10-Q 1 a201806jun3010-q.htm 10-Q Document


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 June 30, 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 July 18, 2018, there were 574,508,314 shares of common stock, $5.00 par value, issued and outstanding.



THE BOEING COMPANY
FORM 10-Q
For the Quarter Ended June 30, 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.
 
 
 
 



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)
Six months ended June 30
 
Three months ended June 30
  
2018

 
2017

 
2018

 
2017

Sales of products

$42,385

 

$39,885

 

$21,565

 

$20,518

Sales of services
5,255

 
5,127

 
2,693

 
2,533

Total revenues
47,640

 
45,012

 
24,258

 
23,051

 
 
 


 


 


Cost of products
(34,252
)
 
(32,886
)
 
(17,436
)
 
(16,824
)
Cost of services
(4,075
)
 
(3,863
)
 
(2,083
)
 
(1,865
)
Boeing Capital interest expense
(33
)
 
(26
)
 
(17
)
 
(13
)
Total costs and expenses
(38,360
)
 
(36,775
)
 
(19,536
)
 
(18,702
)
 
9,280

 
8,237

 
4,722

 
4,349

Income from operating investments, net
80

 
120

 
6

 
39

General and administrative expense
(2,191
)
 
(1,972
)
 
(1,194
)
 
(1,043
)
Research and development expense, net
(1,591
)
 
(1,649
)
 
(827
)
 
(813
)
Gain/(loss) on dispositions, net
7

 


 
3

 
(2
)
Earnings from operations
5,585

 
4,736

 
2,710

 
2,530

Other income/(loss), net
51

 
51

 
(15
)
 
25

Interest and debt expense
(211
)
 
(180
)
 
(109
)
 
(93
)
Earnings before income taxes
5,425

 
4,607

 
2,586

 
2,462

Income tax expense
(752
)
 
(1,279
)
 
(390
)
 
(713
)
Net earnings

$4,673

 

$3,328

 

$2,196

 
1,749

 
 
 
 
 
 
 
 
Basic earnings per share

$7.97

 

$5.47

 

$3.77

 

$2.91

 
 
 
 
 
 
 
 
Diluted earnings per share

$7.88

 

$5.41

 

$3.73

 

$2.87

 
 
 
 
 
 
 
 
Cash dividends paid per share

$3.42

 

$2.84

 

$1.71

 

$1.42

 
 
 
 
 
 
 
 
Weighted average diluted shares (millions)
592.9

 
615.3

 
588.7

 
609.6

See Notes to the Condensed Consolidated Financial Statements.

1


The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30
 
2018

 
2017

 
2018

 
2017

Net earnings

$4,673

 

$3,328

 

$2,196

 

$1,749

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Currency translation adjustments
(57
)
 
77

 
(84
)
 
43

Unrealized gain/(loss) on certain investments, net of tax of ($1), $0, ($1) and $1
3

 


 
1

 
(1
)
Unrealized gain on derivative instruments:
 
 
 
 
 
 
 
Unrealized (loss)/gain arising during period, net of tax of $26, ($39), $26 and ($11)
(93
)
 
71

 
(91
)
 
19

Reclassification adjustment for losses included in net earnings, net of tax of ($2), ($19), ($1) and ($10)
10

 
34

 
6

 
18

Total unrealized gain on derivative instruments, net of tax
(83
)
 
105

 
(85
)
 
37

Defined benefit pension plans and other postretirement benefits:
 
 
 
 
 
 
 
Amortization of prior service credits included in net periodic pension cost, net of tax of $20, $31, $10 and $15
(71
)
 
(57
)
 
(35
)
 
(29
)
Net actuarial gain arising during the period, net of tax of $0, ($1), $0 and $0
1

 
3

 
1

 

Amortization of actuarial losses included in net periodic pension cost, net of tax of ($122), ($145), ($62) and ($73)
438

 
263

 
219

 
131

Settlements and curtailments included in net income, net of tax of ($3), $0, ($3) and $0
6

 

 
6

 

Pension and postretirement cost related to our equity method investments, net of tax of $1, $1, $0 and $0
(3
)
 
(2
)
 

 

Total defined benefit pension plans and other postretirement benefits, net of tax
371

 
207

 
191

 
102

Other comprehensive income, net of tax
234

 
389

 
23

 
181

Comprehensive income related to noncontrolling interests
(10
)
 
(1
)
 
(9
)
 
(1
)
Comprehensive income, net of tax

$4,897

 

$3,716

 

$2,210

 

$1,929

See Notes to the Condensed Consolidated Financial Statements.

2


The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
(Dollars in millions, except per share data)
June 30
2018

 
December 31
2017

Assets
 
 
 
Cash and cash equivalents

$8,121

 

$8,813

Short-term and other investments
1,649

 
1,179

Accounts receivable, net
2,823

 
2,894

Unbilled receivables, net
9,868

 
8,194

Current portion of customer financing, net
294

 
309

Inventories
61,250

 
61,388

Other current assets
2,396

 
2,417

Total current assets
86,401

 
85,194

Customer financing, net
2,817

 
2,756

Property, plant and equipment, net of accumulated depreciation of $18,137 and $17,641
12,605

 
12,672

Goodwill
5,550

 
5,559

Acquired intangible assets, net
2,494

 
2,573

Deferred income taxes
325

 
321

Investments
1,203

 
1,260

Other assets, net of accumulated amortization of $523 and $482
1,800

 
2,027

Total assets

$113,195

 

$112,362

Liabilities and equity
 
 
 
Accounts payable

$12,904

 

$12,202

Accrued liabilities
12,240

 
13,069

Advances and progress billings
50,970

 
48,042

Short-term debt and current portion of long-term debt
1,611

 
1,335

Total current liabilities
77,725

 
74,648

Deferred income taxes
1,900

 
2,188

Accrued retiree health care
5,444

 
5,545

Accrued pension plan liability, net
16,118

 
16,471

Other long-term liabilities
2,875

 
2,015

Long-term debt
10,507

 
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
6,676

 
6,804

Treasury stock, at cost - 436,377,479 and 421,222,326 shares
(49,342
)
 
(43,454
)
Retained earnings
52,303

 
49,618

Accumulated other comprehensive loss
(16,139
)
 
(16,373
)
Total shareholders’ equity
(1,441
)
 
1,656

Noncontrolling interests
67

 
57

Total equity
(1,374
)
 
1,713

Total liabilities and equity

$113,195

 

$112,362

See Notes to the Condensed Consolidated Financial Statements.

3


The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions)
Six months ended June 30
  
2018


2017

Cash flows – operating activities:
 

 
Net earnings

$4,673



$3,328

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

 
Non-cash items – 
 

 
Share-based plans expense
98


98

Depreciation and amortization
1,008


956

Investment/asset impairment charges, net
44


46

Customer financing valuation (benefit)/expense
(2
)

5

Gain on dispositions, net
(7
)
 


Other charges and credits, net
112


135

Changes in assets and liabilities – 
 

 
Accounts receivable
62


(163
)
Unbilled receivables
(1,675
)
 
(950
)
Advances and progress billings
2,931

 
3,916

Inventories
408


(1,036
)
Other current assets
2

 
(148
)
Accounts payable
682


419

Accrued liabilities
(922
)

(570
)
Income taxes receivable, payable and deferred
269


774

Other long-term liabilities
(65
)

(18
)
Pension and other postretirement plans
(57
)

13

Customer financing, net
(97
)

342

Other
352


(100
)
Net cash provided by operating activities
7,816


7,047

Cash flows – investing activities:
 
 
 
Property, plant and equipment additions
(770
)
 
(905
)
Property, plant and equipment reductions
41

 
25

Contributions to investments
(1,537
)
 
(1,820
)
Proceeds from investments
1,028

 
1,441

Purchase of distribution rights
(56
)
 
(131
)
Other
(1
)
 
7

Net cash used by investing activities
(1,295
)
 
(1,383
)
Cash flows – financing activities:
 
 
 
New borrowings
3,648

 
874

Debt repayments
(2,708
)
 
(56
)
Contributions from noncontrolling interests
20

 


Stock options exercised
61

 
240

Employee taxes on certain share-based payment arrangements
(236
)
 
(112
)
Common shares repurchased
(5,965
)
 
(5,000
)
Dividends paid
(1,997
)
 
(1,720
)
Net cash used by financing activities
(7,177
)
 
(5,774
)
Effect of exchange rate changes on cash and cash equivalents, including restricted
(36
)
 
52

Net decrease in cash & cash equivalents, including restricted
(692
)
 
(58
)
Cash & cash equivalents, including restricted, at beginning of year
8,887

 
8,869

Cash & cash equivalents, including restricted, at end of period
8,195

 
8,811

Less restricted cash & cash equivalents, included in Investments
74

 
74

Cash and cash equivalents at end of period

$8,121

 

$8,737

See Notes to the Condensed Consolidated Financial Statements.

4


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
 
 
 
3,328

 
(1
)
3,327

Other comprehensive loss, net of tax of $(172)
 
 
 
 
389

 
389

Share-based compensation and related dividend equivalents
 
116

 
(17
)
 
 
99

Treasury shares issued for stock options exercised, net
 
(63
)
304

 
 
 
241

Treasury shares issued for other share-based plans, net
 
(171
)
63

 
 
 
(108
)
Common shares repurchased
 
 
(5,000
)
 
 
 
(5,000
)
Cash dividends declared ($2.84 per share)
 
 
 
(1,687
)
 
 
(1,687
)
Balance at June 30, 2017

$5,061


$4,644


($40,730
)

$43,378


($13,234
)

$59


($822
)
 
 
 
 
 
 
 
 
Balance at January 1, 2018

$5,061


$6,804


($43,454
)

$49,618


($16,373
)

$57


$1,713

Net earnings
 
 
 
4,673

 
(10
)
4,663

Other comprehensive income, net of tax of $(81)
 
 
 
 
234

 
234

Share-based compensation and related dividend equivalents
 
115

 
(17
)
 
 
98

Treasury shares issued for stock options exercised, net
 
(32
)
95

 
 
 
63

Treasury shares issued for other share-based plans, net
 
(211
)
(18
)
 
 
 
(229
)
Common shares repurchased
 
 
(5,965
)
 
 
 
(5,965
)
Cash dividends declared ($3.42 per share)
 
 
 
(1,971
)
 
 
(1,971
)
Changes in noncontrolling interests
 
 
 
 
 
20

20

Balance at June 30, 2018

$5,061


$6,676


($49,342
)

$52,303


($16,139
)

$67


($1,374
)
See Notes to the Condensed Consolidated Financial Statements.

5


The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
(Dollars in millions)
Six months ended June 30
 
Three months ended June 30

2018

 
2017

 
2018

 
2017

Revenues:
 
 
 
 
 
 
 
Commercial Airplanes

$28,133

 

$27,233

 

$14,481



$14,280

Defense, Space & Security
11,355

 
10,254

 
5,593


5,142

Global Services
8,033

 
7,205

 
4,090


3,552

Boeing Capital
137

 
164

 
72


72

Unallocated items, eliminations and other
(18
)
 
156

 
22

 
5

Total revenues

$47,640

 

$45,012

 

$24,258



$23,051

Earnings from operations:
 
 
 
 



Commercial Airplanes

$3,152

 

$2,152

 

$1,644



$1,282

Defense, Space & Security
1,170

 
1,163

 
521


614

Global Services
1,247

 
1,192

 
603


569

Boeing Capital
44

 
64

 
24


25

Segment operating profit
5,613

 
4,571

 
2,792

 
2,490

Unallocated items, eliminations and other
(710
)
 
(538
)
 
(399
)
 
(317
)
FAS/CAS service cost adjustment
682

 
703

 
317

 
357

Earnings from operations
5,585

 
4,736

 
2,710


2,530

Other income/(loss), net
51

 
51

 
(15
)

25

Interest and debt expense
(211
)
 
(180
)
 
(109
)

(93
)
Earnings before income taxes
5,425

 
4,607

 
2,586


2,462

Income tax expense
(752
)
 
(1,279
)
 
(390
)

(713
)
Net earnings

$4,673

 

$3,328

 

$2,196



$1,749

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 June 30, 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 ASUs: 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 $116 to Net earnings for the first six months of 2017.

7


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. 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 companies 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 (TCJA) 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

8


sales under long-term contracts primarily include support and maintenance agreements associated with our commercial and defense products and space travel on Commercial Crew.
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:
 
Six months ended June 30
 
Three months ended June 30
 
2018

 
2017

 
2018

 
2017

Increase/(decrease) to Revenue

$45

 

$470

 

($72
)
 

$263

Increase/(decrease) to Earnings from Operations

($159
)
 

$422

 

($237
)
 

$314

Increase/(decrease) to Diluted EPS

($0.23
)
 

$0.50

 

($0.34
)
 

$0.37

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.

9


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 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; 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)
 
Six months ended June 30, 2017
 
Three months ended June 30, 2017
(Dollars in millions)
Reported
 
Impact of New Standards
 
Restated
 
Reported
 
Impact of New Standards
 
Restated
Sales of products

$38,659

 

$1,226

 

$39,885

 

$20,147

 

$371

 

$20,518

Sales of services
5,056

 
71

 
5,127

 
2,592

 
(59
)
 
2,533

Total revenues
43,715

 
1,297

 
45,012

 
22,739

 
312

 
23,051

 
 
 
 
 
 
 
 
 
 
 
 
Cost of products
(31,806
)
 
(1,080
)
 
(32,886
)
 
(16,443
)
 
(381
)
 
(16,824
)
Cost of services
(3,820
)
 
(43
)
 
(3,863
)
 
(1,932
)
 
67

 
(1,865
)
Boeing Capital interest expense
(26
)
 


 
(26
)
 
(13
)
 


 
(13
)
Total costs and expenses
(35,652
)
 
(1,123
)
 
(36,775
)
 
(18,388
)
 
(314
)
 
(18,702
)
 
8,063

 
174

 
8,237

 
4,351

 
(2
)
 
4,349

Income from operating investments, net
120

 


 
120

 
39

 


 
39

General and administrative expense
(1,973
)
 
1

 
(1,972
)
 
(1,040
)
 
(3
)
 
(1,043
)
Research and development expense, net
(1,651
)
 
2

 
(1,649
)
 
(813
)
 


 
(813
)
Loss on dispositions, net


 


 


 
(2
)
 


 
(2
)
Earnings from operations
4,559

 
177

 
4,736

 
2,535

 
(5
)
 
2,530

Other income, net
49

 
2

 
51

 
27

 
(2
)
 
25

Interest and debt expense
(180
)
 


 
(180
)
 
(93
)
 


 
(93
)
Earnings before income taxes
4,428

 
179

 
4,607

 
2,469

 
(7
)
 
2,462

Income tax expense
(1,216
)
 
(63
)
 
(1,279
)
 
(708
)
 
(5
)
 
(713
)
Net earnings

$3,212

 

$116

 

$3,328

 

$1,761

 

($12
)
 

$1,749

 
 
 
 
 
 
 
 
 

 
 
Basic earnings per share

$5.28

 

$0.19

 

$5.47

 

$2.93

 

($0.02
)
 

$2.91

 
 
 
 
 
 
 
 
 

 
 
Diluted earnings per share

$5.22

 

$0.19

 

$5.41

 

$2.89

 

($0.02
)
 

$2.87




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)
Six months ended June 30, 2017
 
Reported

 
Impact of New Standards
Restated

Cash flows - operating activities:
 
 
 
 
 
Net earnings

$3,212

 

$116

 

$3,328

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

 
 
Non-cash items -
 
 

 
 
Share-based plans expense
98

 

 
98

Depreciation and amortization
965

 
(9
)
 
956

Investment/asset impairment charges, net
46

 

 
46

Customer financing valuation expense
5

 

 
5

Other charges and credits, net
129

 
6

 
135

Changes in assets and liabilities -
 
 

 
 
Accounts receivable
(912
)
 
749

 
(163
)
Unbilled receivables

 
(950
)
 
(950
)
Advances and progress billings

 
3,916

 
3,916

Inventories
877

 
(1,913
)
 
(1,036
)
Other current assets

 
(148
)
 
(148
)
Accounts payable
419

 

 
419

Accrued liabilities
(680
)
 
110

 
(570
)
Advances and billings in excess of related costs
1,934

 
(1,934
)
 

Income taxes receivable, payable and deferred
712

 
62

 
774

Other long-term liabilities
(18
)
 

 
(18
)
Pension and other postretirement plans
13

 

 
13

Customer financing, net
343

 
(1
)
 
342

Other
(99
)
 
(1
)
 
(100
)
Net cash provided by operating activities
7,044

 
3

 
7,047

Cash flows - investing activities:
 
 

 
 
Property, plant and equipment additions
(905
)
 

 
(905
)
Property, plant and equipment reductions
25

 

 
25

Contributions to investments
(1,820
)
 

 
(1,820
)
Proceeds from investments
1,441

 

 
1,441

Purchase of distribution rights
(131
)
 
 
 
(131
)
Other
4

 
3

 
7

Net cash used by investing activities
(1,386
)
 
3

 
(1,383
)
Cash flows - financing activities:
 
 

 
 
New borrowings
874

 

 
874

Debt repayments
(56
)
 

 
(56
)
Stock options exercised
240

 

 
240

Employee taxes on certain share-based payment arrangements
(112
)
 

 
(112
)
Common shares repurchased
(5,000
)
 

 
(5,000
)
Dividends paid
(1,720
)
 

 
(1,720
)
Net cash used by financing activities
(5,774
)
 

 
(5,774
)
Effect of exchange rate changes on cash & cash equivalents, including restricted
52

 

 
52

Net (decrease)/increase in cash & cash equivalents, including restricted
(64
)
 
6

 
(58
)
Cash & cash equivalents, including restricted*, at beginning of year
8,801

 
68

 
8,869

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

$8,737

 

$74

 
8,811

Less restricted cash & cash equivalents, included in Investments
 
 
 
 
74

Cash and cash equivalents at end of period
 
 
 
 

$8,737

* 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


14


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.
The elements used in the computation of basic and diluted earnings per share were as follows:
(In millions - except per share amounts)
Six months ended June 30

Three months ended June 30

2018


2017


2018


2017

Net earnings

$4,673

 

$3,328

 

$2,196

 

$1,749

Less: earnings available to participating securities
3

 
2

 


 


Net earnings available to common shareholders

$4,670

 

$3,326

 

$2,196

 

$1,749

Basic
 
 
 
 
 
 
 
Basic weighted average shares outstanding
586.6

 
608.4

 
582.6

 
602.5

Less: participating securities
0.6

 
0.8

 
0.7

 
0.7

Basic weighted average common shares outstanding
586.0

 
607.6

 
581.9

 
601.8

Diluted
 
 
 
 
 
 
 
Basic weighted average shares outstanding
586.6

 
608.4

 
582.6

 
602.5

Dilutive potential common shares(1)
6.3

 
6.9

 
6.1

 
7.1

Diluted weighted average shares outstanding
592.9

 
615.3

 
588.7

 
609.6

Less: participating securities
0.6

 
0.8

 
0.7

 
0.7

Diluted weighted average common shares outstanding
592.3

 
614.5

 
588.0

 
608.9

Net earnings per share:
 
 
 
 
 
 
 
Basic

$7.97

 

$5.47

 

$3.77

 

$2.91

Diluted
7.88

 
5.41

 
3.73

 
2.87

(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)
Six months ended June 30
 
Three months ended June 30
 
2018

 
2017

 
2018

 
2017

Performance awards
2.8

 
5.2

 
2.7

 
4.7

Performance-based restricted stock units
0.3

 
0.9

 
0.1

 
0.5


15


Note 4 – Income Taxes
Our effective income tax rates were 13.9% and 15.1% for the six and three months ended June 30, 2018 and 27.8% and 29.0% for the same periods in the prior year. The 2018 tax rates reflect the enactment of the TCJA, which permanently reduced the U.S. corporate statutory rate from 35% to 21% effective January 1, 2018. The 2018 tax rates reflect net favorable impacts of the TCJA provisions which effectively apply a lower U.S. tax rate to intangible income derived from serving non-U.S. markets, research and development credits, and discrete tax benefits, primarily related to share-based payments recorded in the first and second quarters of 2018. The 2017 tax rates reflect 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 $440, respectively, based on current estimates.
Note 5 – Inventories
Inventories consisted of the following:
 
June 30
2018

 
December 31
2017

Long-term contracts in progress

$2,027

 

$1,854

Commercial aircraft programs
52,830

 
52,861

Commercial spare parts, used aircraft, general stock materials and other
6,393

 
6,673

Total

$61,250



$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 June 30, 2018 and December 31, 2017. See indemnifications to ULA in Note 11.
Included in inventories are capitalized precontract costs of $878 at June 30, 2018 primarily related to the KC-46A Tanker and $933 at December 31, 2017 primarily related to the KC-46A Tanker, C-17 and F/A-18. See Note 10.

16


Commercial Aircraft Programs
At June 30, 2018 and December 31, 2017, commercial aircraft programs inventory included the following amounts related to the 787 program: $29,234 and $30,695 of work in process (including deferred production costs of $24,241 and $25,358), $2,543 and $3,189 of supplier advances, and $2,899 and $3,173 of unamortized tooling and other non-recurring costs. At June 30, 2018, $20,903 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 $6,237 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At June 30, 2018 and December 31, 2017, commercial aircraft programs inventory included $132 and $151 of unamortized tooling costs related to the 747 program. At June 30, 2018, $127 of unamortized tooling costs are expected to be recovered from units included in the program accounting quantity that have firm orders or commitments. At June 30, 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 $2,760 and $2,976 at June 30, 2018 and December 31, 2017.
Note 6 – Contracts with Customers
Unbilled receivables increased from $8,194 at December 31, 2017 to $9,868 at June 30, 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 $50,970 at June 30, 2018, primarily driven by advances on orders received in excess of revenue recognized at BCA.
In the six and three months ended June 30, 2018, we recognized revenue of $12,757 and $6,304 related to our Advances and progress billings at January 1, 2017. In the six and three months ended June 30, 2017, we recognized revenue of $11,687 and $6,276 related to our Advances and progress billings at January 1, 2016.
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:
 
June 30
2018

 
December 31
2017

Financing receivables:
 
 
 
Investment in sales-type/finance leases

$1,193

 

$1,364

Notes
850

 
1,022

Total financing receivables
2,043

 
2,386

Operating lease equipment, at cost, less accumulated depreciation of $207 and $305
1,077

 
691

Gross customer financing
3,120

 
3,077

Less allowance for losses on receivables
(9
)
 
(12
)
Total

$3,111

 

$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 June 30, 2018 and December 31, 2017, we individually evaluated for impairment customer financing receivables of $414 and $422, of which $403 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.

17


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
June 30
2018

 
December 31
2017

BBB

$1,023

 

$1,170

BB
450

 
627

B
167

 
177

CCC
403

 
412

Total carrying value of financing receivables

$2,043

 

$2,386

At June 30, 2018, our allowance related to receivables with ratings of B, BB and BBB. We applied default rates that averaged 23.2%, 7.2% and 0.8%, respectively, to the exposure associated with those receivables.
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:
 
June 30
2018

 
December 31
2017

717 Aircraft ($238 and $269 accounted for as operating leases)

$998

 

$1,081

747-8 Aircraft ($135 and $138 accounted for as operating leases)
480

 
483

737 Aircraft ($271 and $127 accounted for as operating leases)
302

 
161

757 Aircraft ($26 and $27 accounted for as operating leases)
209

 
217

MD-80 Aircraft (accounted for as sales-type finance leases)
204

 
231

747-400 Aircraft ($77 and $88 accounted for as operating leases)
154

 
170

777 Aircraft ($30 and $0 accounted for as operating leases)
41

 
14

767 Aircraft ($0 and $25 accounted for as operating leases)
15

 
98


18


Note 8 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
 
June 30
2018

 
December 31
2017

Equity method investments (1)

$1,159

 

$1,214

Time deposits
1,084

 
613

Available for sale debt instruments
491

 
490

Restricted cash & cash equivalents(2)
74

 
74

Equity and other investments
44

 
48

Total

$2,852

 

$2,439

(1) 
Dividends received were $143 and $55 for the six and three months ended June 30, 2018 and $148 and $52 during the same periods in the prior year.
(2) 
Reflects amounts restricted in support of our workers’ compensation programs, employee benefit programs, and insurance premiums.
Note 9 – Other Assets
Sea Launch
At June 30, 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 June 30, 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
At 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. On July 12, 2018, the Delaware Supreme Court denied Boeing’s claim for indemnification. As a result, in the second quarter we wrote off the receivables attributable to the Spirit indemnifications.

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Note 10 – Commitments and Contingencies
Environmental
The following table summarizes environmental remediation activity during the six months ended June 30, 2018 and 2017.
 
2018

 
2017

Beginning balance – January 1

$524

 

$562

Reductions for payments made
(8
)
 
(23
)
Changes in estimates
18

 
(19
)
Ending balance – June 30

$534

 

$520

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 June 30, 2018 and December 31, 2017, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $815 and $868.
Product Warranties
The following table summarizes product warranty activity recorded during the six months ended June 30, 2018 and 2017.
 
2018

 
2017

Beginning balance – January 1

$1,211

 

$1,414

Additions for current year deliveries
130

 
126

Reductions for payments made
(72
)
 
(125
)
Changes in estimates
(140
)
 
(109
)
Ending balance – June 30

$1,129

 

$1,306

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 June 30, 2018 have expiration dates from 2018 through 2026. At June 30, 2018, and December 31, 2017 total contractual trade-in commitments were $1,445 and $1,462. As of June 30, 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 $313 and $155 and the fair value of the related trade-in aircraft was $296 and $155.

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Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $19,060 and $10,221 as of June 30, 2018 and December 31, 2017. The estimated earliest potential funding dates for these commitments as of June 30, 2018 are as follows:
  
Total

July through December 2018

$880

2019
2,357

2020
3,857

2021
2,675

2022
1,083

Thereafter
8,208

 

$19,060

As of June 30, 2018, $17,757 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.
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 $3,553 and $3,708 as of June 30, 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 June 30, 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 for fiscal years 2020 and 2021. 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 years 2020 and 2021 unless Congress acts to raise the caps or 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.

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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 o