filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| (Dollars in millions, except per share data) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Sales of products | $38,767 | $39,224 | $13,331 | $12,552 | |||||||||||||||||||
| Sales of services | 7,861 | 8,269 | 2,625 | 2,726 | |||||||||||||||||||
| Total revenues | 46,628 | 47,493 | 15,956 | 15,278 | |||||||||||||||||||
| Cost of products | (38,237) | (35,166) | (14,541) | (11,271) | |||||||||||||||||||
| Cost of services | (6,725) | (6,771) | (2,230) | (2,288) | |||||||||||||||||||
| Boeing Capital interest expense | (20) | (25) | (7) | (7) | |||||||||||||||||||
| Total costs and expenses | (44,982) | (41,962) | (16,778) | (13,566) | |||||||||||||||||||
| 1,646 | 5,531 | (822) | 1,712 | ||||||||||||||||||||
| (Loss)/income from operating investments, net | (27) | 195 | (24) | 120 | |||||||||||||||||||
| General and administrative expense | (2,757) | (3,169) | (1,226) | (1,097) | |||||||||||||||||||
| Research and development expense, net | (2,058) | (1,571) | (727) | (575) | |||||||||||||||||||
| Gain on dispositions, net | 2 | 283 | 169 | ||||||||||||||||||||
| (Loss)/earnings from operations | (3,194) | 1,269 | (2,799) | 329 | |||||||||||||||||||
| Other income, net | 722 | 419 | 288 | 30 | |||||||||||||||||||
| Interest and debt expense | (1,901) | (2,021) | (621) | (669) | |||||||||||||||||||
| Loss before income taxes | (4,373) | (333) | (3,132) | (310) | |||||||||||||||||||
| Income tax (expense)/benefit | (17) | 207 | (176) | 178 | |||||||||||||||||||
| Net loss | (4,390) | (126) | (3,308) | (132) | |||||||||||||||||||
| Less: net loss attributable to noncontrolling interest | (89) | (67) | (33) | (23) | |||||||||||||||||||
| Net loss attributable to Boeing Shareholders | ($4,301) | ($59) | ($3,275) | ($109) | |||||||||||||||||||
| Basic loss per share | ($7.24) | ($0.10) | ($5.49) | ($0.19) | |||||||||||||||||||
| Diluted loss per share | ($7.24) | ($0.10) | ($5.49) | ($0.19) | |||||||||||||||||||
| Weighted average diluted shares (millions) | 594.0 | 587.3 | 596.3 | 589.0 |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| (Dollars in millions) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss | ($4,390) | ($126) | ($3,308) | ($132) | |||||||||||||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||||||||||||||
| Currency translation adjustments | (123) | (63) | (71) | (41) | |||||||||||||||||||
| Unrealized loss on certain investments, net of tax of $0, $0, $0 and $0 | (2) | (2) | |||||||||||||||||||||
| Unrealized (loss)/gain on derivative instruments: | |||||||||||||||||||||||
| Unrealized (loss)/gain arising during period, net of tax of $46, ($18), $25 and ($1) | (157) | 64 | (83) | (1) | |||||||||||||||||||
| Reclassification adjustment for losses/(gains) included in net loss, net of tax of ($6), $2, $2 and $2 | 24 | (6) | (6) | (4) | |||||||||||||||||||
| Total unrealized (loss)/gain on derivative instruments, net of tax | (133) | 58 | (89) | (5) | |||||||||||||||||||
| Defined benefit pension plans and other postretirement benefits: | |||||||||||||||||||||||
| Amortization of prior service credits included in net periodic pension cost, net of tax of $19, $18, $7 and $6 | (68) | (68) | (22) | (23) | |||||||||||||||||||
| Net actuarial gain arising during the period, net of tax of $0, ($106), $0 and ($104) | 1,551 | 1,544 | |||||||||||||||||||||
| Amortization of actuarial losses included in net periodic pension cost, net of tax of ($129), ($182), ($45) and ($60) | 469 | 690 | 155 | 227 | |||||||||||||||||||
| Settlements included in net loss, net of tax of $0, ($11), $0 and ($10) | 145 | 142 | |||||||||||||||||||||
| Pension and postretirement (cost)/benefit related to our equity method investments, net of tax of $0, ($1), $0 and $0 | (2) | 2 | (2) | (1) | |||||||||||||||||||
| Total defined benefit pension plans and other postretirement benefits, net of tax | 399 | 2,320 | 131 | 1,889 | |||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 141 | 2,315 | (31) | 1,843 | |||||||||||||||||||
| Comprehensive (loss)/income, net of tax | (4,249) | 2,189 | (3,339) | 1,711 | |||||||||||||||||||
| Less: Comprehensive loss related to noncontrolling interest | (89) | (67) | (33) | (23) | |||||||||||||||||||
| Comprehensive (loss)/income attributable to Boeing Shareholders, net of tax | ($4,160) | $2,256 | ($3,306) | $1,734 |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Unaudited)
| (Dollars in millions, except per share data) | September 30 2022 | December 31 2021 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $13,494 | $8,052 | |||||||||
| Short-term and other investments | 763 | 8,192 | |||||||||
| Accounts receivable, net | 2,673 | 2,641 | |||||||||
| Unbilled receivables, net | 9,316 | 8,620 | |||||||||
| Current portion of customer financing, net | 155 | 117 | |||||||||
| Inventories | 79,777 | 78,823 | |||||||||
| Other current assets, net | 3,073 | 2,221 | |||||||||
| Total current assets | 109,251 | 108,666 | |||||||||
| Customer financing, net | 1,513 | 1,695 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $21,208 and $20,538 | 10,508 | 10,918 | |||||||||
| Goodwill | 8,045 | 8,068 | |||||||||
| Acquired intangible assets, net | 2,371 | 2,562 | |||||||||
| Deferred income taxes | 77 | 77 | |||||||||
| Investments | 979 | 975 | |||||||||
| Other assets, net of accumulated amortization of $897 and $975 | 4,814 | 5,591 | |||||||||
| Total assets | $137,558 | $138,552 | |||||||||
| Liabilities and equity | |||||||||||
| Accounts payable | $9,793 | $9,261 | |||||||||
| Accrued liabilities | 21,217 | 18,455 | |||||||||
| Advances and progress billings | 53,177 | 52,980 | |||||||||
| Short-term debt and current portion of long-term debt | 5,431 | 1,296 | |||||||||
| Total current liabilities | 89,618 | 81,992 | |||||||||
| Deferred income taxes | 230 | 218 | |||||||||
| Accrued retiree health care | 3,356 | 3,528 | |||||||||
| Accrued pension plan liability, net | 7,951 | 9,104 | |||||||||
| Other long-term liabilities | 2,250 | 1,750 | |||||||||
| Long-term debt | 51,788 | 56,806 | |||||||||
| Total liabilities | 155,193 | 153,398 | |||||||||
| Shareholders’ equity: | |||||||||||
| Common stock, par value $5.00 — 1,200,000,000 shares authorized; 1,012,261,159 shares issued | 5,061 | 5,061 | |||||||||
| Additional paid-in capital | 9,705 | 9,052 | |||||||||
| Treasury stock, at cost - 416,639,182 and 423,343,707 shares | (51,054) | (51,861) | |||||||||
| Retained earnings | 30,107 | 34,408 | |||||||||
| Accumulated other comprehensive loss | (11,518) | (11,659) | |||||||||
| Total shareholders’ deficit | (17,699) | (14,999) | |||||||||
| Noncontrolling interests | 64 | 153 | |||||||||
| Total equity | (17,635) | (14,846) | |||||||||
| Total liabilities and equity | $137,558 | $138,552 |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| (Dollars in millions) | Nine months ended September 30 | ||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows – operating activities: | |||||||||||
| Net loss | ($4,390) | ($126) | |||||||||
| Adjustments to reconcile net loss to net cash provided/(used) by operating activities: | |||||||||||
| Non-cash items – | |||||||||||
| Share-based plans expense | 528 | 677 | |||||||||
| Treasury shares issued for 401(k) contribution | 928 | 951 | |||||||||
| Depreciation and amortization | 1,477 | 1,610 | |||||||||
| Investment/asset impairment charges, net | 78 | 72 | |||||||||
| Customer financing valuation adjustments | 39 | (3) | |||||||||
| Gain on dispositions, net | (2) | (283) | |||||||||
| Other charges and credits, net | 388 | (82) | |||||||||
| Changes in assets and liabilities – | |||||||||||
| Accounts receivable | (22) | (280) | |||||||||
| Unbilled receivables | (678) | (2,010) | |||||||||
| Advances and progress billings | 204 | 781 | |||||||||
| Inventories | (1,164) | 508 | |||||||||
| Other current assets | (860) | 279 | |||||||||
| Accounts payable | 590 | (3,565) | |||||||||
| Accrued liabilities | 2,416 | (3,168) | |||||||||
| Income taxes receivable, payable and deferred | 1,382 | 1,011 | |||||||||
| Other long-term liabilities | (114) | (168) | |||||||||
| Pension and other postretirement plans | (1,053) | (731) | |||||||||
| Customer financing, net | 76 | 170 | |||||||||
| Other | 232 | 225 | |||||||||
| Net cash provided/(used) by operating activities | 55 | (4,132) | |||||||||
| Cash flows – investing activities: | |||||||||||
| Payments to acquire property, plant and equipment | (896) | (758) | |||||||||
| Proceeds from disposals of property, plant and equipment | 19 | 385 | |||||||||
| Acquisitions, net of cash acquired | (6) | ||||||||||
| Contributions to investments | (2,773) | (27,902) | |||||||||
| Proceeds from investments | 10,182 | 35,664 | |||||||||
| Other | (11) | 6 | |||||||||
| Net cash provided by investing activities | 6,521 | 7,389 | |||||||||
| Cash flows – financing activities: | |||||||||||
| New borrowings | 19 | 9,822 | |||||||||
| Debt repayments | (1,038) | (11,049) | |||||||||
| Stock options exercised | 39 | 36 | |||||||||
| Employee taxes on certain share-based payment arrangements | (36) | (47) | |||||||||
| Net cash used by financing activities | (1,016) | (1,238) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (134) | (34) | |||||||||
| Net increase in cash & cash equivalents, including restricted | 5,426 | 1,985 | |||||||||
| Cash & cash equivalents, including restricted, at beginning of year | 8,104 | 7,835 | |||||||||
| Cash & cash equivalents, including restricted, at end of period | 13,530 | 9,820 | |||||||||
| Less restricted cash & cash equivalents, included in Investments | 36 | 56 | |||||||||
| Cash and cash equivalents at end of period | $13,494 | $9,764 |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
For the nine months ended September 30, 2022 and 2021
(Unaudited)
| Boeing shareholders | |||||||||||||||||||||||
| (Dollars in millions) | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total | ||||||||||||||||
| Balance at January 1, 2021 | $5,061 | $7,787 | ($52,641) | $38,610 | ($17,133) | $241 | ($18,075) | ||||||||||||||||
| Net loss | (59) | (67) | (126) | ||||||||||||||||||||
| Other comprehensive income, net of tax of ($298) | 2,315 | 2,315 | |||||||||||||||||||||
| Share-based compensation | 677 | 677 | |||||||||||||||||||||
| Treasury shares issued for stock options exercised, net | (24) | 60 | 36 | ||||||||||||||||||||
| Treasury shares issued for other share-based plans, net | (85) | 41 | (44) | ||||||||||||||||||||
| Treasury shares issued for 401(k) contribution | 441 | 510 | 951 | ||||||||||||||||||||
| Balance at September 30, 2021 | $5,061 | $8,796 | ($52,030) | $38,551 | ($14,818) | $174 | ($14,266) | ||||||||||||||||
| Balance at January 1, 2022 | $5,061 | $9,052 | ($51,861) | $34,408 | ($11,659) | $153 | ($14,846) | ||||||||||||||||
| Net loss | (4,301) | (89) | (4,390) | ||||||||||||||||||||
| Other comprehensive income, net of tax of ($70) | 141 | 141 | |||||||||||||||||||||
| Share-based compensation | 528 | 528 | |||||||||||||||||||||
| Treasury shares issued for stock options exercised, net | (25) | 64 | 39 | ||||||||||||||||||||
| Treasury shares issued for other share-based plans, net | (75) | 40 | (35) | ||||||||||||||||||||
| Treasury shares issued for 401(k) contribution | 225 | 703 | 928 | ||||||||||||||||||||
| Balance at September 30, 2022 | $5,061 | $9,705 | ($51,054) | $30,107 | ($11,518) | $64 | ($17,635) |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Condensed Consolidated Statements of Equity
For the three months ended September 30, 2022 and 2021
(Unaudited)
| Boeing shareholders | |||||||||||||||||||||||
| (Dollars in millions, except per share data) | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non- controlling Interests | Total | ||||||||||||||||
| Balance at July 1, 2021 | $5,061 | $8,481 | ($52,223) | $38,660 | ($16,661) | $197 | ($16,485) | ||||||||||||||||
| Net loss | (109) | (23) | (132) | ||||||||||||||||||||
| Other comprehensive income, net of tax of ($167) | 1,843 | 1,843 | |||||||||||||||||||||
| Share-based compensation | 184 | 184 | |||||||||||||||||||||
| Treasury shares issued for stock options exercised, net | (5) | 12 | 7 | ||||||||||||||||||||
| Treasury shares issued for other share-based plans, net | (9) | 3 | (6) | ||||||||||||||||||||
| Treasury shares issued for 401(k) contribution | 145 | 178 | 323 | ||||||||||||||||||||
| Balance at September 30, 2021 | $5,061 | $8,796 | ($52,030) | $38,551 | ($14,818) | $174 | ($14,266) | ||||||||||||||||
| Balance at July 1, 2022 | $5,061 | $9,475 | ($51,319) | $33,382 | ($11,487) | $97 | ($14,791) | ||||||||||||||||
| Net loss | (3,275) | (33) | (3,308) | ||||||||||||||||||||
| Other comprehensive loss, net of tax of ($11) | (31) | (31) | |||||||||||||||||||||
| Share-based compensation | 176 | 176 | |||||||||||||||||||||
| Treasury shares issued for stock options exercised, net | (4) | 8 | 4 | ||||||||||||||||||||
| Treasury shares issued for other share-based plans, net | (3) | 2 | (1) | ||||||||||||||||||||
| Treasury shares issued for 401(k) contribution | 61 | 255 | 316 | ||||||||||||||||||||
| Balance at September 30, 2022 | $5,061 | $9,705 | ($51,054) | $30,107 | ($11,518) | $64 | ($17,635) |
See Notes to the Condensed Consolidated Financial Statements.
The Boeing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
| (Dollars in millions) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Commercial Airplanes | $16,643 | $14,743 | $6,263 | $4,459 | |||||||||||||||||||
| Defense, Space & Security | 16,981 | 20,678 | 5,307 | 6,617 | |||||||||||||||||||
| Global Services | 13,044 | 12,037 | 4,432 | 4,221 | |||||||||||||||||||
| Boeing Capital | 150 | 209 | 52 | 71 | |||||||||||||||||||
| Unallocated items, eliminations and other | (190) | (174) | (98) | (90) | |||||||||||||||||||
| Total revenues | $46,628 | $47,493 | $15,956 | $15,278 | |||||||||||||||||||
| (Loss)/earnings from operations: | |||||||||||||||||||||||
| Commercial Airplanes | ($1,744) | ($2,021) | ($643) | ($693) | |||||||||||||||||||
| Defense, Space & Security | (3,656) | 1,799 | (2,798) | 436 | |||||||||||||||||||
| Global Services | 2,093 | 1,616 | 733 | 644 | |||||||||||||||||||
| Boeing Capital | 14 | 99 | 23 | 42 | |||||||||||||||||||
| Segment operating (loss)/earnings | (3,293) | 1,493 | (2,685) | 429 | |||||||||||||||||||
| Unallocated items, eliminations and other | (747) | (1,032) | (393) | (370) | |||||||||||||||||||
| FAS/CAS service cost adjustment | 846 | 808 | 279 | 270 | |||||||||||||||||||
| (Loss)/earnings from operations | (3,194) | 1,269 | (2,799) | 329 | |||||||||||||||||||
| Other income, net | 722 | 419 | 288 | 30 | |||||||||||||||||||
| Interest and debt expense | (1,901) | (2,021) | (621) | (669) | |||||||||||||||||||
| Loss before income taxes | (4,373) | (333) | (3,132) | (310) | |||||||||||||||||||
| Income tax (expense)/benefit | (17) | 207 | (176) | 178 | |||||||||||||||||||
| Net loss | (4,390) | (126) | (3,308) | (132) | |||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | (89) | (67) | (33) | (23) | |||||||||||||||||||
| Net loss attributable to Boeing Shareholders | ($4,301) | ($59) | ($3,275) | ($109) |
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, 2022 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 2021 Annual Report on Form 10-K.
Liquidity Matters
During the first nine months of 2022, net cash provided by operating activities was $0.1 billion. Our operating cash flows continue to be impacted by lower commercial airplane deliveries. We expect a negative impact on our operating cash flows until commercial deliveries ramp up. Charges recorded on BDS fixed-price development contracts are expected to negatively impact cash flows in future periods. Our cash and short-term investment balance was $14.3 billion at September 30, 2022, down from $16.2 billion at December 31, 2021. Our debt balance of $57.2 billion at September 30, 2022 is down from $58.1 billion at December 31, 2021. Short-term debt and the current portion of long-term debt increased to $5.4 billion at September 30, 2022 from $1.3 billion at December 31, 2021. The current portion of long-term debt includes term notes of $0.3 billion maturing in the fourth quarter of 2022, $1.7 billion maturing in the first quarter of 2023, and $3.4 billion maturing in the second quarter of 2023.
As of September 30, 2022, our unused borrowing capacity is $12.0 billion, down from $14.7 billion at June 30, 2022. In August 2022, we renewed the 364-day facility for $5.8 billion, which now expires in August 2023. 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.
Our short-term and long-term credit ratings remained unchanged during the first nine months of 2022. There is risk for future downgrades.
At September 30, 2022 and December 31, 2021, trade payables included $2.2 billion and $2.3 billion payable to suppliers who have elected to participate in supply chain financing programs. We do not believe that future changes in the availability of supply chain financing will have a significant impact on our liquidity.
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. 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, and/or contractual options that are probable of exercise, indicate a loss, a provision for the entire loss is recognized.
Net cumulative catch-up adjustments to prior periods' revenue and earnings, including certain losses, across all long-term contracts were as follows:
| (In millions - except per share amounts) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Decrease)/increase to Revenue | ($2,204) | $167 | ($1,319) | ($63) | |||||||||||||||||||
| Increase to (Loss)/(decrease) to earnings from operations | ($3,965) | ($84) | ($2,424) | ($142) | |||||||||||||||||||
| Decrease to Diluted EPS | ($6.70) | ($0.05) | ($4.29) | ($0.10) |
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:
| (In millions - except per share amounts) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net loss available to common shareholders | ($4,301) | ($59) | ($3,275) | ($109) | |||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Basic weighted average shares outstanding | 594.0 | 587.3 | 596.3 | 589.0 | |||||||||||||||||||
| Less: participating securities(1) | 0.3 | 0.4 | 0.3 | 0.4 | |||||||||||||||||||
| Basic weighted average common shares outstanding | 593.7 | 586.9 | 596.0 | 588.6 | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | 594.0 | 587.3 | 596.3 | 589.0 | |||||||||||||||||||
| Less: participating securities(1) | 0.3 | 0.4 | 0.3 | 0.4 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 593.7 | 586.9 | 596.0 | 588.6 | |||||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||
| Basic | ($7.24) | ($0.10) | ($5.49) | ($0.19) | |||||||||||||||||||
| Diluted | (7.24) | (0.10) | (5.49) | (0.19) |
(1)Participating securities include certain instruments in our deferred compensation plan.
3.2 million, 3.5 million, 2.3 million and 2.7 million potential common shares were excluded from the diluted loss per share calculation for the nine and three months ended September 30, 2022 and 2021, respectively, because the effect would have been antidilutive as a result of incurring a net loss in those periods. 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.
| (Shares in millions) | Nine months ended September 30 | Three months ended September 30 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Performance awards | 2.1 | 2.8 | 2.5 | 3.0 | |||||||||||||||||||
| Performance-based restricted stock units | 0.4 | 0.8 | 0.4 | 0.8 | |||||||||||||||||||
| Restricted stock units | 1.3 | 0.5 | 1.6 | ||||||||||||||||||||
| Stock options | 0.7 | 0.3 | 0.8 | 0.3 |
Note 3 – Income Taxes
Our effective tax rate for the nine months ended September 30, 2022 was (0.4)% and primarily reflects the 21% federal tax rate and research and development tax credits which are more than offset by an increase to the valuation allowance and other permanent items. The effective tax rate for the three months ended September 30, 2022 reflects additional tax expense to adjust prior quarters' results to the annual effective tax rate.
As of September 30, 2022 and December 31, 2021, the Company had recorded valuation allowances of $3,569 and $2,423 primarily for certain federal deferred tax assets, as well as for certain federal and state net operating loss and tax credit carryforwards. The increase in the valuation allowance during 2022 is primarily due to tax credits and other carryforwards generated in 2022 that cannot be realized in 2022. 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 are 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 are assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily results from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of deferred tax assets.
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 and added tax year 2020 to the audit in the fourth quarter of 2021. We are also subject to examination in major state and international jurisdictions for the 2008-2020 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, 2022 and 2021 consisted of the following:
| Accounts receivable | Unbilled receivables | Other current assets | Customer financing | Other assets | Total | |||||||||||||||
| Balance at January 1, 2021 | ($444) | ($129) | ($72) | ($17) | ($140) | ($802) | ||||||||||||||
| Changes in estimates | 15 | 3 | (3) | 3 | (45) | (27) | ||||||||||||||
| Write-offs | 21 | 1 | 13 | 35 | ||||||||||||||||
| Recoveries | 1 | 1 | ||||||||||||||||||
| Balance at September 30, 2021 | ($407) | ($126) | ($74) | ($14) | ($172) | ($793) | ||||||||||||||
| Balance at January 1, 2022 | ($390) | ($91) | ($62) | ($18) | ($186) | ($747) | ||||||||||||||
| Changes in estimates | 19 | (16) | (38) | (31) | (66) | |||||||||||||||
| Write-offs | 246 | 47 | 1 | 133 | 427 | |||||||||||||||
| Recoveries | 5 | 5 | ||||||||||||||||||
| Balance at September 30, 2022 | ($139) | ($25) | ($77) | ($56) | ($84) | ($381) |
Note 5 – Inventories
Inventories consisted of the following:
| September 30 2022 | December 31 2021 | ||||||||||
| Long-term contracts in progress | $488 | $872 | |||||||||
| Commercial aircraft programs | 69,552 | 68,106 | |||||||||
| Commercial spare parts, used aircraft, general stock materials and other | 9,737 | 9,845 | |||||||||
| Total | $79,777 | $78,823 |
Commercial spare parts, used aircraft, general stock materials and other includes capitalized precontract costs of $734 at September 30, 2022 and $648 at December 31, 2021 primarily related to KC-46A Tanker and Commercial Crew. See Note 9.
Commercial Aircraft Programs
The increase in commercial aircraft programs inventory during 2022 reflects growth in 777X inventory and continued buildup of 787 aircraft, partially offset by a decrease in 737 MAX inventory. Commercial aircraft programs inventory includes approximately 270 737 MAX aircraft and 115 787 aircraft at September 30, 2022 as compared with 335 737 MAX aircraft and 110 787 aircraft at December 31, 2021.
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, 2022 and December 31, 2021, commercial aircraft programs inventory included the following amounts related to the 737 program: deferred production costs of $2,387 and $1,296 and unamortized tooling and other non-recurring costs of $645 and $617. At September 30, 2022, $3,012 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 $20 is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At September 30, 2022 and December 31, 2021, commercial aircraft programs inventory included the following amounts related to the 777X program: deferred production costs of $1,236 and $652 and $3,696 and $3,521 of unamortized tooling and other non-recurring costs. In April 2022, we decided to pause production of the 777X-9 during 2022 and 2023. The production pause is resulting in abnormal production costs that are being expensed as incurred until 777X-9 production resumes. We expensed abnormal production costs of $213 during the nine months ended September 30, 2022. The 777X program has near break-even margins at September 30, 2022. The level of profitability on the 777X program will be subject to a number of factors. These factors include continued market uncertainty, the lingering 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, any 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.
During the fourth quarter of 2021, we determined that estimated costs to complete the 787 program plus costs already included in 787 inventory exceeded estimated revenues from the program. The resulting reach-forward loss of $3,460 was recorded as a reduction to deferred production costs. At September 30, 2022 and December 31, 2021, commercial aircraft programs inventory included the following amounts related to the 787 program: deferred production costs of $11,868 and $11,693, $1,946 and $1,907 of supplier advances, and $1,795 and $1,815 of unamortized tooling and other non-recurring costs. At September 30, 2022, $9,015 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 $4,648 is expected to be recovered from units included in the program accounting quantity that represent expected future orders. We expensed abnormal production costs of $925 during the nine months ended September 30, 2022.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling $3,427 and $3,290 at September 30, 2022 and December 31, 2021.
Note 6 – Contracts with Customers
Unbilled receivables increased from $8,620 at December 31, 2021 to $9,316 at September 30, 2022, primarily driven by revenue recognized at Defense, Space & Security (BDS) and Global Services (BGS) in excess of billings.
Advances and progress billings increased from $52,980 at December 31, 2021 to $53,177 at September 30, 2022, primarily driven by advances on orders received at BDS and BGS, partially offset by revenue recognized and cash returns at Commercial Airplanes (BCA).
Revenues recognized during the nine months ended September 30, 2022 and 2021 from amounts recorded as Advances and progress billings at the beginning of each year were $9,501 and $10,131. Revenues recognized during the three months ended September 30, 2022 and 2021 from amounts recorded as Advances and progress billings at the beginning of each year were $2,687 and $2,816.
Note 7 – Customer Financing
Customer financing primarily relates to the Boeing Capital (BCC) segment. Financing arrangements typically range in terms from 1 to 12 years and may include options to extend or terminate leases. Certain leases include provisions to allow the lessee to purchase the underlying aircraft at a specified price.
Customer financing consisted of the following:
| September 30 2022 | December 31 2021 | ||||||||||
| Financing receivables: | |||||||||||
| Investment in sales-type/finance leases | $847 | $944 | |||||||||
| Notes | 401 | 412 | |||||||||
| Total financing receivables | 1,248 | 1,356 | |||||||||
| Less allowance for losses on receivables | 56 | 18 | |||||||||
| Financing receivables, net | 1,192 | 1,338 | |||||||||
| Operating lease equipment, at cost, less accumulated depreciation of $81 and $58 | 477 | 474 | |||||||||
| Total | $1,669 | $1,812 |
At September 30, 2022 and December 31, 2021, $406 and $378 were determined to be uncollectible financing receivables and placed on non-accrual status. The increase in the allowance for losses on receivables during the nine months ended September 30, 2022 was primarily due to impacts of the war in Ukraine. Customer financing interest income received was $10 and $4 for the nine and three months ended September 30, 2022 and $14 and $3 for the nine and three months ended September 30, 2021.
Our financing receivable balances at September 30, 2022 by internal credit rating category and year of origination consisted of the following:
| Rating categories | Current | 2021 | 2020 | 2019 | 2018 | Prior | Total | ||||||||||||||||
| BBB | $72 | $72 | |||||||||||||||||||||
| BB | $35 | $223 | $114 | $40 | $12 | 159 | 583 | ||||||||||||||||
| B | 35 | 166 | 201 | ||||||||||||||||||||
| CCC | 21 | 371 | 392 | ||||||||||||||||||||
| Total carrying value of financing receivables | $35 | $258 | $114 | $61 | $12 | $768 | $1,248 |
At September 30, 2022, our allowance for losses related to receivables with ratings of CCC, B, BB, and BBB. We applied default rates that averaged 99.1%, 27.9%, 3.0%, and 0.1%, respectively, to the exposure associated with those receivables.
Customer Financing Exposure
The majority of our customer financing portfolio is concentrated in the following aircraft models:
| September 30 2022 | December 31 2021 | ||||||||||
| 717 Aircraft ($53 and $62 accounted for as operating leases) | $567 | $603 | |||||||||
| 747-8 Aircraft (accounted for as sales-type/finance leases) | 394 | 435 | |||||||||
| 737 Aircraft ($176 and $145 accounted for as operating leases) | 189 | 163 | |||||||||
| 777 Aircraft ($212 and $225 accounted for as operating leases) | 212 | 233 | |||||||||
| MD-80 Aircraft (accounted for as sales-type/finance leases) | 136 | 142 | |||||||||
| 757 Aircraft (accounted for as sales-type/finance leases) | 112 | 126 | |||||||||
| 747-400 Aircraft ($0 and $1 accounted for as operating leases) | 47 | 50 | |||||||||
Operating lease equipment primarily includes large commercial jet aircraft.
Lease income recorded in revenue on the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2022 and 2021 included $52 and $38 from sales-type/finance leases, and $50 and $53 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, 2022 and 2021 included $16 and $13 from sales-type/finance leases, and $18 and $16 from operating leases, of which $1 and $1 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, 2022 and 2021 in the amount of $16 and $57. Profit at the commencement of sales-type leases was recorded in revenue for the three months ended September 30, 2022 and 2021 in the amount of $4 and $21.
Note 8 – Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
| September 30 2022 | December 31 2021 | ||||||||||
| Equity method investments (1) | $944 | $930 | |||||||||
| Time deposits | 286 | 7,676 | |||||||||
| Available for sale debt instruments | 440 | 464 | |||||||||
| Equity and other investments | 36 | 45 | |||||||||
| Restricted cash & cash equivalents(2) | 36 | 52 | |||||||||
| Total | $1,742 | $9,167 |
(1)Dividends received were $95 and $52 during the nine and three months ended September 30, 2022 and $52 and $9 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 (Loss)/income from operating investments, net.
(2)Reflects amounts restricted in support of our property sales, workers’ compensation programs, and insurance premiums.
Allowance for losses on available for sale debt instruments are assessed quarterly. All instruments are considered investment grade and we have not recognized an allowance for credit losses as of September 30, 2022.
Note 9 – Commitments and Contingencies
737 MAX Grounding
Over 190 countries have approved the resumption of 737 MAX operations. The 737 MAX has yet to return to service in China and a small number of other countries. The Civil Aviation Administration of China issued an airworthiness directive in the fourth quarter of 2021 outlining actions required for airlines to return to service. There is uncertainty regarding timing of return to service and resumption of deliveries in China which are still subject to final regulatory approvals. We continue to work with a small number of customers who 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.
We increased the production rate to 31 per month in 2022, and expect to implement further gradual production rate increases based on market demand and supply chain capacity. We expensed abnormal production costs of $188 during the three months ended March 31, 2022.
We have approximately 270 airplanes in inventory as of September 30, 2022. Due to ongoing uncertainties the program is facing including uncertainty regarding timing of resumption of deliveries to Chinese customers, we now anticipate delivering most of these aircraft by the end of 2024. We have approximately 140 aircraft in inventory that are designated for customers in China. We are exploring options to remarket some of these aircraft to other customers. In the event that we are unable to resume aircraft deliveries in China or remarket those aircraft and/or ramp up deliveries consistent with our assumptions, our expectation of delivery timing and our expectation regarding future gradual production rate increases could be impacted.
The following table summarizes changes in the 737 MAX customer concessions and other considerations liability during the nine months ended September 30, 2022 and 2021.
| 2022 | 2021 | |||||||||||||
| Beginning balance – January 1 | $2,940 | $5,537 | ||||||||||||
| Reductions for payments made | (959) | (2,040) | ||||||||||||
| Reductions for concessions and other in-kind considerations | (29) | (53) | ||||||||||||
| Changes in estimates | (16) | (1) | ||||||||||||
| Ending balance – September 30 | $1,936 | $3,443 |
The liability balance of $1.9 billion at September 30, 2022 includes $1.6 billion of contracted customer concessions and other liabilities and $0.3 billion that remains subject to negotiation with customers. The contracted amount includes $0.9 billion expected to be liquidated by lower customer delivery payments, $0.6 billion expected to be paid in cash and $0.1 billion in other concessions. Of the cash payments to customers, we expect to pay $0.1 billion in 2023 and $0.5 billion in 2024. The type of consideration to be provided for the remaining $0.3 billion will depend on the outcomes of negotiations with customers.
Environmental
The following table summarizes environmental remediation activity during the nine months ended September 30, 2022 and 2021.
| 2022 | 2021 | ||||||||||
| Beginning balance – January 1 | $605 | $565 | |||||||||
| Reductions for payments made, net of recoveries | (22) | (35) | |||||||||
| Changes in estimates | 171 | 99 | |||||||||
| Ending balance – September 30 | $754 | $629 |
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, 2022 and December 31, 2021, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by $1,066 and $1,094.
Product Warranties
The following table summarizes product warranty activity recorded during the nine months ended September 30, 2022 and 2021.
| 2022 | 2021 | ||||||||||
| Beginning balance – January 1 | $1,900 | $1,527 | |||||||||
| Additions for current year deliveries | 143 | 71 | |||||||||
| Reductions for payments made | (305) | (182) | |||||||||
| Changes in estimates | 355 | 439 | |||||||||
| Ending balance – September 30 | $2,093 | $1,855 |
Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new 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. 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, 2022 have expiration dates from 2022 through 2029. At September 30, 2022 and December 31, 2021 total contractual trade-in commitments were $1,262 and $612. As of September 30, 2022 and December 31, 2021, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling $310 and $283 and the fair value of the related trade-in aircraft was $309 and $283.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, and refinancing of delivered aircraft, totaled $16,495 and $12,905 as of September 30, 2022 and December 31, 2021. The estimated earliest potential funding dates for these commitments as of September 30, 2022 are as follows:
| Total | |||||
| October through December 2022 | $829 | ||||
| 2023 | 3,710 | ||||
| 2024 | 2,510 | ||||
| 2025 | 3,242 | ||||
| 2026 | 2,374 | ||||
| Thereafter | 3,830 | ||||
| $16,495 |
As of September 30, 2022, all of these financing commitments relate to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.
Funding Commitments
We have commitments to make additional capital contributions of $265 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 and security agreements. Contingent liabilities on outstanding letters of credit and surety bonds aggregated approximately $4,850 and $3,634 as of September 30, 2022 and December 31, 2021.
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.
Fixed-Price Contracts
Substantially all contracts at BDS and the majority of contracts at BGS Government are long-term contracts. Long-term contracts that are contracted on a fixed-price basis could result in losses in future periods. Certain of the fixed-price contracts are for the development of new products, services and related technologies. This development work scope is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work by us and our suppliers. The operational and technical complexities of fixed-price development contracts create financial risk, which could trigger additional earnings charges, termination provisions, order cancellations, or other financially significant exposure.
VC-25B Presidential Aircraft
The Company’s firm fixed-price contract for the Engineering, Manufacturing, and Development (EMD) effort on the U.S. Air Force’s (USAF) VC-25B Presidential Aircraft, commonly known as Air Force One, is a $4.3 billion program to develop and modify two 747-8 commercial aircraft. During the nine and three months ended September 30, 2022, we increased the reach-forward loss on the contract by $1,452 and $766 driven by higher costs to incorporate certain technical requirements, increases to factory modification labor and support engineering, schedule delays and higher supplier costs. The increase in the third quarter of 2022 was primarily driven by increases to cost estimates associated with factory modification labor and support engineering resources due to labor shortages and inefficiencies that we now estimate will persist longer than previously anticipated, higher supplier cost estimates based on ongoing supplier negotiations and higher levels of engineering design changes due to technical requirements which are driving increased rework and schedule delays. Risk remains that we may record additional losses in future periods.
KC-46A Tanker
In 2011, we were awarded a contract from the USAF to design, develop, manufacture, and deliver four next generation aerial refueling tankers as well as priced options for 13 annual production lots totaling 179 aircraft. This EMD contract is a fixed-price incentive fee contract and involves highly complex designs and systems integration. Since 2016, the USAF has authorized eight low rate initial production (LRIP) lots for a total of 109 aircraft. The EMD contract and authorized LRIP lots total approximately $21 billion as of
September 30, 2022. As of September 30, 2022, we had approximately $207 of capitalized precontract costs and $228 of potential termination liabilities to suppliers related to unexercised future lots.
During the nine and three months ended September 30, 2022, we increased the reach-forward loss on the KC-46A Tanker program by $1,374 and $1,165 primarily reflecting higher production and supply chain costs partially driven by labor shortages and supply chain disruption. The increase in the reach-forward loss in the third quarter of 2022 is primarily driven by factory unit time performance expectations that assume continued production disruption due to labor shortages and supply chain disruption. Factory unit time estimates also reflect reduced benefits from prior investments in productivity enablers and higher factory unit time to produce aircraft for the remaining life of the program. The third quarter charge also reflects increased estimated change incorporation costs for flight test aircraft as well as schedule delays to complete the Remote Vision System. Risk remains that we may record additional losses in future periods.
MQ-25
In the third quarter of 2018, we were awarded the MQ-25 EMD contract by the U.S. Navy. The contract is a fixed-price contract that now includes development and delivery of seven aircraft and test articles at a contract price of $890. In connection with winning the competition, we recognized a reach-forward loss of $291 in the third quarter of 2018. During the nine and three months ended September 30, 2022, we increased the MQ-25 reach-forward loss by $576 and $351 primarily driven by higher manufacturing and engineering support costs, additional testing and certification activities, supplier quality, and engineering design challenges. The increase in the third quarter of 2022 is primarily driven by higher than anticipated costs to manufacture the EMD units reflecting recent performance which is resulting in additional factory resources and increased engineering costs to address design and supplier quality issues. We also increased costs associated with flight test support this quarter. Risk remains that we may record additional losses in future periods.
T-7A Red Hawk EMD Contract & Production Options
In 2018, we were awarded the T-7A Red Hawk program. The EMD portion of the contract is a $860 fixed-price contract and includes five aircraft and seven simulators. During the nine and three months ended September 30, 2022, we recorded earnings charges of $203 and $100 related to the T-7A Red Hawk fixed-price EMD contract, which has a reach-forward loss at September 30, 2022, primarily due to supply chain, hardware qualification issues and schedule delays and customer testing requirements. The increase in the reach-forward loss in the third quarter of 2022 was primarily driven by delays in achieving Military Flight Release and additional cost growth to resolve technical issues and other engineering design changes that were identified during the third quarter. EMD aircraft flight testing is now estimated to start in 2023.
The production portion of the contract includes 11 production lots for aircraft and related services. In 2018, we recorded a loss of $400 associated with the 11 production lots and associated support options for 346 T-7A Red Hawk aircraft that we believe are probable of being exercised. The first production and support contract option is expected to be exercised in 2024. We increased the estimated reach-forward loss by $536 and $185 during the nine and three months ended September 30, 2022 primarily driven by ongoing supply chain negotiations (which are impacted by supply chain constraints and inflationary pressures), and design revisions. The increase in the reach-forward loss in the third quarter of 2022 was primarily driven by cost growth as a result of engineering and design changes as well as an increase in the number of expected units in the initial production lots. Risk remains that we may record additional losses in future periods.
Commercial Crew
National Aeronautics and Space Administration (NASA) has contracted us to design and build the CST-100 Starliner spacecraft to transport crews to the International Space Station. During the second quarter of 2022 we successfully completed the uncrewed Orbital Flight Test. A crewed flight test is now expected to be completed in 2023. During the nine and three months ended September 30, 2022, we
increased the reach-forward loss by $288 and $195 primarily reflecting increases to estimated costs related to completing the crewed flight tests and revised schedules for both the crewed flight test and three post certification missions. The increase recorded in the third quarter of 2022 was primarily driven by timing of the three future post certification missions which are now assumed to be completed by 2026 based on NASA’s revised launch plans. We had previously assumed that the post certification missions would be completed by 2024. Risk remains that we may record additional losses in future periods.
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 2022 | December 31 2021 | September 30 2022 | December 31 2021 | September 30 2022 | December 31 2021 | |||||||||||||||||||||
| Contingent repurchase commitments | $545 | $548 | $545 | $548 | ||||||||||||||||||||||
| Credit guarantees | 90 | 90 | 1 | 28 | $46 | $24 | ||||||||||||||||||||
Contingent Repurchase Commitments The commercial aircraft 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.
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.
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.
Note 11 – Debt
As of September 30, 2022, we had $12,000 currently available under credit line agreements. In the third quarter of 2022, we entered into a $5,800 364-day revolving credit agreement expiring in August 2023, a $3,000 three-year revolving credit agreement expiring in August 2025, and amended our $3,200 five-year revolving credit agreement, which expires in October 2024, primarily to incorporate a LIBOR successor rate. The 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 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Service cost | $2 | $2 | |||||||||||||||||||||
| Interest cost | 1,561 | 1,493 | $520 | $498 | |||||||||||||||||||
| Expected return on plan assets | (2,843) | (2,894) | (948) | (963) | |||||||||||||||||||
| Amortization of prior service credits | (61) | (60) | (20) | (20) | |||||||||||||||||||
| Recognized net actuarial loss | 681 | 924 | 227 | 304 | |||||||||||||||||||
| Settlement/curtailment (gain)/loss | (4) | 156 | (4) | 152 | |||||||||||||||||||
| Net periodic benefit income | ($664) | ($379) | ($225) | ($29) | |||||||||||||||||||
| Net periodic benefit cost included in (Loss)/earnings from operations | $2 | $2 | |||||||||||||||||||||
| Net periodic benefit income included in Other income, net | (666) | (381) | ($225) | ($29) | |||||||||||||||||||
| Net periodic benefit income included in Loss before income taxes | ($664) | ($379) | ($225) | ($29) |
| Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||||||||
| Other Postretirement Plans | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Service cost | $54 | $66 | $18 | $22 | |||||||||||||||||||
| Interest cost | 73 | 68 | 24 | 23 | |||||||||||||||||||
| Expected return on plan assets | (8) | (6) | (3) | (3) | |||||||||||||||||||
| Amortization of prior service credits | (26) | (26) | (9) | (9) | |||||||||||||||||||
| Recognized net actuarial gain | (83) | (52) | (27) | (17) | |||||||||||||||||||
| Net periodic benefit cost | $10 | $50 | $3 | $16 | |||||||||||||||||||
| Net periodic benefit cost included in (Loss)/earnings from operations | $59 | $66 | $20 | $22 | |||||||||||||||||||
| Net periodic benefit income included in Other income, net | (44) | (16) | (15) | (6) | |||||||||||||||||||
| Net periodic benefit cost included in Loss before income taxes | $15 | $50 | $5 | $16 |
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 16, 2022, we granted 348,769 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. If certain performance measures are met, the exercise price is reduced to 110% of the grant date fair market value of our stock. 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 $83.04 per unit and was estimated using a Monte-Carlo simulation model using the following assumptions: expected life 6.76 years, expected volatility 36.6%, risk free interest rate 2.0% and no expected dividend yield.
Restricted Stock Units
On February 16, 2022, we granted 1,804,541 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 $217.48 per unit. On July 29, 2022, we also granted 2,568,112 RSUs with a grant date fair value of $157.69 per unit as part of our long-term incentive program, accelerating awards planned for 2023 to retain executives. The RSUs granted under this program will generally vest and settle in common stock (on a one-for-one basis) on the third anniversary of 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. In all other cases, the RSUs will not vest and all rights to the stock units will terminate.
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, 2022 and 2021 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, 2021 | ($30) | $1 | ($43) | ($17,061) | ($17,133) | ||||||||||||||||||||||||
| Other comprehensive (loss)/income before reclassifications | (63) | 64 | 1,553 | (2) | 1,554 | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | (6) | 767 | (3) | 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 January 1, 2022 | ($105) | $1 | $6 | ($11,561) | ($11,659) | ||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | (123) | (2) | (157) | (2) | (284) | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | 24 | (4) | 401 | (3) | 425 | ||||||||||||||||||||||||
| Net current period Other comprehensive (loss)/income | (123) | (2) | (133) | 399 | 141 | ||||||||||||||||||||||||
| Balance at September 30, 2022 | ($228) | ($1) | ($127) | ($11,162) | ($11,518) | ||||||||||||||||||||||||
| Balance at June 30, 2021 | ($52) | $1 | $20 | ($16,630) | ($16,661) | ||||||||||||||||||||||||
| Other comprehensive (loss)/income before reclassifications | (41) | (1) | 1,543 | (2) | 1,501 | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | (4) | 346 | (3) | 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) | ||||||||||||||||||||||||
| Balance at June 30, 2022 | ($157) | $1 | ($38) | ($11,293) | ($11,487) | ||||||||||||||||||||||||
| Other comprehensive loss before reclassifications | (71) | (2) | (83) | (2) | (158) | ||||||||||||||||||||||||
| Amounts reclassified from AOCI | (6) | 133 | (3) | 127 | |||||||||||||||||||||||||
| Net current period Other comprehensive (loss)/income | (71) | (2) | (89) | 131 | (31) | ||||||||||||||||||||||||
| Balance at September 30, 2022 | ($228) | ($1) | ($127) | ($11,162) | ($11,518) |
(1) Net of tax.
(2) 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.
(3) Primarily relates to amortization of actuarial losses for the nine and three months ended September 30, 2022 of $469 and $155 (net of tax of ($129) and ($45)) and the 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.
(4) Includes losses of $39 (net of tax of ($11)) from cash flow hedges reclassified to Other income, net because the forecasted transactions are probable of not occurring.
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 commodities 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 2022 | December 31 2021 | September 30 2022 | December 31 2021 | September 30 2022 | December 31 2021 | |||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||
| Foreign exchange contracts | $2,639 | $2,630 | $5 | $30 | ($200) | ($52) | ||||||||||||||
| Commodity contracts | 476 | 500 | 72 | 88 | (20) | (18) | ||||||||||||||
| Derivatives not receiving hedge accounting treatment: | ||||||||||||||||||||
| Foreign exchange contracts | 616 | 361 | 26 | 2 | (58) | (3) | ||||||||||||||
| Commodity contracts | 518 | 760 | 6 | 8 | (2) | (7) | ||||||||||||||
| Total derivatives | $4,249 | $4,251 | $109 | $128 | ($280) | ($80) | ||||||||||||||
| Netting arrangements | (38) | (30) | 38 | 30 | ||||||||||||||||
| Net recorded balance | $71 | $98 | ($242) | ($50) |
(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 | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Recognized in Other comprehensive income/(loss), net of taxes: | |||||||||||||||||||||||
| Foreign exchange contracts | ($186) | ($49) | ($82) | ($43) | |||||||||||||||||||
| Commodity contracts | 29 | 113 | (1) | 42 |
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 | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||
| Revenues | $1 | $1 | |||||||||||||||||||||
| Costs and expenses | 9 | $8 | (1) | $5 | |||||||||||||||||||
| General and administrative expense | (14) | 9 | (7) | ||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Costs and expenses | 18 | (13) | 11 | ||||||||||||||||||||
| General and administrative expense | 6 | 4 | 4 | 1 |
Losses from cash flow hedges reclassified from AOCI to Other income, net because it is probable the forecasted transactions will not occur were $50 and $0 for the nine months ended September 30, 2022 and 2021. Losses 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, 2022 and 2021.
Based on our portfolio of cash flow hedges, we expect to reclassify gains of $8 (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. If we default on our five-year credit facility, our derivative counterparties could require settlement for foreign exchange and certain commodity contracts with original maturities of at least five years. The fair value of those contracts in a net liability position at September 30, 2022 was $50. For other particular commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. At September 30, 2022, 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, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | ||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $1,732 | $1,732 | $1,370 | $1,370 | |||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | 280 | $280 | 225 | $225 | |||||||||||||||||||||||||||||||||||||||||||
| Corporate notes | 176 | 176 | 262 | 262 | |||||||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | 43 | 43 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||
| Other equity investments | 10 | 10 | 20 | 20 | |||||||||||||||||||||||||||||||||||||||||||
| Derivatives | 71 | 71 | 98 | 98 | |||||||||||||||||||||||||||||||||||||||||||
| Total assets | $2,312 | $1,742 | $570 | $1,976 | $1,390 | $586 | |||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | ($242) | ($242) | ($50) | ($50) | |||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | ($242) | ($242) | ($50) | ($50) |
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:
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 2 | Level 3 | Total Losses | Total | Level 2 | Level 3 | Total Losses | ||||||||||||||||||||||||||||||||||||||||
| Investments | ($31) | ($8) | |||||||||||||||||||||||||||||||||||||||||||||
| Customer financing assets | $47 | $47 | (7) | $17 | $17 | (12) | |||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment | (19) | 103 | $103 | (45) | |||||||||||||||||||||||||||||||||||||||||||
| Other Assets and Acquired intangible assets | 1 | 1 | (21) | (7) | |||||||||||||||||||||||||||||||||||||||||||
| Total | $48 | $48 | ($78) | $120 | $103 | $17 | ($72) |
Level 3 Investments, Property, plant and equipment, Other assets and Acquired intangible assets were primarily valued using an income approach based on the discounted cash flows associated with the underlying assets. 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 includes operating lease equipment and investments in sales type-leases/finance leases and 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 period ended September 30, 2022, 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 | $47 | Market approach | Aircraft value publications | $40 - $51(1) Median $46 | |||||||||||||||||||
| Aircraft condition adjustments | ($4) - $5(2) Net $1 |
(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, 2022 | |||||||||||||||||
| Carrying Amount | Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | |||||||||||||||||
| Notes receivable, net | $401 | $417 | $417 | ||||||||||||||
| Liabilities | |||||||||||||||||
| Debt, excluding finance lease obligations | (57,021) | (50,734) | (50,734) |
| December 31, 2021 | |||||||||||||||||
| Carrying Amount | Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | |||||||||||||||||
| Notes receivable, net | $412 | $485 | $485 | ||||||||||||||
| Liabilities | |||||||||||||||||
| Debt, excluding finance lease obligations | (57,921) | (65,724) | (65,724) |
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, 2022 and December 31, 2021. 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. During the fourth quarter of 2021, we entered into a proposed settlement with plaintiffs in a shareholder derivative lawsuit. In March 2022, the court entered an order approving the proposed settlement and the Company committed to making certain governance changes. As a result of the settlement, the Company received $219 in the second quarter of 2022. In September 2022, we settled a previously disclosed investigation by the Securities and Exchange Commission related to the 737 MAX accidents and consented to a civil penalty, which resulted in an earnings charge of $200 that was paid in October 2022. Further, we are subject to, and cooperating with ongoing governmental and regulatory investigations and inquiries relating to the accidents and the 737 MAX. 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 accidents and the 737 MAX.
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 (Loss)/earnings from operations and operating margins. We operate in four reportable segments: BCA, BDS, BGS, and BCC. All other activities fall within Unallocated items, eliminations and other. See page 7 for the Summary of Business Segment Data, which is an integral part of this note.
BCA develops, produces and markets commercial jet aircraft principally to the commercial airline industry worldwide. Revenue on commercial aircraft contracts is recognized at the point in time when an aircraft is completed and accepted by the customer.
BDS engages in the research, development, production and modification of the following products and related services: manned and unmanned military aircraft and weapons systems, surveillance and engagement, strategic defense and intelligence systems, satellite systems and space exploration. BDS revenue is generally recognized over the contract term (over time) as costs are incurred.
BGS provides parts, maintenance, modifications, logistics support, training, data analytics and information-based services to commercial and government customers worldwide. BGS segment revenue and costs include certain services provided to other segments. Revenue on commercial spare parts contracts is recognized at the point in time when a spare part is delivered to the customer. Revenue on other contracts is generally recognized over the contract term (over time) as costs are incurred.
BCC facilitates, arranges, structures and provides selective financing solutions for our 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 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||
| Europe | $2,833 | $2,776 | $600 | $1,223 | |||||||||||||||||||
| Latin America and Caribbean | 1,586 | 958 | 450 | 90 | |||||||||||||||||||
| Asia | 3,315 | 1,958 | 1,290 | 186 | |||||||||||||||||||
| Middle East | 1,297 | 719 | 209 | 206 | |||||||||||||||||||
| Other non-U.S. | 918 | 261 | 350 | 130 | |||||||||||||||||||
| Total non-U.S. revenues | 9,949 | 6,672 | 2,899 | 1,835 | |||||||||||||||||||
| United States | 6,607 | 8,012 | 3,293 | 2,594 | |||||||||||||||||||
| Estimated potential concessions and other considerations to 737 MAX customers, net | 16 | 1 | 33 | (7) | |||||||||||||||||||
| Total revenues from contracts with customers | 16,572 | 14,685 | 6,225 | 4,422 | |||||||||||||||||||
| Intersegment revenues eliminated on consolidation | 71 | 58 | 38 | 37 | |||||||||||||||||||
| Total segment revenues | $16,643 | $14,743 | $6,263 | $4,459 | |||||||||||||||||||
| Revenue recognized on fixed-price contracts | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Revenue recognized at a point in time | 100 | % | 100 | % | 99 | % | 99 | % |
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 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||
| U.S. customers | $12,493 | $15,464 | $3,711 | $4,833 | |||||||||||||||||||
| Non-U.S. customers(1) | 4,488 | 5,214 | 1,596 | 1,784 | |||||||||||||||||||
| Total segment revenue from contracts with customers | $16,981 | $20,678 | $5,307 | $6,617 | |||||||||||||||||||
| Revenue recognized over time | 99 | % | 99 | % | 99 | % | 99 | % | |||||||||||||||
| Revenue recognized on fixed-price contracts | 60 | % | 68 | % | 54 | % | 67 | % | |||||||||||||||
| Revenue from the U.S. government(1) | 90 | % | 89 | % | 91 | % | 89 | % |
(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 | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue from contracts with customers: | |||||||||||||||||||||||
| Commercial | $7,111 | $5,392 | $2,474 | $1,961 | |||||||||||||||||||
| Government | 5,692 | 6,465 | 1,882 | 2,193 | |||||||||||||||||||
| Total revenues from contracts with customers | 12,803 | 11,857 | 4,356 | 4,154 | |||||||||||||||||||
| Intersegment revenues eliminated on consolidation | 241 | 180 | 76 | 67 | |||||||||||||||||||
| Total segment revenues | $13,044 | $12,037 | $4,432 | $4,221 | |||||||||||||||||||
| Revenue recognized at a point in time | 50 | % | 45 | % | 51 | % | 46 | % | |||||||||||||||
| Revenue recognized on fixed-price contracts | 88 | % | 87 | % | 88 | % | 87 | % | |||||||||||||||
| Revenue from the U.S. government(1) | 33 | % | 41 | % | 32 | % | 40 | % |
(1)Includes revenues earned from foreign military sales through the U.S. government.
Backlog
Our total backlog includes contracts that we and our customers are committed to perform. The value in backlog represents the estimated transaction prices on performance obligations to our customers for which work remains to be performed. Backlog is converted into revenue, primarily based on the cost incurred or at delivery and acceptance of products, depending on the applicable revenue recognition model.
Our backlog at September 30, 2022 was $381,315. We expect approximately 23% to be converted to revenue through 2023 and approximately 78% through 2026, with the remainder thereafter. There is significant uncertainty regarding the timing of when backlog will convert into revenue due to timing of 787 deliveries from inventory, timing of 737 MAX delivery resumption in China, timing of entry into service of the 777X, 737 MAX 7 and/or 737 MAX 10, and the lingering effects of the COVID-19 pandemic.
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 sold to our BCC segment that are leased by BCC to customers 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 (expense)/income are shown in the following table.
| Nine months ended September 30 | Three months ended September 30 | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Share-based plans | ($64) | ($171) | $44 | ($29) | |||||||||||||||||||
| Deferred compensation | 204 | (86) | 38 | 8 | |||||||||||||||||||
| Amortization of previously capitalized interest | (71) | (66) | (24) | (22) | |||||||||||||||||||
| Research and development expense, net | (161) | (144) | (43) | (59) | |||||||||||||||||||
| Eliminations and other unallocated items | (655) | (565) | (408) | (268) | |||||||||||||||||||
| Unallocated items, eliminations and other | ($747) | ($1,032) | ($393) | ($370) | |||||||||||||||||||
| Pension FAS/CAS service cost adjustment | $621 | $576 | $208 | $192 | |||||||||||||||||||
| Postretirement FAS/CAS service cost adjustment | 225 | 232 | 71 | 78 | |||||||||||||||||||
| FAS/CAS service cost adjustment | $846 | $808 | $279 | $270 | |||||||||||||||||||
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 2022 | December 31 2021 | ||||||||||
| Commercial Airplanes | $76,833 | $75,863 | |||||||||
| Defense, Space & Security | 15,040 | 14,974 | |||||||||
| Global Services | 16,237 | 16,397 | |||||||||
| Boeing Capital | 1,591 | 1,735 | |||||||||
| Unallocated items, eliminations and other | 27,857 | 29,583 | |||||||||
| Total | $137,558 | $138,552 |
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
The Boeing Company
Arlington, Virginia
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated statement of financial position of The Boeing Company and subsidiaries (the “Company”) as of September 30, 2022, the related condensed consolidated statements of operations, comprehensive income, and equity for the three-month and nine-month periods ended September 30, 2022 and 2021, and of cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively referred to as the "condensed consolidated interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the "PCAOB"), the consolidated statement of financial position of the Company as of December 31, 2021, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.
Basis for Review Results
This condensed consolidated interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
October 26, 2022
| FORWARD-LOOKING STATEMENTS | |||||
| This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “should,” “expects,” “intends,” “projects,” “plans,” “believes,” “estimates,” “targets,” “anticipates” and similar expressions generally identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact. | |||||
| Forward-looking statements are based on expectations and assumptions that we believe to be reasonable when made, but that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: | |||||
| (1) | the COVID-19 pandemic and related industry impacts, including with respect to our operations and access to suppliers, our liquidity, the health of our customers and suppliers, and future demand for our products and services; | ||||
| (2) | the 737 MAX, including the timing and conditions of remaining 737 MAX regulatory approvals, lower than planned production rates and/or delivery rates, and additional considerations to customers and suppliers; | ||||
| (3) | general conditions in the economy and our industry, including those due to regulatory changes; | ||||
| (4) | our reliance on our commercial airline customers; | ||||
| (5) | the overall health of our aircraft production system, planned commercial aircraft production rate changes, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards; | ||||
| (6) | changing budget and appropriation levels and acquisition priorities of the U.S. government; | ||||
| (7) | our dependence on U.S. government contracts; | ||||
| (8) | our reliance on fixed-price contracts; | ||||
| (9) | our reliance on cost-type contracts; | ||||
| (10) | uncertainties concerning contracts that include in-orbit incentive payments; | ||||
| (11) | our dependence on our subcontractors and suppliers as well as the availability of raw materials; | ||||
| (12) | changes in accounting estimates; | ||||
| (13) | changes in the competitive landscape in our markets; | ||||
| (14) | our non-U.S. operations, including sales to non-U.S. customers; | ||||
| (15) | threats to the security of our, our customers' and/or our suppliers' information; | ||||
| (16) | potential adverse developments in new or pending litigation and/or government investigations; | ||||
| (17) | customer and aircraft concentration in our customer financing portfolio; | ||||
| (18) | changes in our ability to obtain debt financing on commercially reasonable terms and at competitive rates; | ||||
| (19) | realizing the anticipated benefits of mergers, acquisitions, joint ventures, strategic alliances or divestitures; | ||||
| (20) | the adequacy of our insurance coverage to cover significant risk exposures; | ||||
| (21) | potential business disruptions, including those related to physical security threats, information technology or cyber attacks, epidemics, sanctions or natural disasters; | ||||
| (22) | work stoppages or other labor disruptions; | ||||
| (23) | substantial pension and other postretirement benefit obligations; | ||||
| (24) | potential environmental liabilities; and | ||||
| (25) | effects of climate change and legal, regulatory or market responses to such change. | ||||
| Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking information speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. | |||||
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