Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
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(Dollars in millions)
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Six months ended June 30
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Three months ended June 30
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2020
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2019
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2020
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2019
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Revenues:
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Commercial Airplanes
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$7,838
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$16,544
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$1,633
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$4,722
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Defense, Space & Security
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12,630
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13,166
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6,588
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6,579
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Global Services
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8,116
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9,162
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3,488
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4,543
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Boeing Capital
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134
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141
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69
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75
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Unallocated items, eliminations and other
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(3
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)
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(345
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)
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29
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(168
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)
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Total revenues
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$28,715
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$38,668
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$11,807
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$15,751
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Earnings/(loss) from operations:
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Commercial Airplanes
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($4,830
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)
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($3,773
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)
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($2,762
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)
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($4,946
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)
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Defense, Space & Security
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409
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1,827
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600
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975
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Global Services
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36
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1,340
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(672
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)
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687
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Boeing Capital
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17
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57
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(7
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)
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37
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Segment operating loss
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(4,368
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)
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(549
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)
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(2,841
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)
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(3,247
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)
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Unallocated items, eliminations and other
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(651
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)
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(1,210
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)
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(478
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)
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(498
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)
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FAS/CAS service cost adjustment
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702
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729
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355
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365
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Loss from operations
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(4,317
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)
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(1,030
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)
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(2,964
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)
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(3,380
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)
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Other income, net
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206
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213
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94
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107
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Interest and debt expense
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(815
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)
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(277
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)
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(553
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)
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(154
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)
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Loss before income taxes
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(4,926
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)
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(1,094
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)
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(3,423
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)
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(3,427
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)
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Income tax benefit
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1,890
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301
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1,028
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485
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Net loss
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(3,036
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)
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(793
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)
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(2,395
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)
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(2,942
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)
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Less: Net loss attributable to noncontrolling interest
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(32
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)
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(19
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)
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Net loss attributable to Boeing Shareholders
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($3,004
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)
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($793
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)
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($2,376
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)
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($2,942
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)
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This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 19 for further segment results.
The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except otherwise stated)
(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, 2020 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 2019 Annual Report on Form 10-K. Certain amounts in prior periods have been adjusted to conform with the current year presentation.
Liquidity Matters
The global outbreak of COVID-19 coupled with the ongoing grounding of the 737 MAX airplane is having a significant adverse impact on our business and is expected to significantly reduce revenue, earnings and operating cash flow in future quarters. The aerospace industry is facing an unprecedented shock to demand for air travel which creates a tremendous challenge for our customers, our business and the entire aerospace manufacturing and services sector. We currently expect it will take approximately three years for travel to return to 2019 levels and a few years beyond that for the industry to return to long-term trend growth. There is significant uncertainty with respect to when commercial air traffic levels will recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.
During the first half of 2020, net cash used by operating activities was $9.6 billion and we expect negative operating cash flows in future quarters until deliveries ramp up. In the first quarter of 2020, we entered into and fully drew on a $13.8 billion two-year delayed draw term loan credit agreement (delayed draw term loan facility). In the second quarter of 2020, we issued $25 billion of fixed rate senior notes that mature between 2023 and 2060. As a result, our cash and short-term investment balance has increased to $32.4 billion and our debt balance has increased to $61.4 billion at June 30, 2020.
The major credit rating agencies downgraded our short term and long term credit ratings during the first half of 2020, and there is risk for further downgrades. At June 30, 2020, debt includes $2.4 billion of commercial paper down from $6.1 billion at December 31, 2019. Commercial paper at June 30, 2020 includes $0.5 billion and $1.9 billion maturing in the third and fourth quarters of 2020. In the current environment, we may have limited future access to the commercial paper market. In addition, we have term notes of $350 maturing in the fourth quarter of 2020.
At June 30, 2020, trade payables included $4.4 billion payable to suppliers who have elected to participate in supply chain financing programs. While access to supply chain financing could be curtailed if our credit ratings are downgraded, we do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity.
At June 30, 2020 and December 31, 2019 we had $9.6 billion of unused borrowing capacity on revolving credit agreements. We anticipate that these credit lines will primarily serve as back-up liquidity to support our general corporate borrowing needs. We plan to negotiate extending these facilities in the fourth quarter of 2020 when $3.2 billion of the $9.6 billion comes up for renewal.
In addition to our debt issuances, we have taken a number of actions to improve liquidity. During the first quarter of 2020, our Board of Directors terminated its prior authorization to repurchase shares of the Company’s outstanding common stock and suspended the declaration and/or payment of dividends until further notice. We have also reduced production rates in our commercial business to reflect the impact of COVID-19 on the industry. We have furloughed certain employees and are executing on our plans to reduce our workforce through a combination of voluntary and involuntary layoffs and natural turnover. In the second quarter of 2020, we recorded severance costs for approximately 19,000 employees, of which approximately
6,000 have left the Company as of June 30, 2020, and the remainder are expected to leave in the second half of 2020.
We are reducing discretionary spending as well as reducing or deferring research and development and capital expenditures. We are also working with our customers and supply chain to accelerate receipts and conserve cash. For example, the United States Department of Defense (U.S. DoD) has taken steps to work with its industry partners to increase liquidity in the form of increased progress payment rates and reductions in withholds among other initiatives. We are also deferring certain tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Based on our current best estimates of market demand, planned production rates, timing of cash receipts and expenditures, our ability to successfully implement further actions to improve liquidity as well our ability to access additional liquidity, if needed, we believe it is probable that we will be able to fund our operations for the foreseeable future.
Standards Issued and Implemented
In the first quarter of 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), using a modified retrospective method, which resulted in the recognition of allowances for credit losses on our Condensed Consolidated Statement of Financial Position as of January 1, 2020 and a $162 cumulative-effect adjustment to retained earnings to align our credit loss methodology with the new standard. The standard replaces the incurred loss impairment methodology under Topic 310 with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and certain other financial assets. See Note 5 and 8 for additional disclosures.
In the first quarter of 2020, we also adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). See Note 2 for additional disclosures.
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, 2019. Our updated significant accounting policies described below reflect the impact of adopting Topic 326.
Allowances for losses on certain financial assets
We establish allowances for credit losses on accounts receivable, unbilled receivables, customer financing receivables, and certain other financial assets. The adequacy of these allowances are assessed quarterly through consideration of factors including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of the receivable, expected loss rates and collateral exposures. 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 major credit rating agencies.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that the accounting estimates and assumptions are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ from those estimates.
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 periods' revenue and earnings, including certain reach-forward losses, across all long-term contracts were as follows:
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(In millions - except per share amounts)
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Six months ended June 30
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Three months ended June 30
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2020
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2019
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2020
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2019
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(Decrease)/increase to Revenue
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($290
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)
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$229
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$144
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$69
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(Decrease)/increase to (Loss)/earnings from operations
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($749
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)
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$175
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|
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$90
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|
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$28
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(Decrease)/increase to Diluted EPS
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($0.82
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)
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$0.22
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$0.11
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$0.04
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Note 2 – Goodwill and Acquired Intangibles
In the first quarter of 2020, we adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the quantitative impairment test from a two-step process to a one-step process. The quantitative test is performed by comparing the carrying value of net assets to the estimated fair value of the related operations. If the fair value is determined to be less than carrying value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment. The standard continues to permit a company to test goodwill for impairment by performing a qualitative assessment or using the quantitative test.
We completed our annual assessment of goodwill as of April 1, 2020 and determined that the fair value of each reporting unit exceeded its corresponding carrying value and that there is no impairment of goodwill.
The COVID-19 pandemic continues to impact our Commercial Airplanes and Commercial Services businesses. Therefore, we believe the COVID-19 pandemic is a triggering event in the second quarter of 2020 for testing whether goodwill recorded by our Commercial Airplanes and Commercial Services reporting units is impaired. At June 30, 2020, Commercial Airplanes has $1,315 of goodwill and Commercial Services has $3,056. We performed a qualitative assessment and determined it is not more likely than not that the fair values of our Commercial Airplane and Commercial Services reporting units were less than their carrying values as of June 30, 2020. We will continue to monitor the impacts of the COVID-19 pandemic in future quarters. Changes in our forecasts or further decreases in the value of our common stock could cause book values to exceed fair values which may result in goodwill impairment charges in future periods.
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:
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(In millions - except per share amounts)
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Six months ended June 30
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Three months ended June 30
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2020
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2019
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2020
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|
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2019
|
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Net loss attributable to Boeing Shareholders
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($3,004
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)
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($793
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)
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($2,376
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)
|
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($2,942
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)
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Less: earnings available to participating securities
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|
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Net loss available to common shareholders
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($3,004
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)
|
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($793
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)
|
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($2,376
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)
|
|
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($2,942
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)
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Basic
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|
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Basic weighted average shares outstanding
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566.1
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|
566.6
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566.4
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|
565.3
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Less: participating securities
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0.5
|
|
|
0.6
|
|
|
0.5
|
|
|
0.6
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Basic weighted average common shares outstanding
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565.6
|
|
|
566.0
|
|
|
565.9
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|
|
564.7
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Diluted
|
|
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|
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Basic weighted average shares outstanding
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566.1
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566.6
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566.4
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565.3
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Dilutive potential common shares(1)
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Diluted weighted average shares outstanding
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566.1
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566.6
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566.4
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565.3
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Less: participating securities
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0.5
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0.6
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0.5
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0.6
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Diluted weighted average common shares outstanding
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565.6
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566.0
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565.9
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564.7
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Net loss per share:
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Basic
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($5.31
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)
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($1.40
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)
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($4.20
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)
|
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($5.21
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)
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Diluted
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(5.31
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)
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(1.40
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)
|
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(4.20
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)
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(5.21
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)
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(1)
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Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
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As a result of incurring a net loss for the six and three months ended June 30, 2020 potential common shares of 1.8 million and 1.2 million were excluded from diluted loss per share because the effect would have been antidilutive. As a result of incurring a net loss for the six and three months ended June 30, 2019 potential common shares of 4.4 million and 4.0 million were excluded from diluted loss per share because the effect would have been antidilutive. In addition, 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 loss per share because the effect was either antidilutive or the performance condition was not met.
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(Shares in millions)
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Six months ended June 30
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Three months ended June 30
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2020
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2019
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2020
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2019
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Performance awards
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6.1
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2.7
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5.5
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2.7
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Performance-based restricted stock units
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1.4
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0.6
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1.4
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0.6
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Note 4 – Income Taxes
Our effective income tax rates were 38.4% and 30.0% for the six and three months ended June 30, 2020 and 27.5% and 14.2% for the same periods in the prior year. The 2020 tax rate includes tax benefits from the CARES Act enacted on March 27, 2020 due to the Act's five year net operating loss carry back provision while the 2019 tax rate reflects tax benefits associated with intangible income derived from serving non-U.S. markets. The carry back provisions enable us to benefit from certain losses and re-measure certain deferred tax assets and liabilities at the former federal tax rate of 35%. The tax rates in 2020 and 2019 also reflect research and development tax credits and excess tax benefits related to share-based payments.
Federal income tax audits have been settled for all years prior to 2015. The Internal Revenue Service (IRS) began the 2015-2017 federal tax audit in the first quarter of 2019. We are also subject to examination in major state and international jurisdictions for the 2007-2018 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 matters under audit may decrease by up to $690 based on current estimates.
Note 5 - Allowances for Losses on Financial Assets
Upon adoption of ASU 2016-13, we recorded a $162 cumulative-effect adjustment to retained earnings to increase our allowances for credit losses, resulting in a balance of $337 as of January 1, 2020. The change in allowances for expected credit losses for the six months ended June 30, 2020 consisted of the following:
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Accounts receivable, net
|
|
Unbilled receivables, net
|
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Other Current Assets, net
|
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Customer financing, net
|
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Other Assets, net
|
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Total
|
|
Balance at January 1, 2020
|
|
($138
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)
|
|
($81
|
)
|
|
($38
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)
|
|
($5
|
)
|
|
($75
|
)
|
|
($337
|
)
|
|
Changes in estimates
|
(246
|
)
|
(107
|
)
|
(10
|
)
|
(9
|
)
|
(34
|
)
|
(406
|
)
|
|
Write-offs
|
3
|
|
|
|
|
|
|
|
|
|
3
|
|
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Balance at June 30, 2020
|
|
($381
|
)
|
|
($188
|
)
|
|
($48
|
)
|
|
($14
|
)
|
|
($109
|
)
|
|
($740
|
)
|
Note 6 – Inventories
Inventories consisted of the following:
|
|
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|
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June 30
2020
|
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December 31
2019
|
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Long-term contracts in progress
|
|
$957
|
|
|
|
$1,187
|
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Commercial aircraft programs
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71,945
|
|
|
66,016
|
|
|
Commercial spare parts, used aircraft, general stock materials and other
|
10,843
|
|
|
9,419
|
|
|
Total
|
|
$83,745
|
|
|
|
$76,622
|
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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 $176 at June 30, 2020 and December 31, 2019. See indemnifications to ULA in Note 11.
Included in inventories are capitalized precontract costs of $794 at June 30, 2020 and $711 at December 31, 2019 primarily related to the KC-46A Tanker and Commercial Crew. See Note 10.
Commercial Aircraft Programs
At June 30, 2020 and December 31, 2019, commercial aircraft programs inventory included $1,209 and $1,313 of deferred production costs and $506 and $521 of unamortized tooling and other non-recurring costs related to the 737 program. At June 30, 2020, $1,678 of 737 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 $37 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At June 30, 2020 and December 31, 2019, commercial aircraft programs inventory included the following amounts related to the 777X program: $6,854 and $5,628 of work in process and $3,141 and $2,914 of unamortized tooling and other non-recurring costs.
At June 30, 2020 and December 31, 2019, commercial aircraft programs inventory included the following amounts related to the 787 program: $27,515 and $24,772 of work in process (including deferred production costs of $16,035 and $18,716), $2,006 and $2,202 of supplier advances, and $1,924 and $2,092 of unamortized tooling and other non-recurring costs. At June 30, 2020, $15,496 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 $2,463 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $2,941 and $2,863 at June 30, 2020 and December 31, 2019.
Note 7 – Contracts with Customers
Unbilled receivables decreased from $9,043 at December 31, 2019 to $8,570 at June 30, 2020, primarily driven by an increase in billings at Defense, Space & Security (BDS) and Global Services (BGS), as well as an increase in allowances for expected credit losses at BGS.
Advances and progress billings increased from $51,551 at December 31, 2019 to $53,367 at June 30, 2020, primarily driven by advances on orders received in excess of revenue recognized at Commercial Airplanes (BCA), BDS and BGS.
Revenues recognized during the six months ended June 30, 2020 and 2019 from amounts recorded as Advances and progress billings at the beginning of each year were $5,255 and $10,116. Revenues recognized during the three months ended June 30, 2020 and 2019 from amounts recorded as Advances and progress billings at the beginning of each year were $1,465 and $4,219.
Note 8 – Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following:
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June 30
2020
|
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December 31
2019
|
|
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Financing receivables:
|
|
|
|
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Investment in sales-type/finance leases
|
|
$965
|
|
|
|
$1,029
|
|
|
Notes
|
433
|
|
|
443
|
|
|
Total financing receivables
|
1,398
|
|
|
1,472
|
|
|
Operating lease equipment, at cost, less accumulated depreciation of $248 and $235
|
785
|
|
|
834
|
|
|
Gross customer financing
|
2,183
|
|
|
2,306
|
|
|
Less allowance for losses on receivables
|
(14
|
)
|
|
(8
|
)
|
|
Total
|
|
$2,169
|
|
|
|
$2,298
|
|
We acquire aircraft to be leased to customers through trades, lease returns, purchases in the secondary market, and new aircraft transferred from our BCA segment. Leasing arrangements typically range in terms from 1 to 12 years and may include options to extend or terminate the lease. Certain leases include provisions to allow the lessee to purchase the underlying aircraft at a specified price. A minority of leases contain variable lease payments based on actual aircraft usage and are paid in arrears.
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, 2020 and December 31, 2019, we individually evaluated for impairment customer financing receivables of $393 and
$400, of which $381 and $388 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.
We determine a receivable is past due when cash has not been received upon the due date specified in the contract. Customer financing receivables past due as of June 30, 2020 is $8.
We evaluate the collectability of customer financing receivables at commencement and on a recurring basis. If a customer financing receivable is deemed uncollectable, the customer is categorized as non-accrual status. When a customer is in non-accrual status at commencement, revenue is deferred until substantially all cash has been received or the customer is removed from non-accrual status. If a customer status changes to non-accrual after commencement and sufficient collateral is available, we recognize contractual interest income as payments are received to the extent payments exceed past due principal payments. If there is not sufficient collateral, then revenue is not recognized until payments exceed the principal balance. Receivables in non-accrual status as of June 30, 2020 and December 31, 2019 were $381 and $388. Interest income received for the six and three months ended June 30, 2020 was $21 and $13.
The adequacy of the allowance for losses is assessed quarterly. Four primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates, expected loss rate and collateral values, which may be adversely affected by impacts that COVID-19 has on our customers. 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 at June 30, 2020 by internal credit rating category and year of origination consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rating categories
|
Current
|
2019
|
2018
|
2017
|
2016
|
Prior
|
Total
|
|
BBB
|
|
|
|
|
|
|
|
|
|
|
|
$400
|
|
|
$400
|
|
|
BB
|
|
$69
|
|
|
$54
|
|
|
$17
|
|
|
|
|
|
152
|
|
292
|
|
|
B
|
|
|
|
|
|
|
|
$53
|
|
|
|
171
|
|
224
|
|
|
CCC
|
|
|
38
|
|
|
|
251
|
|
|
$180
|
|
13
|
|
482
|
|
|
Total carrying value of financing receivables
|
|
$69
|
|
|
$92
|
|
|
$17
|
|
|
$304
|
|
|
$180
|
|
|
$736
|
|
|
$1,398
|
|
At June 30, 2020, our allowance related to receivables with ratings of CCC, B, BB, and BBB. We applied default rates that averaged 26%, 8.8%, 3.1%, and 0.2%, 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. Certain collateral values are being adversely impacted by COVID-19. 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 aircraft. 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
2020
|
|
|
December 31
2019
|
|
|
717 Aircraft ($113 and $124 accounted for as operating leases)
|
|
$689
|
|
|
|
$736
|
|
|
747-8 Aircraft ($124 and $130 accounted for as operating leases)
|
483
|
|
|
475
|
|
|
737 Aircraft ($231 and $240 accounted for as operating leases)
|
253
|
|
|
263
|
|
|
777 Aircraft ($230 and $236 accounted for as operating leases)
|
232
|
|
|
240
|
|
|
MD-80 Aircraft (accounted for as sales-type finance leases)
|
171
|
|
|
186
|
|
|
757 Aircraft ($14 and $22 accounted for as operating leases)
|
166
|
|
|
182
|
|
|
747-400 Aircraft ($28 and $31 accounted for as operating leases)
|
81
|
|
|
90
|
|
Lease income recorded in Revenue on the Condensed Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 included $29 and $32 from sales-type/finance leases, and $62 and $71 from operating leases, of which $4 and $5 related to variable operating lease payments. Lease income recorded in Revenue on the Condensed Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 included $14 and $16 from sales-type/finance leases, and $31 and $35 from operating leases, of which $3 and $2 related to variable operating lease payments.
Note 9 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
2020
|
|
|
December 31
2019
|
|
|
Equity method investments (1)
|
|
$998
|
|
|
|
$1,031
|
|
|
Time deposits
|
11,981
|
|
|
50
|
|
|
Available for sale debt instruments
|
411
|
|
|
405
|
|
|
Equity and other investments
|
72
|
|
|
65
|
|
|
Restricted cash & cash equivalents(2)
|
42
|
|
|
86
|
|
|
Total
|
|
$13,504
|
|
|
|
$1,637
|
|
|
|
|
|
(1)
|
Dividends received were $53 and $20 for the six and three months ended June 30, 2020 and $93 and $30 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.
|
Allowance for losses on available for sale debt instruments are assessed quarterly. All instruments are considered investment grade and, as such, we have not recognized an allowance for credit losses as of June 30, 2020.
Note 10 – Commitments and Contingencies
737 MAX Grounding and COVID-19 Impacts
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to suspend operations of all 737 MAX aircraft in the U.S. and by U.S. aircraft operators following two fatal 737 MAX accidents. Non-U.S. civil aviation authorities have issued directives to the same effect. Deliveries of the 737 MAX have been suspended until clearance is granted by the appropriate regulatory authorities. In addition, multiple legal actions have been filed against us as a result of the accidents. We also are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including investigations by the U.S. Department of Justice and the Securities and Exchange Commission, the outcome of which may
be material. We cannot reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations and inquiries related to the 737 MAX.
We have developed software and pilot training updates for the 737 MAX. During the week of June 29, 2020, the FAA completed a series of flight tests to assess whether the 737 MAX meets certification safety standards. The FAA has stated that while this is an important milestone, a number of key tasks remain including evaluating data gathered during the flight tests. On July 21, 2020 the FAA announced a 45 day public comment period for their notice of proposed rulemaking relative to 737 MAX certification. The impact this will have on timing and conditions of return to service, if any, is uncertain. We continue to work with the FAA and non-U.S. civil aviation authorities to complete remaining steps toward certification and readiness for return to service including addressing their questions on the software updates and how pilots will interact with the airplane controls and displays in different flight scenarios. We have assumed that computer and simulator training will be required and as a result, we have provisioned for certain training costs.
Prior to the grounding, the 737 production rate was 52 per month, and we had planned to increase the rate to 57 per month during 2019. Beginning in the second quarter of 2019, we reduced the production rate to 42 per month. We continued to produce at a rate of 42 per month through December 2019. We temporarily suspended 737 MAX production beginning in January 2020. During the first quarter of 2020, we completed airplanes that were already in process at the end of the fourth quarter of 2019. In March 2020, we announced a temporary suspension of production operations in the Puget Sound area as a result of the COVID-19 pandemic. Production operations in Puget Sound resumed during the week of April 20, 2020, at which point the 737 team resumed preparations for restarting 737 MAX production. We resumed early stages of 737 MAX production in May 2020 and expect to continue to produce at low rates for the remainder of 2020. We have approximately 450 airplanes in inventory as of June 30, 2020.
The COVID-19 pandemic has significantly impacted air travel and reduced near-term demand, resulting in lower production and delivery rate assumptions. During the first quarter of 2020, we lowered our production rate assumptions in response to COVID-19 impacts to expected demand. During the second quarter of 2020, we further delayed our production rate ramp assumptions and now expect to gradually increase the production rate to 31 by the beginning of 2022. We expect further gradual production rate increases in subsequent periods based on market demand. We have assumed that the timing of regulatory approvals will enable 737 MAX deliveries to resume during the fourth quarter of 2020. A number of customers have requested to defer deliveries or to cancel orders for 737 MAX aircraft, which may require us to remarket and/or delay deliveries of certain aircraft included within inventory. We expect that the majority of the approximately 450 737 MAX airplanes in inventory will be delivered during the first year after the resumption of deliveries.
During 2019, the cumulative impacts of changes to assumptions regarding timing of return to service and timing of planned production rates and deliveries increased the estimated costs to produce and deliver the 3,100 undelivered aircraft then included in the accounting quantity by approximately $6.3 billion. During 2020, additional reductions in planned production rates further increased the estimated costs to produce and deliver aircraft included in the accounting quantity, but were partially offset by headcount and other cost reductions. These costs will result in lower 737 margins in future periods after deliveries resume.
During the first quarter of 2020, we reduced the number of aircraft included in the accounting quantity by 400 units as a result of reductions to planned production rates due to COVID-19 driven market uncertainties. The accounting quantity was unchanged during the second quarter. As we continue to produce at abnormally low production rates in 2020 and 2021, we expect to incur approximately $5 billion of abnormal production costs that are being expensed as incurred. The slowdown in the planned production rate ramp-up increased expected abnormal costs however this increase was offset by adjustments to the determination of the normal production level due to COVID-19 impacts on customer demand, as well as cost reduction activities, including significant reductions in employment levels. We expensed $712 and $1,509 of abnormal production costs during the three and six months ended June 30, 2020.
We have also recorded additional expenses of $121 as a result of the 737 MAX grounding in the first half of 2020. These expenses include costs related to storage, pilot training and software updates.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during 2020.
|
|
|
|
|
|
|
|
|
2020
|
|
|
Beginning balance – January 1
|
|
$7,389
|
|
|
Reductions for payments made
|
(1,211
|
)
|
|
Reductions for concessions and other in-kind considerations
|
(35
|
)
|
|
Changes in estimates
|
521
|
|
|
Ending balance – June 30
|
|
$6,664
|
|
We are working with our customers to minimize the impact to their operations from grounded and undelivered aircraft. We continue to reassess the liability for estimated potential concessions and other considerations to customers on a quarterly basis. This reassessment includes updating estimates to reflect revisions to return to service, delivery and production rate assumptions driven by timing of regulatory approvals, as well as latest information based on engagements with 737 MAX customers. The liability represents our current best estimate of future concessions and other considerations to customers, and is necessarily based on a series of assumptions. It is subject to change in future quarters as negotiations with customers mature and timing and conditions of return to service are better understood. The liability balance of $6.7 billion at June 30, 2020 includes $1.9 billion expected to be liquidated by lower customer delivery payments, $1.1 billion expected to be paid in cash and $0.1 billion in other concessions. Of the cash payments to customers, we expect to pay $0.4 billion in 2020 and $0.5 billion in 2021. The type of consideration to be provided for the remaining $3.6 billion will depend on the outcomes of negotiations with customers.
The FAA and other non-U.S. civil aviation authorities will determine the timing and conditions of return to service. Our assumptions reflect our current best estimate, but actual timing and conditions of return to service and resumption of deliveries could differ from this estimate, the effect of which could be material. We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the timing and conditions of return to service, uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to the production rate, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows. For example, we expect that, in the event that we are unable to resume aircraft deliveries consistent with our assumptions, the continued absence of revenue, earnings, and cash flows associated with 737 MAX deliveries would continue to have a material impact on our operating results. In the event that future production rate increases occur at a slower rate or take longer than we are currently assuming, we expect that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged production suspension or delays in planned production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to produce aircraft included in the accounting quantity, which would reduce 737 program margins and/or increase abnormal production costs in the future.
Commercial air traffic has fallen dramatically due to the COVID-19 pandemic. While this trend has impacted passenger traffic most severely, near-term cargo traffic has also fallen significantly due to the global economic downturn and the reduction in cargo capacity on passenger airplanes. Airlines have significantly reduced their capacity, and many could implement further reductions in the near future. Many airlines are also implementing significant reductions in staffing. These capacity changes are causing, and are expected to continue to cause, negative impacts to our customers’ revenue, earnings, and cash flow, and in some cases may threaten the future viability of some of our customers, potentially causing defaults within our customer financing portfolio and/or requiring us to remarket aircraft that have already been produced and/or are currently in backlog. If 737 MAX aircraft remain grounded for an extended period of time, we may experience additional reductions to backlog and/or significant order cancellations. Additionally, we may experience fewer new orders and increased cancellations across all of our commercial airplane programs as a result of the COVID-19 pandemic and associated impacts on demand. Our customers may also lack sufficient liquidity to purchase new aircraft due to impacts from the pandemic. We are also observing a significant increase in the number of requests for payment deferrals, contract modifications, lease restructurings and similar actions,
and these trends may lead to additional earnings charges, impairments and other adverse financial impacts in our business over time. In addition, to the extent that customers have valid rights to cancel undelivered aircraft, we may be required to refund pre-delivery payments, putting additional constraints on our liquidity. In addition to the near-term impact, there is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises. In addition, airlines may experience reduced demand due to reluctance by the flying public to travel due to travel restrictions and/or social distancing requirements.
As a result, there is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The COVID-19 pandemic also has increased, and its aftermath is also expected to continue to increase, uncertainty with respect to global trade volumes, putting significant negative pressure on cargo traffic. Any of these factors would have a significant impact on the demand for both single-aisle and wide-body commercial aircraft, as well as for the services we provide to commercial airlines. In addition, a lengthy period of reduced industry-wide demand for commercial aircraft would put additional pressure on our suppliers, resulting in increased procurement costs and/or additional supply chain disruption. To the extent that the COVID-19 pandemic or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers and/or suppliers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.
Environmental
The following table summarizes environmental remediation activity during the six months ended June 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Beginning balance – January 1
|
|
$570
|
|
|
|
$555
|
|
|
Reductions for payments made
|
(21
|
)
|
|
(24
|
)
|
|
Changes in estimates
|
11
|
|
|
17
|
|
|
Ending balance – June 30
|
|
$560
|
|
|
|
$548
|
|
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, 2020 and December 31, 2019, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,088 and $1,077.
Product Warranties
The following table summarizes product warranty activity recorded during the six months ended June 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Beginning balance – January 1
|
|
$1,267
|
|
|
|
$1,127
|
|
|
Additions for current year deliveries
|
34
|
|
|
83
|
|
|
Reductions for payments made
|
(149
|
)
|
|
(64
|
)
|
|
Changes in estimates
|
395
|
|
|
(83
|
)
|
|
Ending balance – June 30
|
|
$1,547
|
|
|
|
$1,063
|
|
The increase in the product warranty reserve during the six months ended June 30, 2020 is primarily driven by charges related to “pickle forks” on 737NG aircraft. During 2019, we detected cracks in the "pickle forks", a frame fitting component of the structure connecting the wings to the fuselages of 737NG aircraft. We notified the FAA, which issued a directive requiring that certain 737NG airplanes be inspected. We have estimated the number of aircraft that will have to be repaired in the future and provisioned for the estimated costs of completing the repairs. We recognized charges of $135 in 2019 for current and projected future aircraft repairs. During the first quarter of 2020, we recognized additional charges of $336 based on revised engineering and fleet utilization estimates as well as updated repair cost estimates. We cannot estimate a range of reasonably possible losses, if any, in excess of amounts recognized due to the ongoing nature of the inspections and repairs and pending the completion of investigations into the cause of the condition.
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, 2020 have expiration dates from 2020 through 2026. At June 30, 2020 and December 31, 2019 total contractual trade-in commitments were $1,165 and $1,407. As of June 30, 2020 and December 31, 2019, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $621 and $711 and the fair value of the related trade-in aircraft was $602 and $678.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $12,784 and $13,377 as of June 30, 2020 and December 31, 2019. The estimated earliest potential funding dates for these commitments as of June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
Total
|
|
|
July through December 2020
|
|
$2,462
|
|
|
2021
|
2,472
|
|
|
2022
|
1,368
|
|
|
2023
|
1,755
|
|
|
2024
|
1,373
|
|
|
Thereafter
|
3,354
|
|
|
|
|
$12,784
|
|
As of June 30, 2020, all of these financing commitments relate 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.
Funding Commitments
We have commitments to make additional capital contributions of $243 to joint ventures over the next seven years.
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 $3,761 and $3,769 as of June 30, 2020 and December 31, 2019.
United States Government Defense Environment Overview
The Bipartisan Budget Act of 2019 raised the Budget Control Act limits on federal discretionary defense and non-defense spending for fiscal years 2020 and 2021 (FY20 and FY21), reducing budget uncertainty and the risk of sequestration. The consolidated appropriations acts for FY20, enacted in December 2019, provided FY20 appropriations for government departments and agencies, including the U.S. DoD, the National Aeronautics and Space Administration (NASA) and the FAA. In February 2020, the U.S. administration submitted its request for $740.5 billion in base national defense spending for FY21, congruent with the amended spending limit.
The enacted FY20 appropriations included funding for Boeing’s major programs, such as the F/A-18 Super Hornet, F-15EX, CH-47 Chinook, AH-64 Apache, V-22 Osprey, KC-46A Tanker, P-8 Poseidon and Space Launch System. However, there continues to be uncertainty with respect to future program-level appropriations for the U.S. DoD and other government agencies, including NASA. Future budget cuts or investment priority changes, including changes associated with the authorizations and appropriations process, could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on our results of 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, KC-46A Tanker, MQ-25, T-7A Red Hawk, VC-25B 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 recorded a reach-forward loss of $978 on KC-46A Tanker in the first half of 2020. The KC-46A Tanker reach-forward loss in the first quarter of 2020 reflects $551 of costs associated with the agreement signed in April 2020 with the U.S. Air Force (USAF) to develop and integrate a new Remote Vision System, and the remaining costs reflect productivity inefficiencies and COVID-19 related factory disruption. Moreover, our fixed-price development programs remain subject to additional reach-forward losses if we experience further production, 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 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 and involves highly complex designs and systems integration. Since 2016, the USAF has authorized five low rate initial production (LRIP) lots for a total of 67 aircraft. The EMD contract and authorized LRIP lots are valued at approximately $15 billion.
At June 30, 2020, we had approximately $374 of capitalized precontract costs and $548 of potential termination liabilities to suppliers.
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.
Severance
During the second quarter of 2020, the Company recorded severance costs of $652 that are expected to be paid during 2020 to approximately 19,000 employees expected to leave the Company through a combination of voluntary and involuntary terminations. The severance packages are consistent with the Company’s ongoing compensation and benefits plans. As of June 30, 2020 approximately 6,000 employees had left the Company and the remaining 13,000 employees are expected to leave in the third and fourth quarter of 2020. The remaining liability at June 30, 2020 was $405. In July 2020, the Company announced that the prolonged impact of COVID-19, further reductions in production rates and lower demand for commercial services will result in further assessments of the size of the Company’s workforce to align with a smaller market.
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
|
|
|
June 30
2020
|
|
December 31
2019
|
|
|
June 30
2020
|
|
December 31
2019
|
|
|
June 30
2020
|
|
December 31
2019
|
|
|
Contingent repurchase commitments
|
|
$1,480
|
|
|
$1,570
|
|
|
|
$1,480
|
|
|
$1,570
|
|
|
|
|
|
|
|
Indemnifications to ULA:
|
|
|
|
|
|
|
|
|
|
Contributed Delta inventory
|
30
|
|
30
|
|
|
|
|
|
|
|
|
Inventory supply agreement
|
34
|
|
34
|
|
|
|
|
|
|
|
|
|
|
Questioned costs
|
|
|
317
|
|
|
|
|
|
|
|
|
$48
|
|
|
Credit guarantees
|
92
|
|
92
|
|
|
35
|
|
36
|
|
|
|
$24
|
|
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 During the first quarter of 2020, the USAF and ULA reached a settlement regarding previously questioned deferred support and deferred production costs. As part of the settlement the USAF agreed to reimburse ULA for $307 of those costs, which was received by ULA in the second quarter. The settlement substantially retires our indemnification risks to ULA.
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. We record a liability for the fair value of guarantees and the expected contingent loss amount, which is reviewed quarterly. Current outstanding credit guarantees expire through 2036.
Note 12 – Debt
In the first quarter of 2020, we entered into a $13,825, two-year delayed draw term loan facility, which includes additional commitments made subsequent to the initial closing date. As of June 30, 2020, we have fully drawn on the $13,825 delayed draw term loan facility, with February 6, 2022 as the final maturity date. Borrowings outstanding bear interest at the Eurodollar rate (determined in accordance with the delayed draw term loan facility agreement) plus between 0.75% and 1.25%, depending on our credit rating.
In the second quarter of 2020, we issued $25,000 of fixed rate senior notes consisting of $3,000 due May 1, 2023 that bear an annual interest rate of 4.508%, $3,500 due May 1, 2025 that bear an annual interest rate of 4.875%, $2,000 due May 1, 2027 that bear an annual interest rate of 5.04%, $4,500 due May 1, 2030 that bear an annual interest rate of 5.15%, $3,000 due May 1, 2040 that bear an annual interest rate of 5.705%, $5,500 due May 1, 2050 that bear an annual interest rate of 5.805%, and $3,500 due May 1, 2060 that bear an annual interest rate of 5.93%. 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 $24,802, after deducting underwriting discounts, commissions, and offering expenses.
Note 13 – Postretirement Plans
The components of net periodic benefit (income)/cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
Pension Plans
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Service cost
|
|
$1
|
|
|
|
$2
|
|
|
|
$1
|
|
|
|
$1
|
|
|
Interest cost
|
1,228
|
|
|
1,462
|
|
|
614
|
|
|
731
|
|
|
Expected return on plan assets
|
(1,878
|
)
|
|
(1,930
|
)
|
|
(939
|
)
|
|
(965
|
)
|
|
Amortization of prior service credits
|
(40
|
)
|
|
(40
|
)
|
|
(20
|
)
|
|
(20
|
)
|
|
Recognized net actuarial loss
|
516
|
|
|
321
|
|
|
258
|
|
|
160
|
|
|
Settlement/curtailment/other losses
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
Net periodic benefit income
|
|
($170
|
)
|
|
|
($185
|
)
|
|
|
($83
|
)
|
|
|
($93
|
)
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost included in Loss from operations
|
|
$1
|
|
|
|
$158
|
|
|
|
$1
|
|
|
|
$80
|
|
|
Net periodic benefit income included in Other income, net
|
(171
|
)
|
|
(187
|
)
|
|
(84
|
)
|
|
(94
|
)
|
|
Net periodic benefit income included in Loss before income taxes
|
|
($170
|
)
|
|
|
($29
|
)
|
|
|
($83
|
)
|
|
|
($14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
Other Postretirement Plans
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Service cost
|
|
$43
|
|
|
|
$39
|
|
|
|
$22
|
|
|
|
$20
|
|
|
Interest cost
|
72
|
|
|
98
|
|
|
36
|
|
|
49
|
|
|
Expected return on plan assets
|
(5
|
)
|
|
(4
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
Amortization of prior service credits
|
(17
|
)
|
|
(18
|
)
|
|
(8
|
)
|
|
(9
|
)
|
|
Recognized net actuarial gain
|
(23
|
)
|
|
(23
|
)
|
|
(11
|
)
|
|
(12
|
)
|
|
Net periodic benefit cost
|
|
$70
|
|
|
|
$92
|
|
|
|
$36
|
|
|
|
$46
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost included in Loss from operations
|
|
$44
|
|
|
|
$45
|
|
|
|
$23
|
|
|
|
$23
|
|
|
Net periodic benefit cost included in Other income, net
|
27
|
|
|
53
|
|
|
14
|
|
|
26
|
|
|
Net periodic benefit cost included in Loss before income taxes
|
|
$71
|
|
|
|
$98
|
|
|
|
$37
|
|
|
|
$49
|
|
Note 14 – Share-Based Compensation and Other Compensation Arrangements
Restricted Stock Units
On February 24, 2020, we granted to our executives 325,108 restricted stock units (RSUs) as part of our long-term incentive program with a grant date fair value of $319.04 per unit. The RSUs 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 24, 2020, we granted to our executives 290,202 performance-based restricted stock units (PBRSUs) as part of our long-term incentive program with a grant date fair value of $357.38 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 27.04% based upon historical stock volatility, a risk-free interest rate of 1.21%, and no expected dividend yield because the units earn dividend equivalents.
Performance Awards
On February 28, 2020, 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, 2022. At June 30, 2020, the minimum payout amount is $0 and the maximum amount we could be required to pay out is $305.
Note 15 – Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss (AOCI) by component for the six and three months ended June 30, 2020 and 2019 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, 2019
|
|
($101
|
)
|
|
|
|
|
($62
|
)
|
|
|
($14,920
|
)
|
|
|
($15,083
|
)
|
|
Other comprehensive (loss)/income before reclassifications
|
(2
|
)
|
|
1
|
|
|
(17
|
)
|
|
8
|
|
|
(10
|
)
|
|
Amounts reclassified from AOCI
|
|
|
|
|
(3
|
)
|
|
188
|
|
(2)
|
185
|
|
|
Net current period Other comprehensive (loss)/income
|
(2
|
)
|
|
1
|
|
|
(20
|
)
|
|
196
|
|
|
175
|
|
|
Balance at June 30, 2019
|
|
($103
|
)
|
|
|
$1
|
|
|
|
($82
|
)
|
|
|
($14,724
|
)
|
|
|
($14,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
|
($128
|
)
|
|
$1
|
|
|
|
($84
|
)
|
|
|
($15,942
|
)
|
|
|
($16,153
|
)
|
|
Other comprehensive (loss)/income before reclassifications
|
(33
|
)
|
|
|
|
(186
|
)
|
|
(12
|
)
|
|
(231
|
)
|
|
Amounts reclassified from AOCI
|
|
|
|
|
12
|
|
|
347
|
|
(2)
|
359
|
|
|
Net current period Other comprehensive (loss)/income
|
(33
|
)
|
|
|
|
(174
|
)
|
|
335
|
|
|
128
|
|
|
Balance at June 30, 2020
|
|
($161
|
)
|
|
|
$1
|
|
|
|
($258
|
)
|
|
|
($15,607
|
)
|
|
|
($16,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
($100
|
)
|
|
|
$1
|
|
|
|
($53
|
)
|
|
|
($14,817
|
)
|
|
|
($14,969
|
)
|
|
Other comprehensive (loss)/income before reclassifications
|
(3
|
)
|
|
|
|
(28
|
)
|
|
|
|
(31
|
)
|
|
Amounts reclassified from AOCI
|
|
|
|
|
(1
|
)
|
|
93
|
|
(2)
|
92
|
|
|
Net current period Other comprehensive (loss)/income
|
(3
|
)
|
|
|
|
(29
|
)
|
|
93
|
|
|
61
|
|
|
Balance at June 30, 2019
|
|
($103
|
)
|
|
|
$1
|
|
|
|
($82
|
)
|
|
|
($14,724
|
)
|
|
|
($14,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
($205
|
)
|
|
|
$1
|
|
|
|
($357
|
)
|
|
|
($15,772
|
)
|
|
|
($16,333
|
)
|
|
Other comprehensive (loss)/income before reclassifications
|
44
|
|
|
|
|
89
|
|
|
(12
|
)
|
|
121
|
|
|
Amounts reclassified from AOCI
|
|
|
|
|
10
|
|
|
177
|
|
(2)
|
187
|
|
|
Net current period Other comprehensive (loss)/income
|
44
|
|
|
|
|
99
|
|
|
165
|
|
|
308
|
|
|
Balance at June 30, 2020
|
|
($161
|
)
|
|
|
$1
|
|
|
|
($258
|
)
|
|
|
($15,607
|
)
|
|
|
($16,025
|
)
|
|
|
|
|
(2)
|
Primarily relates to amortization of actuarial losses for the six and three months ended June 30, 2019 totaling $233 and $115 (net of tax of ($65) and ($33)) and for the six and three months ended June 30, 2020 totaling $390 and $197 (net of tax of ($103) and ($50)). 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, commodity swaps 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 2025. We use commodity derivatives, such as fixed-price purchase commitments and swaps to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through 2023.
We continue to monitor the effects of the COVID-19 pandemic on our commodity cash flow hedges, including reductions in our forecasted purchases of certain commodities. As of June 30, 2020, the impact of the COVID-19 pandemic on our cash flow hedges was not significant.
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 and commodity swaps 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
|
|
|
June 30
2020
|
|
December 31
2019
|
|
June 30
2020
|
|
December 31
2019
|
|
June 30
2020
|
|
December 31
2019
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$3,233
|
|
|
$2,590
|
|
|
$7
|
|
|
$29
|
|
|
($165
|
)
|
|
($60
|
)
|
|
Commodity contracts
|
366
|
|
645
|
|
2
|
|
4
|
|
(119
|
)
|
(72
|
)
|
|
Derivatives not receiving hedge accounting treatment:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
399
|
|
285
|
|
7
|
|
1
|
|
(6
|
)
|
(6
|
)
|
|
Commodity contracts
|
796
|
|
1,644
|
|
|
|
|
|
(25
|
)
|
|
|
Total derivatives
|
|
$4,794
|
|
|
$5,164
|
|
|
$16
|
|
|
$34
|
|
|
($315
|
)
|
|
($138
|
)
|
|
Netting arrangements
|
|
|
(14
|
)
|
(20
|
)
|
14
|
|
20
|
|
|
Net recorded balance
|
|
|
|
$2
|
|
|
$14
|
|
|
($301
|
)
|
|
($118
|
)
|
|
|
|
|
(1)
|
Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
|
Gains/(losses) associated with our hedging transactions and forward points recognized in Other comprehensive income are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
Three months ended June 30
|
|
|
2020
|
|
|
2019
|
|
2020
|
|
|
2019
|
|
|
Recognized in Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
($112
|
)
|
|
|
$31
|
|
|
$85
|
|
|
|
$9
|
|
|
Commodity contracts
|
(74
|
)
|
|
(48
|
)
|
4
|
|
|
(37
|
)
|
Gains/(losses) associated with our hedging transactions and forward points reclassified from AOCI to earnings are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
Revenues
|
|
($1
|
)
|
|
|
$6
|
|
|
|
|
|
|
$1
|
|
|
Costs and expenses
|
(6
|
)
|
|
(12
|
)
|
|
|
($5
|
)
|
|
(7
|
)
|
|
General and administrative
|
(5
|
)
|
|
9
|
|
|
(5
|
)
|
|
8
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
Costs and expenses
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
|
|
|
General and administrative expense
|
(1
|
)
|
|
|
|
(1
|
)
|
|
(1
|
)
|
Gains related to undesignated derivatives on foreign exchange and commodity cash flow hedging transactions recognized in Other income, net were $6 and $1 for the six and three months ended June 30, 2020 and $2 and $0 for the six and three months ended June 30, 2019.
Based on our portfolio of cash flow hedges, we expect to reclassify losses of $33 (pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months.
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 June 30, 2020 was $54. At June 30, 2020, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
December 31, 2019
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$8,877
|
|
|
|
$8,877
|
|
|
|
|
|
$2,562
|
|
|
|
$2,562
|
|
|
|
|
Available-for-sale debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
93
|
|
|
|
|
|
$93
|
|
|
108
|
|
|
|
|
|
$108
|
|
|
Corporate notes
|
321
|
|
|
|
|
321
|
|
|
242
|
|
|
|
|
242
|
|
|
U.S. government agencies
|
|
|
|
|
|
|
|
|
55
|
|
|
55
|
|
|
|
|
Other equity investments
|
40
|
|
|
40
|
|
|
|
|
33
|
|
|
33
|
|
|
|
|
Derivatives
|
2
|
|
|
|
|
2
|
|
|
14
|
|
|
|
|
14
|
|
|
Total assets
|
|
$9,333
|
|
|
|
$8,917
|
|
|
|
$416
|
|
|
|
$3,014
|
|
|
|
$2,650
|
|
|
|
$364
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
($301
|
)
|
|
|
|
|
($301
|
)
|
|
|
($118
|
)
|
|
|
|
|
($118
|
)
|
|
Total liabilities
|
|
($301
|
)
|
|
|
|
|
($301
|
)
|
|
|
($118
|
)
|
|
|
|
|
($118
|
)
|
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 and commodity 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.
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 six months ended June 30 due to long-lived asset impairment and the fair value and asset classification of the related assets as of the impairment date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Fair
Value
|
|
|
Total
Losses
|
|
|
Fair
Value
|
|
|
Total
Losses
|
|
|
Customer financing assets
|
|
$71
|
|
|
|
($17
|
)
|
|
|
$10
|
|
|
|
($1
|
)
|
|
Investments
|
64
|
|
|
(49
|
)
|
|
72
|
|
|
(51
|
)
|
|
Property, plant and equipment
|
82
|
|
|
(59
|
)
|
|
41
|
|
|
(1
|
)
|
|
Other Assets and Acquired intangible assets
|
201
|
|
|
(155
|
)
|
|
3
|
|
|
(17
|
)
|
|
Total
|
|
$418
|
|
|
|
($280
|
)
|
|
|
$126
|
|
|
|
($70
|
)
|
Investments, Property, plant and equipment, Other assets and Acquired intangible assets were primarily valued using an income approach based on the discounted cash flows associated with the underlying assets. The fair value of the impaired customer financing assets 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, 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 year ended June 30, 2020, 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
|
|
Customer financing assets
|
$71
|
|
Market approach
|
|
Aircraft value publications
|
|
$57 - $118(1)
Median $79
|
|
|
|
Aircraft condition adjustments
|
|
($8) - $0(2)
Net ($8)
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
Carrying
Amount
|
|
Total Fair
Value
|
|
Level 1
|
Level 2
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
Notes receivable, net
|
|
$433
|
|
|
$429
|
|
|
|
$429
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt, excluding commercial paper and capital lease obligations
|
(58,788
|
)
|
(61,367
|
)
|
|
(61,350
|
)
|
|
($17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Carrying
Amount
|
|
Total Fair
Value
|
|
Level 1
|
Level 2
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
Notes receivable, net
|
|
$443
|
|
|
$444
|
|
|
|
$444
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Debt, excluding capital lease obligations and commercial paper
|
(20,964
|
)
|
(23,119
|
)
|
|
(23,081
|
)
|
|
($38
|
)
|
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 deposits and other deposits, commercial paper, money market funds, Accounts receivable, Unbilled receivables, Other current assets, 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 June 30, 2020 and December 31, 2019. 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. Except as described below, 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. Where it is reasonably possible that we will incur losses in excess of recorded amounts in connection with any of the matters set forth below, we will disclose either the amount or range of reasonably possible losses in excess of such amounts or,
where no such amount or range can be reasonably estimated, the reasons why no such estimate can be made.
Multiple legal actions have been filed against us as a result of the October 29, 2018 accident of Lion Air Flight 610 and the March 10, 2019 accident of Ethiopian Airlines Flight 302. Further, we are subject to, and cooperating with, ongoing governmental and regulatory investigations and inquiries relating to the accidents and the 737 MAX, including investigations by the U.S. Department of Justice and the Securities and Exchange Commission, the outcome of which may be material. We cannot reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the lawsuits, investigations, and inquiries related to the 737 MAX.
During the first quarter of 2019, we entered into definitive transaction documents with respect to a strategic partnership with Embraer S.A. (Embraer). The partnership contemplated the establishment of joint ventures that included the commercial aircraft and services operations of Embraer, of which we were expected to acquire an 80 percent ownership stake for $4,200, as well as a joint venture to promote and develop new markets for the C-390 Millennium.
The transaction documents permitted either party to terminate the proposed partnership beginning on April 24, 2020, provided that certain closing conditions were not met. Based on Embraer’s failure to satisfy required closing conditions, we exercised our contractual termination right during the second quarter of 2020, which Embraer has disputed. We would have been required to pay a termination fee of $100 had the transaction been terminated due to a failure to obtain antitrust approvals. Because the transaction was terminated due to a failure by Embraer to meet other closing conditions, we do not expect to be required to pay a termination fee in connection with the termination of the transaction. Boeing and Embraer are arbitrating their dispute over Boeing’s termination of the agreement. We cannot reasonably estimate a range of loss, if any, that may result from the arbitration.
Note 19 – Segment and Revenue Information
Effective at the beginning of 2020, certain programs were realigned between our BDS segment and Unallocated items, eliminations and other. Business segment data for 2019 has been adjusted to reflect the realignment.
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 7 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.
BDS engages 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. BGS segment revenue and costs include certain services provided to other segments. 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.
BCA revenues by customer location consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
Europe
|
|
$2,302
|
|
|
|
$2,684
|
|
|
|
$332
|
|
|
|
$1,023
|
|
|
Asia
|
1,464
|
|
|
7,534
|
|
|
305
|
|
|
4,360
|
|
|
Middle East
|
556
|
|
|
1,805
|
|
|
7
|
|
|
695
|
|
|
Other
|
453
|
|
|
2,367
|
|
|
142
|
|
|
829
|
|
|
Total non-U.S. revenues
|
4,775
|
|
|
14,390
|
|
|
786
|
|
|
6,907
|
|
|
United States
|
3,557
|
|
|
7,587
|
|
|
1,383
|
|
|
3,417
|
|
|
Estimated potential concessions and other considerations to 737 MAX customers, net
|
(521
|
)
|
|
(5,610
|
)
|
|
(551
|
)
|
|
(5,610
|
)
|
|
Total revenues from contracts with customers
|
7,811
|
|
|
16,367
|
|
|
1,618
|
|
|
4,714
|
|
|
Intersegment revenues eliminated on consolidation
|
27
|
|
|
177
|
|
|
15
|
|
|
8
|
|
|
Total segment revenues
|
|
$7,838
|
|
|
|
$16,544
|
|
|
|
$1,633
|
|
|
|
$4,722
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
BDS revenues on contracts with customers, based on the customer's location, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
U.S. customers
|
|
$9,153
|
|
|
|
$9,719
|
|
|
|
$4,837
|
|
|
|
$4,836
|
|
|
Non U.S. customers(1)
|
3,477
|
|
|
3,447
|
|
|
1,751
|
|
|
1,743
|
|
|
Total segment revenue from contracts with customers
|
|
$12,630
|
|
|
|
$13,166
|
|
|
|
$6,588
|
|
|
|
$6,579
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized over time
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
68
|
%
|
|
69
|
%
|
|
69
|
%
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue from the U.S. government(1)
|
89
|
%
|
|
88
|
%
|
|
89
|
%
|
|
89
|
%
|
|
|
|
|
(1)
|
Includes revenues earned from foreign military sales through the U.S. government.
|
BGS revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$3,894
|
|
|
|
$5,111
|
|
|
|
$1,371
|
|
|
|
$2,526
|
|
|
Government
|
4,099
|
|
|
3,974
|
|
|
2,066
|
|
|
1,977
|
|
|
Total revenues from contracts with customers
|
7,993
|
|
|
9,085
|
|
|
3,437
|
|
|
4,503
|
|
|
Intersegment revenues eliminated on consolidation
|
123
|
|
|
77
|
|
|
51
|
|
|
40
|
|
|
Total segment revenues
|
|
$8,116
|
|
|
|
$9,162
|
|
|
|
$3,488
|
|
|
|
$4,543
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time
|
49
|
%
|
|
57
|
%
|
|
41
|
%
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
88
|
%
|
|
89
|
%
|
|
86
|
%
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue from the U.S. government(1)
|
40
|
%
|
|
32
|
%
|
|
46
|
%
|
|
32
|
%
|
|
|
|
|
(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 June 30, 2020 was $408,650. We expect approximately 27% to be converted to revenue through 2021 and approximately 70% through 2024, with the remainder thereafter. The future periods when backlog is expected to convert to revenue could be impacted if the timing of aircraft deliveries is adjusted due to COVID-19 impacts.
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. Such sales include airplanes accounted for as operating leases and considered transferred to the BCC segment. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Share-based plans
|
|
($43
|
)
|
|
|
($36
|
)
|
|
|
($25
|
)
|
|
|
($22
|
)
|
|
Deferred compensation
|
73
|
|
|
(129
|
)
|
|
(120
|
)
|
|
(27
|
)
|
|
Amortization of previously capitalized interest
|
(50
|
)
|
|
(45
|
)
|
|
(27
|
)
|
|
(21
|
)
|
|
Research and development expense, net
|
(116
|
)
|
|
(183
|
)
|
|
(62
|
)
|
|
(105
|
)
|
|
Customer financing impairment
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
Litigation
|
|
|
|
(109
|
)
|
|
|
|
|
(109
|
)
|
|
Eliminations and other unallocated items
|
(515
|
)
|
|
(458
|
)
|
|
(244
|
)
|
|
(214
|
)
|
|
Unallocated items, eliminations and other
|
|
($651
|
)
|
|
|
($1,210
|
)
|
|
|
($478
|
)
|
|
|
($498
|
)
|
|
|
|
|
|
|
|
|
|
|
Pension FAS/CAS service cost adjustment
|
|
$513
|
|
|
|
$549
|
|
|
|
$258
|
|
|
|
$275
|
|
|
Postretirement FAS/CAS service cost adjustment
|
189
|
|
|
180
|
|
|
97
|
|
|
90
|
|
|
FAS/CAS service cost adjustment
|
|
$702
|
|
|
|
$729
|
|
|
|
$355
|
|
|
|
$365
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
2020
|
|
|
December 31
2019
|
|
|
Commercial Airplanes
|
|
$80,160
|
|
|
|
$73,995
|
|
|
Defense, Space & Security
|
15,407
|
|
|
15,757
|
|
|
Global Services
|
18,438
|
|
|
18,605
|
|
|
Boeing Capital
|
2,116
|
|
|
2,269
|
|
|
Unallocated items, eliminations and other
|
46,751
|
|
|
22,999
|
|
|
Total
|
|
$162,872
|
|
|
|
$133,625
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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 managed centrally on behalf of the four principal business segments and intercompany eliminations. From December 31, 2019 to June 30, 2020, assets in BCA increased primarily due to higher inventory balances and assets in Unallocated items, eliminations, and other increased due to higher cash and short-term investment balances from debt issued during the first half of 2020.