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Meet the 10-K, the most critical financial document that you've never seen

BY ANNE EISELE

In March, Boeing made public a document that some financial experts consider to be the most important description of the company’s past financial performance, future risks and opportunities, and overall fiscal health. If you’re like most employees, though, you probably didn’t take time to read it.

Boeing Finance leadership believes you should.

Beyond simply offering financial data, the Form 10-K Boeing filed with the Securities and Exchange Commission March 5 also provides details of continuing operations, business units’ market environments, segment performance, new product plans, and research and development efforts on future programs.

The 130-page document (available at http://www.boeing.com/companyoffices/financial/), which all U.S. publicly traded companies must file annually, “is one of the most important documents the company puts out, and I encourage everyone on my staff regardless of level to read and discuss it,” said Boeing Treasurer Paul Kinscherff. “The company’s strategy is reflected in our financial statements.”

Where else would you learn that Boeing’s contractual backlog totals nearly $105 billion or that the company is contemplating additional voluntary pension contributions? Or read about the latest airline industry trends affecting Commercial Airplanes, the effect of the U.S. military’s transformation on the Boeing Integrated Defense Systems competitive landscape, or the change in Boeing Capital Corp.’s strategic direction?

Two folks you can be sure have read the 10-K closely are Chief Executive Officer Harry Stonecipher and Chief Financial Officer James Bell. Under rules adopted in 2002 to enhance investor confidence in the quality of corporate financial reporting, a company’s CEO and CFO must certify the accuracy and completeness of annual and quarterly statements. Boeing takes it one step further by requiring all members of the Executive Council and certain functional leaders to approve with respect to their areas of expertise.

A company’s 10-K not only “provides a comprehensive overview of a publicly traded company’s business and financial condition,” said John Hiene, SEC spokesman, it also serves as “a state-of-the-company report” that gives current and prospective shareholders valuable information on which to base investment decisions. That means including items as diverse as pension fund liabilities and executive compensation.

It also means painting as inclusive a picture as possible of almost any contingency or challenge the company might face. Taken out of context, such inclusiveness can give rise to media reports that unnecessarily spook Boeing people. The 2003 report, for instance, detailed the company’s multimillion-dollar financial exposure should Commercial Airplanes decide to close the 717 production line, if Integrated Defense Systems can’t reach agreement with the U.S. Air Force on a 767 Tanker program, or if Boeing Satellite Systems failed to deliver a certain satellite on time (it subsequently beat the deadline).

“Accounting literature dictates if the chance of something happening—say a program cancellation—is ‘more than remote,’ we must disclose the would-be financial cost to the corporation,” said Linda Schmedt, director of Accounting at World Headquarters. “That doesn’t mean we expect it to occur, but it enables stakeholders to mentally bound the risk.” Expanded disclosure requirements in the areas of critical accounting policies, off-balance-sheet commitments and variable interest entities provide readers additional clarity. And new regulations requiring SEC filings to be written in “plain English” make reading and understanding the Boeing 10-K easier than ever.

Expanded disclosure requirements in the areas of critical accounting policies, off-balance-sheet commitments and variable interest entities provide readers additional clarity. And new regulations requiring SEC filings to be written in “plain English” make reading and understanding the Boeing 10-K easier than ever.

Here’s a quick rundown of what to look for and where it is:

• The first section (called Item 1) identifies Boeing’s principal products and services, markets, methods of distribution, and risks of doing business. Location of key properties, pending material legal proceedings, and matters to be voted on at the annual shareholder meeting follow in Items 2 through 4.

• Item 5 features high and low stock prices for each quarter of the past two years and future dividend plans. Five-year selected financial data including net sales and operating revenue, income from operations, total assets, and long-term obligations follow.

• Much of the report’s real meat is in Item 7—Management’s Discussion & Analysis of Financial Condition and Results of Operations. Included here is discussion of liquidity, capital resources and how Boeing operations fared. Trends and significant events or uncertainties, effects of inflation, changing prices and accounting policies also are identified, as are market risks like interest- or exchange-rate changes or fuel price hikes.

• The financial charts most folks associate with annual reports are found at the back of the document, in Item 8. Here stakeholders will find balance sheets for the previous two years, three-year statements of income and three-year statements of cash flows, plus supporting notes.

• The balance of the 10-K details stock ownership, certain executive compensation, subsidiaries, board membership and information about external auditors, among other Sfacts.

anne.f.eisele@boeing.com