Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
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(Dollars in millions)
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Nine months ended September 30
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Three months ended September 30
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2021
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2020
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2021
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2020
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Revenues:
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Commercial Airplanes
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$14,743
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$11,434
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$4,459
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$3,596
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Defense, Space & Security
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20,678
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19,478
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6,617
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6,848
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Global Services
|
12,037
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11,810
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4,221
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3,694
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Boeing Capital
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209
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205
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71
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71
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Unallocated items, eliminations and other
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(174)
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(73)
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(90)
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(70)
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Total revenues
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$47,493
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$42,854
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$15,278
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$14,139
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Earnings/(loss) from operations:
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Commercial Airplanes
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($2,021)
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($6,199)
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($693)
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($1,369)
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Defense, Space & Security
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1,799
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1,037
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436
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628
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Global Services
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1,616
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307
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644
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271
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Boeing Capital
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99
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47
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42
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30
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Segment operating earnings/(loss)
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1,493
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(4,808)
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429
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(440)
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Unallocated items, eliminations and other
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(1,032)
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(965)
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(370)
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(314)
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FAS/CAS service cost adjustment
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808
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1,055
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270
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353
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Earnings/(loss) from operations
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1,269
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(4,718)
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329
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(401)
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Other income, net
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419
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325
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30
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119
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Interest and debt expense
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(2,021)
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(1,458)
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(669)
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(643)
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Loss before income taxes
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(333)
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(5,851)
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(310)
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(925)
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Income tax benefit
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207
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2,349
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178
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459
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Net loss
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(126)
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(3,502)
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(132)
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(466)
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Less: Net loss attributable to noncontrolling interest
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(67)
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(49)
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(23)
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(17)
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Net loss attributable to Boeing Shareholders
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($59)
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($3,453)
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($109)
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($449)
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This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note 18 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 September 30, 2021 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 2020 Annual Report on Form 10-K.
Liquidity Matters
The global outbreak of COVID-19, 787 production issues and associated rework and residual impacts from the grounding of the 737 MAX airplane in 2019 are having a significant adverse impact on our business and are expected to continue to negatively impact revenue, earnings, and operating cash flow in future quarters. The COVID-19 pandemic has caused an unprecedented shock to demand for air travel, creating a tremendous challenge for our customers, our business, and the entire aerospace manufacturing and services sector. We continue to expect commercial air travel to return to 2019 levels in 2023 to 2024. We expect it will take 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 nine months of 2021, net cash used by operating activities was $4.1 billion. Our operating cash flows continue to be impacted by lower commercial airplane deliveries and increases in commercial airplane inventory. We expect negative operating cash flows until commercial deliveries ramp up. In the first quarter of 2021, we issued $9.8 billion of fixed rate senior notes that mature between 2023 and 2026. We used the net proceeds of these note issuances to repay $9.8 billion outstanding under our two-year delayed draw term loan credit agreement. In the third quarter of 2021, we repaid $1.2 billion of term notes. As a result, our cash and short-term investment balance was $20.0 billion at September 30, 2021, down from $25.6 billion at December 31, 2020, while our debt balance was $62.4 billion at September 30, 2021, down from $63.6 billion at December 31, 2020. Short-term debt and the current portion of long-term debt increased to $5.4 billion at September 30, 2021, up from $1.7 billion at December 31, 2020. The current portion of long term debt includes term notes of $0.3 billion maturing in the fourth quarter of 2021, $0.9 billion maturing in 2022, and the remaining delayed draw term loan. While our two-year delayed draw term loan matures in February 2022, we are planning to repay the remaining $4.0 billion in the fourth quarter of 2021. Our short-term and long-term credit ratings remained unchanged during the third quarter of 2021.
In the first quarter of 2021, we entered into a $5.3 billion two-year revolving credit agreement, which we have not drawn upon. As of September 30, 2021, our unused borrowing capacity on revolving credit agreements is $14.8 billion, up from $9.5 billion at December 31, 2020. $3.1 billion of the $14.8 billion is a 364-day revolving credit facility, which was set to expire in October 2021. In October 2021, we renewed the 364-day facility for $3.1 billion, which now expires in October 2022. This 364-day facility has a one-year term out option that allows us to extend the maturity of any borrowings one additional year. We anticipate that these credit lines will remain undrawn and primarily serve as back-up liquidity to support our general corporate borrowing needs. See Note 11.
At September 30, 2021, trade payables included $2.8 billion payable to suppliers who have elected to participate in supply chain financing programs. While access to supply chain financing was reduced in 2020 due to our credit ratings and debt levels, we do not believe that these or future changes in the availability of supply chain financing will have a significant impact on our liquidity.
In addition to our debt issuances, we have taken a number of actions to improve liquidity. During 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 are executing on our plans to reduce our workforce through a combination of voluntary and involuntary layoffs and natural turnover. We have recorded severance costs for approximately 19,000 employees. In the fourth quarter of 2020, we began using our common stock in lieu of cash to fund Company contributions to our 401(k) plans. In December 2020, in lieu of merit pay increases, we awarded most of our employees a one-time stock grant that will vest in three years. We have reduced discretionary spending, including reducing or deferring research and development and capital expenditures. We expect these actions will further enable the Company to conserve cash.
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 also deferred certain tax payments in 2020 pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act also included a five-year net operating loss carryback provision which enabled us to benefit from certain 2020 losses and resulted in tax refunds of $1.3 billion in the third quarter of 2021.
In July 2020, we announced our business transformation efforts to assess our business across five key pillars: infrastructure, overhead and organization, portfolio and investments, supply chain health, and operational excellence. Within the infrastructure pillar we are assessing our overall facility requirements in light of reduced demand in our commercial businesses and remote and virtual work opportunities for large numbers of our workforce. We also anticipate a reduction in office space needs compared to our pre-COVID capacity. However, as we consolidate our footprint, terminate leases, and dispose of properties, we may incur near term adverse impacts to earnings. The overhead and organization pillar is focused on our cost structure and how we are organized so we can right size our workforce and simplify and reduce management layers and bureaucracy. The portfolio and investments pillar includes aligning our portfolio and investments to focus on our core business and the changes in market conditions. The supply chain pillar is focused on supply chain health and stability, reducing indirect procurement spend and streamlining our transportation, logistics, and warehousing approach. The operational excellence pillar is focused on improving performance, enhancing quality, and reducing rework. These activities are not intended to constrain our capacity, but rather to enable the Company to emerge stronger and be more resilient when the market recovers.
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 as 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.
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 included in these financial statements are appropriate and reflect increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ from those estimates.
Long-term Contracts
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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Nine months ended September 30
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Three months ended September 30
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2021
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2020
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2021
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2020
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Increase/(decrease) to Revenue
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$167
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($265)
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($63)
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$25
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Decrease to Earnings/(loss) from operations
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($84)
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($787)
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($142)
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($38)
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Decrease to Diluted EPS
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($0.05)
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($0.83)
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($0.10)
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($0.03)
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Note 2 – 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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Nine months ended September 30
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Three months ended September 30
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2021
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2020
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2021
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2020
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Net loss attributable to Boeing Shareholders
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($59)
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($3,453)
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($109)
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($449)
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Less: earnings available to participating securities
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Net loss available to common shareholders
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($59)
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($3,453)
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($109)
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($449)
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Basic
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Basic weighted average shares outstanding
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587.3
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566.3
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589.0
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566.6
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Less: participating securities
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0.4
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0.5
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0.4
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0.5
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Basic weighted average common shares outstanding
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586.9
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565.8
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588.6
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566.1
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Diluted
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Basic weighted average shares outstanding
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587.3
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566.3
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589.0
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566.6
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Dilutive potential common shares(1)
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Diluted weighted average shares outstanding
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587.3
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566.3
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589.0
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566.6
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Less: participating securities
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0.4
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0.5
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0.4
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0.5
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Diluted weighted average common shares outstanding
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586.9
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565.8
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588.6
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566.1
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Net loss per share:
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Basic
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($0.10)
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($6.10)
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($0.19)
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($0.79)
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Diluted
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(0.10)
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(6.10)
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(0.19)
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(0.79)
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(1)Diluted earnings per share includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
As a result of incurring a net loss for the nine and three months ended September 30, 2021 and 2020, potential common shares of 2.3 million, 2.7 million, 1.6 million and 1.3 million, respectively, 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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Nine months ended September 30
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Three months ended September 30
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2021
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2020
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2021
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2020
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Performance awards
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2.8
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6.1
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3.0
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6.0
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Performance-based restricted stock units
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0.8
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1.4
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0.8
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1.3
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Restricted stock units
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0.5
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Stock options
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0.3
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0.3
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Note 3 – Income Taxes
Our income tax expense or benefit for interim periods has been historically determined using an estimate of our annual effective tax rate, adjusted for discrete items. In the third quarter of 2021, we determined that we could not make a reliable estimate of the annual effective tax rate primarily due to nearly break-even pre-tax earnings. For example during the first quarter of 2021, the Company reported pre-tax losses of $572, second quarter pre-tax earnings of $549 and third quarter pre-tax losses of $310 while year-to-date pre-tax losses total $333. As a result, the effective tax rate for the nine months ended September 30, 2021 was calculated based on 2021 year-to-date results. We recorded a tax benefit of $207 for the nine months ended September 30, 2021 primarily reflecting 2021 net operating losses including Research and Development tax credits that are expected to be realized.
As of September 30, 2021 and December 31, 2020, the Company had recorded valuation allowances of $2,810 and $3,094 primarily for certain federal deferred tax assets, state net operating loss carryforwards, and state tax credits. $301 of the reduction in the valuation allowance was recorded to Other comprehensive income, primarily due to the remeasurement of certain pension assets and liabilities during the third quarter of 2021 that resulted in an actuarial gain. To measure the valuation allowance, the Company estimated in what year each of its deferred tax assets and liabilities would reverse using systematic and logical methods to estimate the reversal patterns. Based on these methods, deferred tax liabilities were assumed to reverse and generate taxable income over the next 5 to 10 years while deferred tax assets related to pension and other postretirement benefit obligations were assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily resulted from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of certain deferred tax assets.
As of September 30, 2021, based on the estimated reversal patterns of the Company’s deferred tax assets and liabilities, it is more likely than not that the Company will realize the federal deferred tax assets generated in 2021 as there is sufficient projected income from reversals of deferred tax liabilities in the next five years.
Federal income tax audits have been settled for all years prior to 2018. The Internal Revenue Service (IRS) began the 2018-2019 federal tax audit in the first quarter of 2021. We are also subject to examination in major state and international jurisdictions for the 2007-2019 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
Note 4 – Allowances for Losses on Financial Assets
The changes in allowances for expected credit losses for the nine months ended September 30, 2021 and 2020 consisted of the following:
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Accounts receivable, net
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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
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Balance at January 1, 2020
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($138)
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|
($81)
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($38)
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($5)
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|
($75)
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($337)
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Changes in estimates
|
(296)
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|
(46)
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(20)
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(12)
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|
(3)
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(377)
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Write-offs
|
3
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3
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|
|
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Balance at September 30, 2020
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($431)
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|
($127)
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|
($58)
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|
($17)
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|
($78)
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|
($711)
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Balance at January 1, 2021
|
($444)
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|
($129)
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|
($72)
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|
($17)
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|
($140)
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|
($802)
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|
Changes in estimates
|
15
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|
3
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|
(3)
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|
3
|
|
(45)
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|
(27)
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Write-offs
|
21
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|
|
1
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|
|
13
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|
35
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|
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Recoveries
|
1
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|
|
|
|
|
1
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|
Balance at September 30, 2021
|
($407)
|
|
($126)
|
|
($74)
|
|
($14)
|
|
($172)
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|
($793)
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|
Note 5 – Inventories
Inventories consisted of the following:
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September 30
2021
|
|
December 31
2020
|
Long-term contracts in progress
|
$578
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|
$823
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Commercial aircraft programs
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71,092
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70,153
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Commercial spare parts, used aircraft, general stock materials and other
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10,227
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10,739
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Total
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$81,897
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|
$81,715
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Commercial spare parts, used aircraft, general stock materials and other includes capitalized precontract costs of $646 at September 30, 2021 and $733 at December 31, 2020 primarily related to KC-46A Tanker and Commercial Crew. See Note 9.
Commercial Aircraft Programs
The increase in commercial aircraft programs inventory during 2021 reflects a continued buildup of 787 aircraft, as well as growth in 777X inventory. These increases were partially offset by a decrease in 737 MAX inventory reflecting the resumption of deliveries. Commercial aircraft programs inventory includes approximately 370 737 MAX aircraft and 105 787 aircraft at September 30, 2021 as compared with 425 737 MAX aircraft and 80 787 aircraft at December 31, 2020.
A number of customers have requested to defer deliveries or to cancel orders. We are currently remarketing certain aircraft and may have to remarket additional aircraft in future periods. If we are unable to successfully remarket the aircraft, determine further production rate reductions are necessary, and/or contract the program accounting quantities, future earnings may be reduced and/or additional reach-forward losses may have to be recorded.
At September 30, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 737 program: deferred production costs of $1,676 and $2,159 and unamortized tooling and other non-recurring costs of $619 and $480. At September 30, 2021, $2,276 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 $19 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At September 30, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 777X program: unamortized tooling and other non-recurring costs of $3,444 and $3,295. During the fourth quarter of 2020, we determined that estimated costs to complete the 777X program plus costs already included in 777X inventory exceed estimated revenues from the program. The resulting reach-forward loss of $6,493 was recorded as a reduction to deferred production costs. As a result, 777X deferred production costs were immaterial at September 30, 2021 and December 31, 2020. The level of profitability on the 777X program will be subject to a number of factors. These factors include continued market uncertainty, the impacts of COVID-19 on our production system as well as impacts on our supply chain and customers, further production rate adjustments for the 777X or other commercial aircraft programs, contraction of the accounting quantity and potential risks associated with the testing program and the timing of aircraft certification. One or more of these factors could result in additional reach-forward losses on the 777X program in future periods.
At September 30, 2021 and December 31, 2020, commercial aircraft programs inventory included the following amounts related to the 787 program: deferred production costs of $15,153 and $14,976, $1,808 and $1,865 of supplier advances, and $1,814 and $1,863 of unamortized tooling and other non-recurring costs. At September 30, 2021, $11,643 of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and $5,324 is expected to be recovered from units included in the program accounting quantity that represent expected future orders. The 787 program produced at abnormally low production rates during the third quarter of 2021 as we prioritized production resources on inspections and rework. As a result, we expect to incur approximately $1 billion of abnormal production costs on a cumulative basis, which are being expensed as incurred. Abnormal 787 production costs are associated with abnormally low production rates, as well as costs to complete inspections and rework. In the third quarter of 2021, we recorded period expense of $183. We expect to record approximately $800 in future quarters while production rates remain low and inspections and rework continues. In the event we are unable to increase production, complete inspections and rework and/or resume deliveries consistent with our assumptions, our estimate of future abnormal costs could be increased.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $3,238 and $2,992 at September 30, 2021 and December 31, 2020.
Note 6 – Contracts with Customers
Unbilled receivables increased from $7,995 at December 31, 2020 to $10,009 at September 30, 2021, primarily driven by revenue recognized at Defense, Space & Security (BDS) and Global Services (BGS) in excess of billings.
Advances and progress billings increased from $50,488 at December 31, 2020 to $51,269 at September 30, 2021, primarily driven by advances on orders received at Commercial Airplanes (BCA), BDS, and BGS, partially offset by revenue recognized and the return of customer advances at BCA.
Revenues recognized during the nine months ended September 30, 2021 and 2020 from amounts recorded as Advances and progress billings at the beginning of each year were $10,131 and $6,752. Revenues recognized during the three months ended September 30, 2021 and 2020 from amounts recorded as Advances and progress billings at the beginning of each year were $2,816 and $1,497.
Note 7 – Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
2021
|
|
December 31
2020
|
Financing receivables:
|
|
|
|
Investment in sales-type/finance leases
|
$966
|
|
|
$919
|
|
Notes
|
414
|
|
|
420
|
|
Total financing receivables
|
1,380
|
|
|
1,339
|
|
Operating lease equipment, at cost, less accumulated depreciation of $84 and $209
|
505
|
|
|
715
|
|
|
|
|
|
Gross customer financing
|
1,885
|
|
|
2,054
|
|
Less allowance for losses on receivables
|
(14)
|
|
|
(17)
|
|
Total
|
$1,871
|
|
|
$2,037
|
|
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 September 30, 2021 and December 31, 2020, we individually evaluated for impairment customer financing receivables of $378 and $391, of which $378 and $380 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. There were no past due customer financing receivables as of September 30, 2021 and September 30, 2020.
We evaluate the collectability of customer financing receivables at commencement and on a recurring basis. If a customer financing receivable is deemed uncollectible, 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 September 30, 2021 and December 31, 2020 were $378 and $380. Interest income received was $14 and $3 for the nine and three months ended September 30, 2021 and $26 and $5 for the nine and three months ended September 30, 2020.
The adequacy of the allowance for losses is assessed quarterly. The 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, each of 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 September 30, 2021 by internal credit rating category and year of origination consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rating categories
|
Current
|
2020
|
2019
|
2018
|
2017
|
Prior
|
Total
|
BBB
|
|
|
|
|
|
$147
|
|
$147
|
|
BB
|
$188
|
|
$124
|
|
$44
|
|
$13
|
|
|
130
|
|
499
|
|
B
|
78
|
|
|
|
|
$50
|
|
159
|
|
287
|
|
CCC
|
|
7
|
|
28
|
|
|
236
|
|
176
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value of financing receivables
|
$266
|
|
$131
|
|
$72
|
|
$13
|
|
$286
|
|
$612
|
|
$1,380
|
|
At September 30, 2021, our allowance related to receivables with ratings of CCC, B, BB, and BBB. We applied default rates that averaged 24.1%, 5.9%, 2.7%, 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 the changes in market conditions driven by the COVID-19 pandemic. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
2021
|
|
December 31
2020
|
717 Aircraft ($65 and $98 accounted for as operating leases)
|
$604
|
|
|
$637
|
|
747-8 Aircraft ($0 and $121 accounted for as operating leases)
|
437
|
|
|
480
|
|
737 Aircraft ($166 and $214 accounted for as operating leases)
|
185
|
|
|
235
|
|
777 Aircraft ($226 and $216 accounted for as operating leases)
|
233
|
|
|
225
|
|
MD-80 Aircraft (accounted for as sales-type finance leases)
|
159
|
|
|
167
|
|
757 Aircraft ($0 and $4 accounted for as operating leases)
|
130
|
|
|
147
|
|
747-400 Aircraft ($11 and $19 accounted for as operating leases)
|
61
|
|
|
71
|
|
|
|
|
|
|
|
|
|
Lease income recorded in Revenue on the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021 and 2020 included $38 and $44 from sales-type/finance leases, and $53 and $99 from operating leases, of which $6 and $6 related to variable operating lease payments. Lease income recorded in Revenue on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2021 and 2020 included $13 and $15 from sales-type/finance leases, and $16 and $37 from operating leases, of which $1 and $2 related to variable operating lease payments.
Profit at the commencement of sales-type leases was recorded in revenue for the nine months ended September 30, 2021 and 2020 in the amount of $57 and $18. Profit at the commencement of sales-type leases was recorded in revenue for the three months ended September 30, 2021 and 2020 in the amount of $21 and $8.
Note 8 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
2021
|
|
December 31
2020
|
Equity method investments (1)
|
$928
|
|
|
$936
|
|
Time deposits
|
9,685
|
|
|
17,154
|
|
Available for sale debt instruments
|
490
|
|
|
596
|
|
Equity and other investments
|
35
|
|
|
85
|
|
Restricted cash & cash equivalents(2)
|
56
|
|
|
83
|
|
Total
|
$11,194
|
|
|
$18,854
|
|
(1)Dividends received were $52 and $9 for the nine and three months ended September 30, 2021 and $58 and $5 during the same periods in the prior year. During the third quarter of 2021, Boeing and AE Industrial Partners announced a strategic partnership to establish a dedicated aerospace venture fund. This transaction resulted in the deconsolidation of HorizonX and generated a gain of $117 which is included in Income from operating investments, net.
(2)Reflects amounts restricted in support of our property sales, 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 September 30, 2021.
Note 9 – Commitments and Contingencies
737 MAX Grounding and COVID-19 Impacts
In 2019, following two fatal 737 MAX accidents, the Federal Aviation Administration (FAA) and non-U.S. civil aviation authorities issued orders suspending commercial operations of 737 MAX aircraft. Deliveries of the 737 MAX were suspended following these orders. Deliveries in the U.S. resumed in late 2020 following rescission by the FAA of its grounding order. In addition, several other non-U.S. civil aviation authorities, including the Brazilian National Civil Aviation Agency, Transport Canada, and the European Union Aviation Safety Agency (EASA) have subsequently approved return of operations, allowing us to resume deliveries in those jurisdictions. About 175 countries have approved the resumption of 737 MAX operations. The 737 MAX remains grounded in certain non-U.S. jurisdictions, including China. Flight tests were completed in China during the third quarter of 2021, and we are continuing to work towards approval by the end of 2021, with the resumption of deliveries to follow in the first quarter of 2022.
Multiple legal actions have been filed against us as a result of the accidents. In addition, we are fully cooperating with U.S. government investigations related to the accidents and the 737 MAX program, including an investigation by the Securities and Exchange Commission, the outcome of which may be material. Other than as described in Note 17 with respect to our entry during the first quarter into a Deferred Prosecution Agreement with the U.S. Department of Justice, 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.
In early April 2021, we notified the FAA that we recommended to operators that certain 737 MAX airplanes be temporarily removed from service to address issues that could affect the operation of the electrical power system. During the second quarter of 2021, we worked with the FAA to finalize the required actions to address the issues and resumed deliveries in May. We do not expect this matter to have a material financial impact on the 737 program.
In the first nine months of 2021, we delivered 167 aircraft. We have approximately 370 airplanes in inventory as of September 30, 2021 and we anticipate delivering most of these aircraft by the end of 2023. A number of customers have requested to defer deliveries or to cancel orders for 737 MAX aircraft, and we are remarketing and/or delaying deliveries of certain aircraft included within inventory. In the event that we are unable to resume aircraft deliveries in certain non-U.S. jurisdictions consistent with our assumptions of regulatory approval timing, our expectation of delivery timing could be impacted.
We produced at abnormally low production rates in 2020 and expect to continue to do so through 2021. As a result, we expect to incur approximately $4.6 billion of abnormal production costs on a cumulative basis, which are being expensed as incurred, of which $2,567 was recorded during the year ended December 31, 2020 and $1,501 was recorded during the nine months ended September 30, 2021.
In addition to impacts related to the 737 MAX accidents and subsequent grounding, the 737 program continues to be significantly impacted by the COVID-19 pandemic and its effect on aircraft demand. These impacts have contributed to the lower production and delivery rate assumptions described above. We have gradually increased production rates in 2020 and 2021 and continue to expect to increase the production rate to 31 per month in early 2022, as well as implement further gradual production rate increases in subsequent periods based on market demand and supply chain capacity. The ongoing impacts of COVID-19 on market demand and timing of regulatory approvals in certain non-U.S. jurisdictions have also created significant uncertainty around the timing of deliveries of 737 MAX aircraft in inventory. We may need to recognize additional costs associated with remarketing and/or reconfiguring aircraft in inventory, which may reduce revenue and/or earnings in future periods.
We have also recorded additional expenses of $136 and $33 due to the 737 MAX grounding during the nine and three months ended September 30, 2021, and $239 and $118 during the nine and three months ended September 30, 2020. These expenses include costs related to storage, inventory impairment, pilot training, and software updates.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during the nine months ended September 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Beginning balance – January 1
|
$5,537
|
|
|
$7,389
|
|
|
|
|
|
|
|
Reductions for payments made
|
(2,040)
|
|
|
(1,695)
|
|
|
Reductions for concessions and other in-kind considerations
|
(53)
|
|
|
(83)
|
|
|
Changes in estimates
|
(1)
|
|
|
370
|
|
|
Ending balance – September 30
|
$3,443
|
|
|
$5,981
|
|
|
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 $3.4 billion at September 30, 2021 includes $1.3 billion expected to be liquidated by lower customer delivery payments, $1.0 billion expected to be paid in cash and $0.2 billion in other concessions. Of the cash payments to customers, we expect to pay $0.2 billion in 2021 and $0.7 billion in 2022. The type of consideration to be provided for the remaining $0.9 billion will depend on the outcomes of negotiations with customers.
The 737 MAX remains grounded in certain non-U.S. jurisdictions. The civil aviation authorities in those jurisdictions 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 in certain jurisdictions. For example, a significant portion of our 737 MAX inventory consists of aircraft scheduled to be delivered to customers based in China. If we are unable to resume deliveries to China consistent with our assumptions, or if further deterioration in trade relations between the U.S. and China results in unanticipated delivery delays, the continued absence in revenue, earnings, and cash flows associated with 737 MAX deliveries would materially and adversely impact our operating results. In addition, 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, as well as any changes in our program estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows. 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 and capacity have fallen dramatically due to the COVID-19 pandemic. This trend has impacted passenger traffic most severely. While recovery is accelerating, we continue to expect that it will remain uneven as travel restrictions and varying regional travel protocols continue to impact air travel. While the pandemic caused a temporary shift in air cargo dynamics, we have seen air cargo traffic return to positive growth in 2021 on economic recovery and strengthening trade. These 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 in certain non-U.S. jurisdictions, 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. 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.
We continue to expect commercial air travel to return to 2019 levels in 2023 to 2024. We expect it will take 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 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, which could put 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 nine months ended September 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
Beginning balance – January 1
|
$565
|
|
|
$570
|
|
Reductions for payments made
|
(35)
|
|
|
(26)
|
|
Changes in estimates
|
99
|
|
|
27
|
|
Ending balance – September 30
|
$629
|
|
|
$571
|
|
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 September 30, 2021 and December 31, 2020, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,057 and $1,095.
Product Warranties
The following table summarizes product warranty activity recorded during the nine months ended September 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
Beginning balance – January 1
|
$1,527
|
|
|
$1,267
|
|
Additions for current year deliveries
|
71
|
|
|
50
|
|
Reductions for payments made
|
(182)
|
|
|
(202)
|
|
Changes in estimates
|
439
|
|
|
444
|
|
Ending balance – September 30
|
$1,855
|
|
|
$1,559
|
|
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 September 30, 2021 have expiration dates from 2021 through 2028. At September 30, 2021 and December 31, 2020 total contractual trade-in commitments were $685 and $950. As of September 30, 2021 and December 31, 2020, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $269 and $599 and the fair value of the related trade-in aircraft was $269 and $580.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $13,311 and $11,512 as of September 30, 2021 and December 31, 2020. The estimated earliest potential funding dates for these commitments as of September 30, 2021 are as follows:
|
|
|
|
|
|
|
Total
|
October through December 2021
|
$1,419
|
|
2022
|
2,054
|
|
2023
|
4,654
|
|
2024
|
2,270
|
|
2025
|
1,665
|
|
Thereafter
|
1,249
|
|
|
$13,311
|
|
As of September 30, 2021, $13,189 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 $256 to joint ventures over the next six 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 $3,885 and $4,238 as of September 30, 2021 and December 31, 2020.
United States Government Defense Environment Overview
The Omnibus appropriations acts for fiscal year 2021 (FY21), enacted in December 2020, provided FY21 appropriations for government departments and agencies, including $704 billion for the U.S. DoD, $23 billion for the National Aeronautics and Space Administration (NASA) and $18 billion for the FAA. FY21 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.
In May 2021, the U.S. government released the President’s budget request for fiscal year 2022 (FY22), which included $715 billion in funding for the U.S. DoD, $25 billion in funding for NASA and $19 billion for the FAA. While the President’s budget request for FY22 includes funding for a majority of Boeing’s programs, it did not include funding for F/A-18 Super Hornet, P-8 Poseidon and CH-47F Block II production aircraft. While there is some continued congressional support for F/A-18 and CH-47F Block II production aircraft for FY22, there is ongoing uncertainty with respect to these and other program-level appropriations for FY22 and future fiscal years. These programs also continue to pursue non-U.S. sales opportunities.
The Continuing Resolution (CR), enacted by U.S. Congress on September 30, 2021, continues federal funding at FY21 appropriated levels through December 3, 2021. Congress and the President must enact either full-year FY22 appropriations bills or an additional CR to fund government departments and agencies beyond December 3, 2021 or a government shutdown could result, which may impact the Company’s operations.
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. 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 (USAF) to design, develop, manufacture, and deliver four next generation aerial refueling tankers. This Engineering, Manufacturing and Development (EMD) contract is a fixed-price incentive fee contract and involves highly complex designs and systems integration. Since 2016, the USAF has authorized seven low rate initial production (LRIP) lots for a total of 94 aircraft. The EMD contract and authorized LRIP lots total approximately $19 billion as of September 30, 2021.
At September 30, 2021, we had approximately $252 of capitalized precontract costs and $305 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
The following table summarizes changes in the severance liability during the nine months ended September 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Beginning balance – January 1
|
$283
|
|
|
|
|
Initial liability recorded in the second quarter of 2020
|
|
|
$652
|
|
|
Reductions for payments made
|
(84)
|
|
|
(395)
|
|
|
Changes in estimates
|
(179)
|
|
|
328
|
|
|
Ending balance – September 30
|
$20
|
|
|
$585
|
|
|
During 2020, the Company recorded severance costs for approximately 26,000 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. During the first quarter of 2021, we reduced the estimated number of employees expected to leave the Company through voluntary and involuntary terminations to approximately 23,000. During the second quarter of 2021, we further reduced the estimated number of employees expected to leave the Company through voluntary and involuntary terminations to approximately 19,000. As of September 30, 2021, our severance liability primarily relates to remaining severance payments to terminated employees.
Note 10 – 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
|
|
September 30
2021
|
December 31
2020
|
|
September 30
2021
|
December 31
2020
|
|
September 30
2021
|
December 31
2020
|
Contingent repurchase commitments
|
$548
|
|
$1,452
|
|
|
$548
|
|
$1,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit guarantees
|
90
|
|
90
|
|
|
28
|
|
28
|
|
|
$24
|
|
$24
|
|
|
|
|
|
|
|
|
|
|
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.
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 9.
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 11 – Debt
In the first quarter of 2021, we issued $9,825 of fixed rate senior notes consisting of $1,325 due February 4, 2023 that bear an annual interest rate of 1.167%, $3,000 due February 4, 2024 that bear an annual interest rate of 1.433%, and $5,500 due February 4, 2026 that bear an annual interest rate of 2.196%. 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 $9,780, after deducting underwriting discounts, commissions, and offering expenses. We used the net proceeds of these note issuances to repay $9,825 outstanding under our two-year delayed draw term loan credit agreement. While our two-year delayed draw term loan matures in February 2022, we are planning to repay the remaining $4,000 in the fourth quarter of 2021.
In the first quarter of 2021, we entered into a $5,280 two-year revolving credit agreement. As of September 30, 2021, we had $14,753 currently available under credit line agreements, of which $3,073 expires in October 2021, $3,200 expires in October 2022, $5,280 expires in March 2023, and $3,200 expires in October 2024. In October 2021, we renewed the 364-day facility for $3,060, which now expires in October 2022. This 364-day facility has a one-year term out option that allows us to extend the maturity of any borrowings one additional year. We continue to be in full compliance with all covenants contained in our debt or credit facility agreements.
Note 12 – Postretirement Plans
The components of net periodic benefit (income)/cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30
|
|
Three months ended September 30
|
Pension Plans
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
$2
|
|
|
$2
|
|
|
|
|
$1
|
|
Interest cost
|
1,493
|
|
|
1,841
|
|
|
$498
|
|
|
613
|
|
Expected return on plan assets
|
(2,894)
|
|
|
(2,816)
|
|
|
(963)
|
|
|
(938)
|
|
Amortization of prior service credits
|
(60)
|
|
|
(60)
|
|
|
(20)
|
|
|
(20)
|
|
Recognized net actuarial loss
|
924
|
|
|
774
|
|
|
304
|
|
|
258
|
|
Settlement charge
|
156
|
|
|
6
|
|
|
152
|
|
|
3
|
|
Net periodic benefit income
|
($379)
|
|
|
($253)
|
|
|
($29)
|
|
|
($83)
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost included in Earnings/(loss) from operations
|
$2
|
|
|
$2
|
|
|
|
|
$1
|
|
Net periodic benefit income included in Other income, net
|
(381)
|
|
|
(255)
|
|
|
($29)
|
|
|
(84)
|
|
Net periodic benefit income included in Loss before income taxes
|
($379)
|
|
|
($253)
|
|
|
($29)
|
|
|
($83)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30
|
|
Three months ended September 30
|
Other Postretirement Plans
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Service cost
|
$66
|
|
|
$65
|
|
|
$22
|
|
|
$22
|
|
Interest cost
|
68
|
|
|
107
|
|
|
23
|
|
|
35
|
|
Expected return on plan assets
|
(6)
|
|
|
(6)
|
|
|
(3)
|
|
|
(1)
|
|
Amortization of prior service credits
|
(26)
|
|
|
(29)
|
|
|
(9)
|
|
|
(12)
|
|
Recognized net actuarial gain
|
(52)
|
|
|
(33)
|
|
|
(17)
|
|
|
(10)
|
|
Settlement charge
|
|
|
(2)
|
|
|
|
|
(2)
|
|
Net periodic benefit cost
|
$50
|
|
|
$102
|
|
|
$16
|
|
|
$32
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost included in Earnings/(loss) from operations
|
$66
|
|
|
$67
|
|
|
$22
|
|
|
$23
|
|
Net periodic benefit (income)/cost included in Other income, net
|
(16)
|
|
|
37
|
|
|
(6)
|
|
|
10
|
|
Net periodic benefit cost included in Loss before income taxes
|
$50
|
|
|
$104
|
|
|
$16
|
|
|
$33
|
|
In the third quarter of 2021, we recorded a $151 settlement charge in Other income, net and remeasured assets and benefit obligations related to one of the Company’s pension plans. The remeasurement resulted in a net actuarial gain of $1,642, which is included in Other comprehensive income. The $1,642 reflects a gain of $923 primarily driven by an increase in the discount rate from approximately 2.6% at
December 31, 2020 to approximately 2.8% as of the remeasurement date, as well as a gain of $719 primarily driven by asset returns in excess of expected returns.
Note 13 – Share-Based Compensation and Other Compensation Arrangements
Stock Options
On February 17, 2021, we granted 342,986 premium-priced stock options to our executive officers as part of our long-term incentive program. These stock options have an exercise price equal to 120% of the fair market value of our stock on the date of grant. The stock options are scheduled to vest and become exercisable three years after the grant date and expire ten years after the grant date. If an executive terminates employment because of retirement, layoff, disability, or death, the executive (or beneficiary) may receive some or all of their stock options depending on certain age and service conditions. The fair value of the stock options granted was $74.63 per unit and was estimated using a Monte-Carlo simulation model using the following assumptions: expected life 6.6 years, expected volatility 37.8%, risk free interest rate 1.3% and no expected dividend yield.
Restricted Stock Units
On February 17, 2021, we granted 980,077 restricted stock units (RSU) to our executives as part of our long-term incentive program. The RSUs granted under this program have a grant date fair value of $215.70 per unit and are generally scheduled to vest and settle in common stock (on a one-for-one basis) three years after the grant date. If an executive terminates employment because of retirement, layoff, disability, or death, the executive (or beneficiary) may receive some or all of their stock units depending on certain age and service conditions.
Note 14 – Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss (AOCI) by component for the nine and three months ended September 30, 2021 and 2020 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, 2020
|
($128)
|
|
|
$1
|
|
|
($84)
|
|
|
($15,942)
|
|
|
($16,153)
|
|
Other comprehensive income/(loss) before reclassifications
|
15
|
|
|
|
|
(107)
|
|
|
(52)
|
|
|
(144)
|
|
Amounts reclassified from AOCI
|
|
|
|
|
20
|
|
|
498
|
|
(2)
|
518
|
|
Net current period Other comprehensive income/(loss)
|
15
|
|
|
|
|
(87)
|
|
|
446
|
|
|
374
|
|
Balance at September 30, 2020
|
($113)
|
|
|
$1
|
|
|
($171)
|
|
|
($15,496)
|
|
|
($15,779)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
($30)
|
|
|
$1
|
|
|
($43)
|
|
|
($17,061)
|
|
|
($17,133)
|
|
Other comprehensive (loss)/income before reclassifications
|
(63)
|
|
|
|
|
64
|
|
|
1,553
|
|
(3)
|
1,554
|
|
Amounts reclassified from AOCI
|
|
|
|
|
(6)
|
|
|
767
|
|
(2)
|
761
|
|
Net current period Other comprehensive (loss)/income
|
(63)
|
|
|
|
|
58
|
|
|
2,320
|
|
|
2,315
|
|
Balance at September 30, 2021
|
($93)
|
|
|
$1
|
|
|
$15
|
|
|
($14,741)
|
|
|
($14,818)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020
|
($161)
|
|
|
$1
|
|
|
($258)
|
|
|
($15,607)
|
|
|
($16,025)
|
|
Other comprehensive income/(loss) before reclassifications
|
48
|
|
|
|
|
79
|
|
|
(40)
|
|
|
87
|
|
Amounts reclassified from AOCI
|
|
|
|
|
8
|
|
|
151
|
|
(2)
|
159
|
|
Net current period Other comprehensive income
|
48
|
|
|
|
|
87
|
|
|
111
|
|
|
246
|
|
Balance at September 30, 2020
|
($113)
|
|
|
$1
|
|
|
($171)
|
|
|
($15,496)
|
|
|
($15,779)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
($52)
|
|
|
$1
|
|
|
$20
|
|
|
($16,630)
|
|
|
($16,661)
|
|
Other comprehensive (loss)/income before reclassifications
|
(41)
|
|
|
|
|
(1)
|
|
|
1,543
|
|
(3)
|
1,501
|
|
Amounts reclassified from AOCI
|
|
|
|
|
(4)
|
|
|
346
|
|
(2)
|
342
|
|
Net current period Other comprehensive (loss)/income
|
(41)
|
|
|
|
|
(5)
|
|
|
1,889
|
|
|
1,843
|
|
Balance at September 30, 2021
|
($93)
|
|
|
$1
|
|
|
$15
|
|
|
($14,741)
|
|
|
($14,818)
|
|
(1) Net of tax.
(2) Primarily relates to amortization of actuarial losses for the nine and three months ended September 30, 2020 $562 and $172 (net of tax of ($179) and ($76)) and nine and three months ended September 30, 2021 totaling $690 and $227 (net of tax of ($182) and ($60)). These are included in the net periodic pension cost.
(3) Primarily relates to remeasurement of assets and benefit obligations related to the Company's pension plans resulting in an actuarial gain for the nine and three months ended September 30, 2021 of $1,551 and $1,544 (net of tax of ($106) and ($104)). See Note 12.
Note 15 – 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 2031. 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 2029.
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
|
|
September 30
2021
|
December 31
2020
|
September 30
2021
|
December 31
2020
|
September 30
2021
|
December 31
2020
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
$2,581
|
|
$2,594
|
|
$24
|
|
$81
|
|
($50)
|
|
($24)
|
|
|
|
|
|
|
|
|
Commodity contracts
|
586
|
|
404
|
|
116
|
|
4
|
|
(11)
|
|
(43)
|
|
Derivatives not receiving hedge accounting treatment:
|
|
|
|
|
|
|
Foreign exchange contracts
|
550
|
|
769
|
|
8
|
|
22
|
|
(2)
|
|
(16)
|
|
Commodity contracts
|
974
|
|
904
|
|
10
|
|
|
(24)
|
|
(17)
|
|
Total derivatives
|
$4,691
|
|
$4,671
|
|
$158
|
|
$107
|
|
($87)
|
|
($100)
|
|
Netting arrangements
|
|
|
(51)
|
|
(31)
|
|
51
|
|
31
|
|
Net recorded balance
|
|
|
$107
|
|
$76
|
|
($36)
|
|
($69)
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Recognized in Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
($49)
|
|
|
($58)
|
|
|
($43)
|
|
|
$54
|
|
Commodity contracts
|
113
|
|
|
(49)
|
|
|
42
|
|
|
25
|
|
Gains/(losses) associated with our hedging transactions and forward points reclassified from AOCI to earnings are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
Revenues
|
|
|
($2)
|
|
|
|
|
($1)
|
|
Costs and expenses
|
$8
|
|
|
(12)
|
|
|
$5
|
|
|
(6)
|
|
General and administrative
|
9
|
|
|
(5)
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
(13)
|
|
|
(6)
|
|
|
|
|
(3)
|
|
General and administrative expense
|
4
|
|
|
(1)
|
|
|
1
|
|
|
|
Gains related to undesignated derivatives on foreign exchange and commodity cash flow hedging transactions recognized in Other income, net were insignificant for the nine and three months ended September 30, 2021 and 2020.
Based on our portfolio of cash flow hedges, we expect to reclassify gains of $20 (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 and commodity 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 September 30, 2021 was $9. At September 30, 2021, there was no collateral posted related to our derivatives.
Note 16 – 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$1,551
|
|
|
$1,551
|
|
|
|
|
|
|
$2,230
|
|
|
$2,230
|
|
|
|
|
|
Available-for-sale debt investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
266
|
|
|
|
|
$266
|
|
|
|
|
149
|
|
|
|
|
$149
|
|
|
|
Corporate notes
|
230
|
|
|
|
|
230
|
|
|
|
|
333
|
|
|
|
|
333
|
|
|
|
U.S. government agencies
|
1
|
|
|
|
|
1
|
|
|
|
114
|
|
|
|
|
114
|
|
|
|
Other equity investments
|
11
|
|
|
11
|
|
|
|
|
|
|
54
|
|
|
54
|
|
|
|
|
|
Derivatives
|
107
|
|
|
|
|
107
|
|
|
|
|
76
|
|
|
|
|
76
|
|
|
|
Total assets
|
$2,166
|
|
|
$1,562
|
|
|
$604
|
|
|
|
|
$2,956
|
|
|
$2,284
|
|
|
$672
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
($36)
|
|
|
|
|
($36)
|
|
|
|
|
($69)
|
|
|
|
|
($69)
|
|
|
|
Total liabilities
|
($36)
|
|
|
|
|
($36)
|
|
|
|
|
($69)
|
|
|
|
|
($69)
|
|
|
|
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. The following table presents the nonrecurring losses recognized for the nine months ended September 30 due to long-lived asset impairment and the fair value and asset classification of the related assets as of the impairment date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Total
|
|
Level 2
|
|
Level 3
|
|
Total
Losses
|
|
Total
|
|
Level 2
|
|
Level 3
|
|
Total
Losses
|
Customer financing assets
|
$17
|
|
|
|
|
$17
|
|
|
($12)
|
|
|
$100
|
|
|
|
|
$100
|
|
|
($22)
|
|
Investments
|
—
|
|
|
|
|
|
|
(8)
|
|
|
51
|
|
|
|
|
51
|
|
|
(62)
|
|
Property, plant and equipment
|
103
|
|
|
$103
|
|
|
|
|
(45)
|
|
|
81
|
|
|
|
|
81
|
|
|
(75)
|
|
Other Assets and Acquired intangible assets
|
—
|
|
|
|
|
|
|
(7)
|
|
|
199
|
|
|
|
|
199
|
|
|
(158)
|
|
Total
|
$120
|
|
|
$103
|
|
|
$17
|
|
|
($72)
|
|
|
$431
|
|
|
—
|
|
|
$431
|
|
|
($317)
|
|
Level 3 Investments, Property, plant and equipment, Other Assets and Acquired Intangibles were primarily valued using an income approach based on the discounted cash flows associated with the underlying assets. Level 2 Property, plant and equipment were valued based on a third party valuation using a combination of income and market approaches that considered estimates of net operating income,
capitalization rates and adjusted for as-is condition. 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 September 30, 2021, 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
|
$17
|
|
Market approach
|
|
Aircraft value publications
|
|
$16 - $24(1)
Median $19
|
|
|
Aircraft condition adjustments
|
|
($5) - $3(2)
Net ($2)
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Carrying
Amount
|
Total Fair
Value
|
Level 1
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
Notes receivable, net
|
$414
|
|
$493
|
|
|
$493
|
|
|
Liabilities
|
|
|
|
|
|
Debt, excluding finance lease obligations
|
(62,238)
|
|
(70,107)
|
|
|
(70,107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Carrying
Amount
|
Total Fair
Value
|
Level 1
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
Notes receivable, net
|
$420
|
|
$488
|
|
|
$488
|
|
|
Liabilities
|
|
|
|
|
|
Debt, excluding finance lease obligations
|
(63,380)
|
|
(72,357)
|
|
|
(72,342)
|
|
($15)
|
|
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 September 30, 2021 and December 31, 2020. 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 17 – 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 an investigation by the Securities and Exchange Commission, the outcome of which may be material. Other than with respect to the agreement described below with the U.S. Department of Justice, we cannot reasonably estimate a range of loss, if any, not covered by available insurance that may result given the current status of the pending lawsuits, investigations, and inquiries related to the 737 MAX.
On January 6, 2021, we entered into a Deferred Prosecution Agreement with the U.S. Department of Justice that resolves the Department of Justice’s previously disclosed investigation into us regarding the evaluation of the 737 MAX airplane by the Federal Aviation Administration. Under the terms of the Deferred Prosecution Agreement, we agreed to the filing of a criminal information charging the Company with one count of conspiracy to defraud the United States, based on the conduct of two former 737 MAX program technical pilots; the criminal information will be dismissed after three years, provided that we comply with our obligations under the agreement. The Deferred Prosecution Agreement requires that we make payments totaling $2.51 billion, which consist of (a) a $243.6 million criminal monetary penalty; (b) $500 million in additional compensation to the heirs and/or beneficiaries of those who died in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 accidents; and (c) $1.77 billion to the Company’s airline customers for harm incurred as a result of the grounding of the 737 MAX, offset in part by payments already made and the remainder satisfied through payments to be made prior to the termination of the Deferred Prosecution Agreement. The agreement also requires that we review our compliance program and undertake continuous improvement efforts with respect to it, and implement enhanced compliance reporting and internal controls mechanisms. We expensed $743.6 million in the fourth quarter of 2020 related to this agreement. During the first quarter, consistent with the terms of the Deferred Prosecution Agreement, the monetary penalty was paid, and the $500 million compensation amount was transferred to a fund established to benefit the heirs and/or beneficiaries of the victims of the 737 MAX accidents. In addition, the $1.77 billion amount related to the Company’s airline customers was included in amounts reserved in prior quarters for 737 MAX customer considerations.
During 2019, we entered into agreements with Embraer S.A. (Embraer) to establish 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. In 2020, we exercised our contractual right to terminate these agreements based on Embraer’s failure to meet certain required closing conditions. Embraer has disputed our right to terminate the agreements, and the dispute is currently in arbitration. We cannot reasonably estimate a range of loss, if any, that may result from the arbitration.
Note 18 – Segment and Revenue Information
Our primary profitability measurements to review a segment’s operating results are Earnings/(loss) 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 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)
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
Europe
|
$2,776
|
|
|
$3,595
|
|
|
$1,223
|
|
|
$1,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
1,958
|
|
|
1,964
|
|
|
186
|
|
|
500
|
|
Middle East
|
719
|
|
|
556
|
|
|
206
|
|
|
|
Other
|
1,219
|
|
|
465
|
|
|
220
|
|
|
12
|
|
Total non-U.S. revenues
|
6,672
|
|
|
6,580
|
|
|
1,835
|
|
|
1,805
|
|
United States
|
8,012
|
|
|
5,190
|
|
|
2,594
|
|
|
1,633
|
|
Estimated potential concessions and other considerations to 737 MAX customers, net
|
1
|
|
|
(370)
|
|
|
(7)
|
|
|
151
|
|
Total revenues from contracts with customers
|
14,685
|
|
|
11,400
|
|
|
4,422
|
|
|
3,589
|
|
Intersegment revenues eliminated on consolidation
|
58
|
|
|
34
|
|
|
37
|
|
|
7
|
|
Total segment revenues
|
$14,743
|
|
|
$11,434
|
|
|
$4,459
|
|
|
$3,596
|
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time
|
100
|
%
|
|
100
|
%
|
|
99
|
%
|
|
100
|
%
|
BDS revenues on contracts with customers, based on the customer's location, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
U.S. customers
|
$15,464
|
|
|
$14,465
|
|
|
$4,833
|
|
|
$5,312
|
|
Non U.S. customers(1)
|
5,214
|
|
|
5,013
|
|
|
1,784
|
|
|
1,536
|
|
Total segment revenue from contracts with customers
|
$20,678
|
|
|
$19,478
|
|
|
$6,617
|
|
|
$6,848
|
|
|
|
|
|
|
|
|
|
Revenue recognized over time
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
|
99
|
%
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
68
|
%
|
|
68
|
%
|
|
67
|
%
|
|
69
|
%
|
|
|
|
|
|
|
|
|
Revenue from the U.S. government(1)
|
89
|
%
|
|
89
|
%
|
|
89
|
%
|
|
90
|
%
|
(1)Includes revenues earned from foreign military sales through the U.S. government.
BGS revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenue from contracts with customers:
|
|
|
|
|
|
|
|
Commercial
|
$5,392
|
|
|
$5,382
|
|
|
$1,961
|
|
|
$1,488
|
|
Government
|
6,465
|
|
|
6,241
|
|
|
2,193
|
|
|
2,142
|
|
Total revenues from contracts with customers
|
11,857
|
|
|
11,623
|
|
|
4,154
|
|
|
3,630
|
|
Intersegment revenues eliminated on consolidation
|
180
|
|
|
187
|
|
|
67
|
|
|
64
|
|
Total segment revenues
|
$12,037
|
|
|
$11,810
|
|
|
$4,221
|
|
|
$3,694
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time
|
45
|
%
|
|
47
|
%
|
|
46
|
%
|
|
42
|
%
|
|
|
|
|
|
|
|
|
Revenue recognized on fixed-price contracts
|
87
|
%
|
|
88
|
%
|
|
87
|
%
|
|
87
|
%
|
|
|
|
|
|
|
|
|
Revenue from the U.S. government(1)
|
41
|
%
|
|
41
|
%
|
|
40
|
%
|
|
45
|
%
|
(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 September 30, 2021 was $367,108. We expect approximately 25% to be converted to revenue through 2022 and approximately 78% through 2025, with the remainder thereafter. There is significant uncertainty regarding the timing of when backlog will convert into revenue due to the 737 MAX grounding in non-U.S. jurisdictions, 787 production issues and associated rework, timing of entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10, and 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 (CAS). Components of Unallocated items, eliminations and other are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30
|
|
Three months ended September 30
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Share-based plans
|
($171)
|
|
|
($80)
|
|
|
($29)
|
|
|
($37)
|
|
Deferred compensation
|
(86)
|
|
|
34
|
|
|
8
|
|
|
(39)
|
|
Amortization of previously capitalized interest
|
(66)
|
|
|
(69)
|
|
|
(22)
|
|
|
(19)
|
|
Research and development expense, net
|
(144)
|
|
|
(160)
|
|
|
(59)
|
|
|
(44)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations and other unallocated items
|
(565)
|
|
|
(690)
|
|
|
(268)
|
|
|
(175)
|
|
Unallocated items, eliminations and other
|
($1,032)
|
|
|
($965)
|
|
|
($370)
|
|
|
($314)
|
|
|
|
|
|
|
|
|
|
Pension FAS/CAS service cost adjustment
|
$576
|
|
|
$773
|
|
|
$192
|
|
|
$260
|
|
Postretirement FAS/CAS service cost adjustment
|
232
|
|
|
282
|
|
|
78
|
|
|
93
|
|
FAS/CAS service cost adjustment
|
$808
|
|
|
$1,055
|
|
|
$270
|
|
|
$353
|
|
|
|
|
|
|
|
|
|
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 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 Financial Accounting Standards (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:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
2021
|
|
December 31
2020
|
Commercial Airplanes
|
$78,906
|
|
|
$77,973
|
|
Defense, Space & Security
|
15,748
|
|
|
14,256
|
|
Global Services
|
16,839
|
|
|
17,399
|
|
Boeing Capital
|
1,797
|
|
|
1,978
|
|
Unallocated items, eliminations and other
|
33,556
|
|
|
40,530
|
|
Total
|
$146,846
|
|
|
$152,136
|
|
Assets included in Unallocated items, eliminations and other primarily consist of Cash and cash equivalents, Short-term and other investments, tax assets, capitalized interest and assets managed centrally on behalf of the four principal business segments and intercompany eliminations.