Boeing Co. (BA)

Analysis of Income Taxes

Difficulty level: Advanced

Income Tax Accounting Policy

Provisions for federal, state, and non-U.S. income taxes are calculated on reported Earnings before income taxes based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions.

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Boeing records a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on tax return. To the extent that Boeing's assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. Tax-related interest and penalties are classified as a component of Income tax expense.

Source: Boeing Co., Annual Report

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Income Tax Expense (Benefit)

Boeing Co., income tax expense (benefit), continuing operations

USD $ in millions

12 months ended	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
U.S. federal	676	(82)	657	(605)	13
Non-U.S.	91	76	52	93	80
U.S. state	69	11	19	(22)	(137)
Current tax expense (benefit)	836	5	728	(534)	(44)
U.S. federal	828	1,531	1,209	1,856	969
Non-U.S.	34	41	(13)	(8)	(13)
U.S. state	(7)	69	83	68	284
Deferred tax expense	855	1,641	1,279	1,916	1,240
Income tax expense	1,691	1,646	2,007	1,382	1,196

Source: Based on data from Boeing Co. Annual Reports

Item	Description	The company
Current tax expense (benefit)	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Boeing Co.'s current tax expense (benefit) declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.
Deferred tax expense	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Boeing Co.'s deferred tax expense increased from 2012 to 2013 but then declined significantly from 2013 to 2014.
Income tax expense	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Boeing Co.'s income tax expense declined from 2012 to 2013 but then slightly increased from 2013 to 2014.

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Effective Income Tax Rate (EITR)

Boeing Co., effective income tax rate (EITR) reconciliation

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
U.S. federal statutory tax	35.00%	35.00%	35.00%	35.00%	35.00%
Research and development credits	-2.90%	-4.90%	0.80%	-2.70%	-3.50%
Amendments to the R&E regulations	–%	-3.40%	–%	–%	–%
Tax basis adjustment	-3.60%	–%	–%	–%	–%
Tax on international activities	-0.20%	-0.10%	-1.20%	-0.60%	-1.20%
Tax deductible dividends	-0.70%	-0.60%	-0.70%	-0.80%	-0.90%
State income tax provision, net of effect on U.S. federal tax	0.70%	0.40%	0.80%	0.70%	1.80%
Medicare Part D law change	–%	–%	–%	–%	3.30%
Federal audit settlements	-3.60%	–%	–%	-7.40%	-8.20%
Other provision adjustments	-1.00%	–%	-0.70%	1.40%	0.20%
Effective income tax rate	23.70%	26.40%	34.00%	25.60%	26.50%

Source: Based on data from Boeing Co. Annual Reports

Item	Description	The company
Effective income tax rate	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	Boeing Co.'s effective income tax rate declined from 2012 to 2013 and from 2013 to 2014.

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Components of Deferred Tax Assets and Liabilities

Boeing Co., components of deferred tax assets and liabilities

USD $ in millions

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Inventory and long-term contract methods of income recognition, fixed assets and other, net of valuation allowance	(11,589)	(9,948)	(7,151)	(5,189)	(2,644)
Pension benefits	6,145	3,099	6,232	5,315	3,443
Retiree health care benefits	2,572	2,458	2,867	2,820	3,061
Other employee benefits	1,477	1,773	1,427	1,352	1,272
Customer and commercial financing	(853)	(990)	(1,078)	(1,471)	(1,645)
Net operating loss, credit and capital loss carryovers, net of valuation allowance	266	362	307	488	300
Other net unrealized losses (gains)	110	26	(17)	69	13
Unremitted earnings of non-U.S. subsidiaries	(37)	(44)	(49)	(66)	(60)
In-process research and development related to acquisitions	10	23	37	51	65
Partnerships and joint ventures	9	(62)	(162)	(228)	(263)
Net deferred tax assets (liabilities)	(1,890)	(3,303)	2,413	3,141	3,542

Source: Based on data from Boeing Co. Annual Reports

Item	Description	The company
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Boeing Co.'s net deferred tax assets (liabilities) declined from 2012 to 2013 but then slightly increased from 2013 to 2014.

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Analyst Adjustments: Removal of Deferred Taxes

Boeing Co., adjustments to financial data

USD $ in millions

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Adjustment to Current Assets
Current assets (as reported)	67,785	65,074	57,309	49,810	40,572
Less: Current deferred tax assets, net	18	14	28	29	31
Current assets (adjusted)	67,767	65,060	57,281	49,781	40,541
Adjustment to Total Assets
Total assets (as reported)	99,198	92,663	88,896	79,986	68,565
Less: Current deferred tax assets, net	18	14	28	29	31
Less: Noncurrent deferred tax assets, net	6,576	2,939	6,753	5,892	4,031
Total assets (adjusted)	92,604	89,710	82,115	74,065	64,503
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported)	8,665	14,875	5,867	3,515	2,766
Less: Net deferred tax assets (liabilities)	(1,890)	(3,303)	2,413	3,141	3,542
Shareholders’ equity (adjusted)	10,555	18,178	3,454	374	(776)
Adjustment to Net Earnings Related To Parent
Net earnings related to parent (as reported)	5,446	4,585	3,900	4,018	3,307
Add: Deferred income tax expense (benefit)	855	1,641	1,279	1,916	1,240
Net earnings related to parent (adjusted)	6,301	6,226	5,179	5,934	4,547

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

Boeing Co., adjusted ratios

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
Current Ratio
Reported current ratio	1.20	1.26	1.27	1.21	1.15
Adjusted current ratio	1.19	1.26	1.27	1.21	1.15
Net Profit Margin
Reported net profit margin	6.00%	5.29%	4.77%	5.85%	5.14%
Adjusted net profit margin	6.94%	7.19%	6.34%	8.63%	7.07%
Total Asset Turnover
Reported total asset turnover	0.91	0.93	0.92	0.86	0.94
Adjusted total asset turnover	0.98	0.97	0.99	0.93	1.00
Financial Leverage
Reported financial leverage	11.45	6.23	15.15	22.76	24.79
Adjusted financial leverage	8.77	4.94	23.77	198.03	–
Return on Equity (ROE)
Reported ROE	62.85%	30.82%	66.47%	114.31%	119.56%
Adjusted ROE	59.70%	34.25%	149.94%	1,586.63%	–%
Return on Assets (ROA)
Reported ROA	5.49%	4.95%	4.39%	5.02%	4.82%
Adjusted ROA	6.80%	6.94%	6.31%	8.01%	7.05%

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Boeing Co.'s adjusted current ratio deteriorated from 2012 to 2013 and from 2013 to 2014.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Boeing Co.'s adjusted net profit margin improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Boeing Co.'s adjusted total asset turnover deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Boeing Co.'s adjusted financial leverage declined from 2012 to 2013 but then slightly increased from 2013 to 2014.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Boeing Co.'s adjusted ROE deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Boeing Co.'s adjusted ROA improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014.

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Adjusted Current Ratio

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Current assets (USD $ in millions)	67,785	65,074	57,309	49,810	40,572
Current liabilities (USD $ in millions)	56,717	51,486	44,982	41,274	35,395

Current ratio¹	1.20	1.26	1.27	1.21	1.15
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions)	67,767	65,060	57,281	49,781	40,541

Adjusted current ratio²	1.19	1.26	1.27	1.21	1.15

2014 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 67,785 ÷ 56,717 = 1.20

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 67,767 ÷ 56,717 = 1.19

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Boeing Co.'s adjusted current ratio deteriorated from 2012 to 2013 and from 2013 to 2014.

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Adjusted Net Profit Margin

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Net earnings related to parent (USD $ in millions)	5,446	4,585	3,900	4,018	3,307
Revenues (USD $ in millions)	90,762	86,623	81,698	68,735	64,306

Net profit margin¹	6.00%	5.29%	4.77%	5.85%	5.14%
Adjusted for Deferred Taxes
Adjusted net earnings related to parent (USD $ in millions)	6,301	6,226	5,179	5,934	4,547

Adjusted net profit margin²	6.94%	7.19%	6.34%	8.63%	7.07%

2014 Calculations

¹ Net profit margin = 100 × Net earnings related to parent ÷ Revenues
= 100 × 5,446 ÷ 90,762 = 6.00%

² Adjusted net profit margin = 100 × Adjusted net earnings related to parent ÷ Revenues
= 100 × 6,301 ÷ 90,762 = 6.94%

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Boeing Co.'s adjusted net profit margin improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014.

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Adjusted Total Asset Turnover

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Revenues (USD $ in millions)	90,762	86,623	81,698	68,735	64,306
Total assets (USD $ in millions)	99,198	92,663	88,896	79,986	68,565

Total asset turnover¹	0.91	0.93	0.92	0.86	0.94
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)	92,604	89,710	82,115	74,065	64,503

Adjusted total asset turnover²	0.98	0.97	0.99	0.93	1.00

2014 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= 90,762 ÷ 99,198 = 0.91

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 90,762 ÷ 92,604 = 0.98

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Boeing Co.'s adjusted total asset turnover deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.

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Adjusted Financial Leverage

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Total assets (USD $ in millions)	99,198	92,663	88,896	79,986	68,565
Shareholders’ equity (USD $ in millions)	8,665	14,875	5,867	3,515	2,766

Financial leverage¹	11.45	6.23	15.15	22.76	24.79
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)	92,604	89,710	82,115	74,065	64,503
Adjusted shareholders’ equity (USD $ in millions)	10,555	18,178	3,454	374	(776)

Adjusted financial leverage²	8.77	4.94	23.77	198.03	–

2014 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= 99,198 ÷ 8,665 = 11.45

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 92,604 ÷ 10,555 = 8.77

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Boeing Co.'s adjusted financial leverage declined from 2012 to 2013 but then slightly increased from 2013 to 2014.

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Adjusted Return On Equity (ROE)

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Net earnings related to parent (USD $ in millions)	5,446	4,585	3,900	4,018	3,307
Shareholders’ equity (USD $ in millions)	8,665	14,875	5,867	3,515	2,766

ROE¹	62.85%	30.82%	66.47%	114.31%	119.56%
Adjusted for Deferred Taxes
Adjusted net earnings related to parent (USD $ in millions)	6,301	6,226	5,179	5,934	4,547
Adjusted shareholders’ equity (USD $ in millions)	10,555	18,178	3,454	374	(776)

Adjusted ROE²	59.70%	34.25%	149.94%	1,586.63%	–%

2014 Calculations

¹ ROE = 100 × Net earnings related to parent ÷ Shareholders’ equity
= 100 × 5,446 ÷ 8,665 = 62.85%

² Adjusted ROE = 100 × Adjusted net earnings related to parent ÷ Adjusted shareholders’ equity
= 100 × 6,301 ÷ 10,555 = 59.70%

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Boeing Co.'s adjusted ROE deteriorated from 2012 to 2013 but then slightly improved from 2013 to 2014.

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Adjusted Return On Assets (ROA)

	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011	Dec 31, 2010
As Reported
Net earnings related to parent (USD $ in millions)	5,446	4,585	3,900	4,018	3,307
Total assets (USD $ in millions)	99,198	92,663	88,896	79,986	68,565

ROA¹	5.49%	4.95%	4.39%	5.02%	4.82%
Adjusted for Deferred Taxes
Adjusted net earnings related to parent (USD $ in millions)	6,301	6,226	5,179	5,934	4,547
Adjusted total assets (USD $ in millions)	92,604	89,710	82,115	74,065	64,503

Adjusted ROA²	6.80%	6.94%	6.31%	8.01%	7.05%

2014 Calculations

¹ ROA = 100 × Net earnings related to parent ÷ Total assets
= 100 × 5,446 ÷ 99,198 = 5.49%

² Adjusted ROA = 100 × Adjusted net earnings related to parent ÷ Adjusted total assets
= 100 × 6,301 ÷ 92,604 = 6.80%

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Boeing Co.'s adjusted ROA improved from 2012 to 2013 but then slightly deteriorated from 2013 to 2014.

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