2018 ; because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended three months ended March 31, 2018 , is incorporated by reference in Registration Statement Nos. 33-25332, 33-31434, 33-43854, 33-58798, 33-52773, 333-16363, 333-26867, 333-32461, 333-32491, 333-32499, 333-32567, 333-41920, 333-54234, 333-73252, 333-107677, 333-140837, 333-156403, 333-160752, 333-163637, and 333-195777 on Form S-8, and Registration Statement No. 333-219630 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP


Chicago, Illinois




EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis A. Muilenburg , certify that:
1.
I have reviewed this quarterly report on Form 10-Q of The Boeing Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 25, 2018
/s/ Dennis A. Muilenburg
 
Dennis A. Muilenburg
Chairman, President and Chief Executive Officer




EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gregory D. Smith , certify that:
1.
I have reviewed this quarterly report on Form 10-Q of The Boeing Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 25, 2018
/s/ Gregory D. Smith
 
Gregory D. Smith
Chief Financial Officer and Executive Vice President, Enterprise Performance and Strategy




EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Boeing Company (the “Company”) on Form 10-Q for the period ending three months ended March 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis A. Muilenburg , Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Dennis A. Muilenburg
 
Dennis A. Muilenburg
Chairman, President and Chief Executive Officer
April 25, 2018




EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Boeing Company (the “Company”) on Form 10-Q for the period ending three months ended March 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory D. Smith , Chief Financial Officer and Executive Vice President, Enterprise Performance and Strategy of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Gregory D. Smith
 
Gregory D. Smith
Chief Financial Officer and Executive Vice President, Enterprise Performance and Strategy
April 25, 2018