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| BA > SEC Filings for BA > Form 10-Q on 22-Jul-2009 | All Recent SEC Filings |
22-Jul-2009
Quarterly Report
Consolidated Operating Results
The following table summarizes key indicators of consolidated results of
operations:
(Dollars in millions, except per Six months ended Three months ended
share data) June 30 June 30
2009 2008 2009 2008
Revenues $ 33,656 $ 32,952 $ 17,154 $ 16,962
Earnings from operations $ 2,554 $ 3,046 $ 1,529 $ 1,247
Operating margins 7.6 % 9.2 % 8.9 % 7.4 %
Effective income tax rate 33.6 % 34.7 % 33.4 % 34.5 %
Net earnings from continuing
operations $ 1,612 $ 2,057 $ 997 $ 851
Diluted earnings per share $ 2.27 $ 2.79 $ 1.41 $ 1.16
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June 30 December 31
(Dollars in millions) 2009 2008
Contractual backlog $ 305,272 $ 323,860
Unobligated backlog 22,486 28,165
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Revenues
The following table summarizes revenues:
Six months ended Three months ended
(Dollars in millions) June 30 June 30
2009 2008 2009 2008
Commercial Airplanes $ 16,985 $ 16,728 $ 8,431 $ 8,567
Integrated Defense Systems 16,370 15,509 8,650 7,934
Boeing Capital Corporation 330 364 167 179
Other 74 227 35 152
Unallocated items and eliminations (103 ) 124 (129 ) 130
Revenues $ 33,656 $ 32,952 $ 17,154 $ 16,962
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Revenues for the six and three months ended June 30, 2009 increased by $704 million and $192 million, a 2% and 1% increase compared with the same periods in 2008. Commercial Airplanes revenues increased by $257 million for the six month period and decreased by $136 million for the three month period reflecting higher new airplane revenues and decreases in commercial aviation services revenues. Integrated Defense Systems (IDS) revenues increased by $861 million and $716 million primarily due to higher revenues in the Network & Space Systems (N&SS) segment and the Global Services and Support (GS&S) segment. Boeing Capital Corporation (BCC) revenues decreased by $34 million during the six months due to a decrease in the customer financing portfolio. Other segment revenues decreased by $153 million and $117 million partly due to higher revenues in the prior year from the sale of a C-17 aircraft held under operating lease. Unallocated items and eliminations revenues decreased by $227 million and $259 million partly due to lower revenues in the P-8A Poseidon program (P-8A) compared with the same periods in the prior year.
Earnings from Operations
The following table summarizes earnings from operations:
Six months ended Three months ended
(Dollars in millions) June 30 June 30
2009 2008 2009 2008
Commercial Airplanes $ 1,234 $ 1,760 $ 817 $ 777
Integrated Defense Systems 1,585 1,497 876 637
Boeing Capital Corporation 73 106 36 45
Other (69 ) (185 ) (46 ) (135 )
Unallocated items and eliminations (269 ) (132 ) (154 ) (77 )
Earnings from operations $ 2,554 $ 3,046 $ 1,529 $ 1,247
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Operating earnings for the six and three months ended June 30, 2009 decreased by $492 million and increased by $282 million compared with the same periods in 2008. Commercial Airplanes earnings decreased by $526 million and increased by $40 million compared with the same periods in 2008. The decrease for the six months is attributable to a reach forward loss on the 747 program which grew by $347 million and reduced margins on other programs. IDS earnings increased by $88 million and $239 million compared with the same periods in 2008 largely due to higher earnings in the Boeing Military Aircraft (BMA) segment resulting from a charge of $248 million taken on the Airborne Early Warning & Control (AEW&C) program in the second quarter of 2008. BCC operating earnings decreased $33 million and $9 million compared with the same periods in 2008 reflecting lower revenues, higher impairment expense and a provision for losses, partially offset by lower interest expense. Other segment losses decreased by $116 million and $89 million compared with the same periods in 2008 primarily due to an increase in the allowance for losses on customer financing receivables related to lower U.S. airline customer credit ratings in the three months ended June 30, 2008.
The most significant expense items not allocated to segments are shown in the table below.
Six months ended Three months ended
(Dollars in millions) June 30 June 30
2009 2008 2009 2008
Pension $ 45 $ (143 ) $ 22 $ (76 )
Postretirement (44 ) (40 ) (21 ) (20 )
Share-based plans (116 ) (45 ) (59 ) (15 )
Deferred compensation (46 ) 81 (69 ) 20
Other unallocated items and
eliminations (108 ) 15 (27 ) 14
Total $ (269 ) $ (132 ) $ (154 ) $ (77 )
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Share-based plans expense in Unallocated items and eliminations is higher in the current year resulting from a decrease in the amount of intercompany allocations compared with the same periods in the prior year. The year over year changes in deferred compensation expense are primarily driven by changes in our stock price and broad stock market conditions.
Other unallocated items and eliminations expense for the six and three months ended June 30, 2009 increased by $123 million and $41 million compared with the same periods in 2008, primarily due to timing of intercompany expense allocations and elimination of profit on intercompany items.
Unallocated pension and other postretirement expense represents the difference between costs recognized under Generally Accepted Accounting Principles in the consolidated financial statements and federal cost accounting standards required to be utilized by our business segments for U.S. government contracting purposes.
We recorded net periodic benefit cost related to pensions and other postretirement benefits of $904 million and $450 million for the six and three months ended June 30, 2009 and $566 million and $283 million for the six and three months ended June 30, 2008. The increase was primarily due to higher amortization of pension actuarial losses. Not all net periodic benefit cost is recognized in earnings in the period incurred because it is allocated to production as product costs and a portion remains in inventory at the end of the reporting period. A portion of pension and other postretirement expense is recorded in the business segments and the remainder is included in unallocated pension and other postretirement expense.
Earnings from operations included the following amounts allocated to business segments and Other unallocated items and eliminations.
Six months ended Three months ended
(Dollars in millions) June 30 June 30
Pension Plans 2009 2008 2009 2008
Net periodic benefit cost
allocated to business segments $ (471 ) $ (264 ) $ (229 ) $ (140 )
Net periodic benefit cost in Other
unallocated items and eliminations 45 (143 ) 22 (76 )
Net periodic benefit cost included
in Earnings from operations $ (426 ) $ (407 ) $ (207 ) $ (216 )
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Six months ended Three months ended
(Dollars in millions) June 30 June 30
Other Postretirement Benefit Plans 2009 2008 2009 2008
Net periodic benefit cost
allocated to business segments $ (258 ) $ (246 ) $ (124 ) $ (129 )
Net periodic benefit cost in Other
unallocated items and eliminations (44 ) (40 ) (21 ) (20 )
Net periodic benefit cost included
in Earnings from operations $ (302 ) $ (286 ) $ (145 ) $ (149 )
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Other Earnings Items
Six months ended Three months ended
(Dollars in millions) June 30 June 30
2009 2008 2009 2008
Earnings from operations $ 2,554 $ 3,046 $ 1,529 $ 1,247
Other income, net 11 202 47 102
Interest and debt expense (137 ) (96 ) (80 ) (50 )
Earnings before income taxes 2,428 3,152 1,496 1,299
Income tax expense (816 ) (1,095 ) (499 ) (448 )
Net earnings from continuing operations $ 1,612 $ 2,057 $ 997 $ 851
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Other income for the six and three months ended June 30, 2009 decreased $191 million and $55 million compared with the same periods in 2008 primarily driven by a reduction in investment income as a result of lower interest rates and lower investment balances.
For a discussion related to Income Taxes see Note 3.
Backlog
Contractual backlog of unfilled orders excludes purchase options, announced orders for which definitive contracts have not been executed and unobligated U.S. and non-U.S. government contract funding. The decrease in contractual backlog during the six months ended June 30, 2009 was primarily due to lower Commercial Airplanes backlog.
Unobligated backlog includes U.S. and foreign government definitive contracts for which funding has not been authorized. The decrease in unobligated backlog during the six months ended June 30, 2009 is primarily due to funding of existing multi-year contracts including the V-22, Future Combat Systems (FCS), Chinook and Ground-Based Midcourse Defense (GMD) programs.
Segment Results of Operations
Commercial Airplanes
Business Environment and Trends
After several months of rapid deterioration, world Gross Domestic Product (GDP) growth forecasts appear to be stabilizing. These forecasts continue to project a slow global economic recovery with world real GDP contracting by over 2% in 2009 and remaining well below long-term trend growth in 2010.
The sharp economic decline is causing passenger traffic to contract. The International Civil Aviation Organization estimates passenger traffic grew 1% in 2008 with first half growth running fairly close to long-term trend. This was followed by a significant decline in the second half of 2008. There is further downward pressure on 2009 traffic growth. Current forecasts for 2009 global passenger traffic growth are for mid-single digit contraction similar to previous downturns (-3% in 2001 and 1991) followed by moderate growth in 2010.
The unprecedented decline in world trade and sharp reduction in credit availability have hit air cargo even more deeply with cargo traffic declining 27% in first quarter 2009 compared to first quarter 2008. Air cargo traffic is forecasted to contract for the second straight year in 2009 taking air cargo traffic back to 2003 levels.
Airline losses were larger than expected in first quarter 2009 as air travel demand declined more rapidly than previously forecasted. As a result of the weaker revenue environment, the International Air Transport Association increased its 2009 airline industry loss forecast to $9.0 billion from the $4.7 billion estimated in March 2009. In addition, the net loss for 2008 was increased from $8.5 billion estimated in March to $10.4 billion. Sharply lower fuel prices in 2009 are forecast to cut airline fuel expenses by $59 billion compared with 2008. However, the decline is not enough to fully offset revenue declines. All regions of the world are now forecasted to incur losses, led by Asia-Pacific and Europe.
In this challenging environment, airlines continue to adapt their operations to meet the realities of the market. Global passenger capacity is down about 3% in the first half of 2009 with further cuts expected
in the second half of the year. Capacity cuts are coming through a combination of frequency and route cuts in markets that are no longer profitable, lower daily airplane utilization (flight hours per day), and parking/scrapping of older generation airplanes. Airlines are also replacing older less fuel efficient airplanes, reducing non-fuel costs and finding new ways to partner through alliances or via mergers/acquisitions.
These conditions are causing customers to request cancellations, modifications, or rescheduling of their existing orders and advance payment schedules to meet revised fleet plans or address financing and cash flow issues. Whether such requests will result in a material adverse impact on our earnings, cash flow or financial position depends on a number of factors including whether the request is granted, the type of aircraft, how much compensation is paid to us for costs already incurred and our ability to reschedule other orders to replace those canceled, modified, or rescheduled.
Beyond the near-term market uncertainties, the long-term outlook for the
industry remains resilient due to the fundamental drivers of air travel growth:
economic growth and the increasing propensity to travel due to increased trade,
globalization and improved airline services driven by liberalization of air
traffic rights between countries. Our 20-year forecast is for a long-term
average growth rate of 5% per year for passenger and cargo traffic based on
projected average annual worldwide real economic growth rate of 3%. Based on
long-term global economic growth projections, and factoring in increased
utilization of the worldwide airplane fleet and requirements to replace older
airplanes, we project a $3.2 trillion market for 29,000 new airplanes over the
next 20 years.
In April 2009, we announced a plan to reduce production rates on the 777 program and to delay planned increases to the production rates of the 747 and 767 programs in response to requests from customers. These changes are not expected to affect 2009 revenues but did reduce margins on airplane programs. Separately, changes in escalation price indices during the six months ended June 30, 2009 also reduced margins on all programs. The reduction in escalation indices had the effect of lowering estimated revenues for deliveries after 2009. The escalation indices are driven by commodity and other inflation price indices and could remain volatile in the current economic environment.
Operating Results
Six months ended Three months ended
(Dollars in millions) June 30 June 30
2009 2008 2009 2008
Revenues $ 16,985 $ 16,728 $ 8,431 $ 8,567
Earnings from operations $ 1,234 $ 1,760 $ 817 $ 777
Operating margins 7.3 % 10.5 % 9.7 % 9.1 %
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June 30 December 31
(Dollars in millions) 2009 2008
Contractual backlog $ 257,443 $ 278,575
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Revenues
Year over year changes in Revenue are shown in the following table:
Six months ended Three months ended
June 30, 2009 June 30, 2009
(Dollars in millions) vs. June 30, 2008 vs. June 30, 2008
New airplane sales $ 649 $ 47
Commercial aviation services business (350 ) (147 )
Other (42 ) (36 )
Total $ 257 $ (136 )
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Revenues for the six months ended June 30, 2009 increased by $257 million compared with the same period of 2008. This increase in revenue was primarily attributable to higher new airplane deliveries. The decrease in revenues from commercial aviation services business was driven by lower spares volume and fewer passenger to freighter conversions.
Revenues for the three months ended June 30, 2009 decreased by $136 million compared with the same period of 2008. The decrease in revenues was primarily driven by lower spares volume from commercial aviation services business.
Commercial jet aircraft deliveries, including intercompany deliveries were as follows:
Program 737 747 767 777 Total
Deliveries during the first six months of 2009 190 6 6 44 246
Deliveries during the first six months of 2008 187 9 6 39 241
Deliveries during the second quarter of 2009 99 2 3 21 125
Deliveries during the second quarter of 2008 100 5 3 18 126
Cumulative deliveries as of 6/30/2009 2,946 1,416 975 792
Cumulative deliveries as of 12/31/2008 2,756 1,410 969 748
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Earnings from Operations
Earnings from operations for the six months ended June 30, 2009 decreased by $526 million and operating margins decreased by 3.2 percentage points to 7.3% compared with the same period of 2008. The reach forward loss on the 747 program grew by $347 million and margins were reduced on other programs, both primarily due to lower projected delivery pricing associated with the lower industry escalation indices and lower planned future production rates on the 747, 767 and 777 programs, somewhat offset by refined cost estimates. The escalation and production rate impact, together with warranty and other expenses reduced earnings on other programs by $142 million. Higher infrastructure cost allocations related to the 787 and 747-8 schedule delays announced in 2008 and infrastructure costs incurred during the 2008 IAM strike reduced earnings by $145 million. Lower commercial aviation services volume reduced earnings by $168 million. These decreases were partially offset by increased earnings of $243 million from new airplane deliveries and $33 million from lower research and development costs.
Earnings from operations for the three months ended June 30, 2009 increased by $40 million and operating margins increased by 0.6 percentage points to 9.7% compared with the same period of 2008. The increase in earnings was primarily due to higher airplane revenues of $65 million and lower research and development expense of $112 million. Lower commercial aviation services volume reduced earnings by $100 million. Lower projected delivery pricing associated with the lower industry
escalation indices and lower planned future production rates on the 747, 767 and 777 programs, together with warranty and other expenses, reduced earnings $7 million. Higher infrastructure cost allocations related to the 787 and 747-8 schedule delays announced in 2008 and infrastructure costs incurred during the 2008 IAM strike reduced earnings by $30 million.
Backlog
The decrease in contractual backlog during the six months ended June 30, 2009 compared with December 31, 2008 was due to deliveries in excess of orders, changes in projected revenue escalation and cancellations of 787 orders.
A number of our customers may have contractual remedies that may be implicated by program delays. We continue to address customer claims and requests for other contractual relief as they arise. However, once orders are included in firm backlog, orders remain in backlog until canceled or fulfilled, although the value of orders is adjusted based upon changing revenue escalation assumptions and as changes to price and schedule are agreed to with customers.
Accounting Quantity
The accounting quantities, undelivered units under firm orders and number of
cumulative firm orders were as follows:
Program
As of 6/30/2009 737 747 767 777 787
Program accounting quantities 4,400 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,137 107 61 314 850
Cumulative firm orders2 5,083 1,523 1,036 1,106
Program
As of 3/31/2009 737 747 767 777 787
Program accounting quantities 4,200 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,203 110 67 331 878
Cumulative firm orders2 5,050 1,524 1,039 1,102
Program
As of 12/31/2008 737 747 767 777 787
Program accounting quantities 4,200 1,499 1,023 1,050 *
Undelivered units under firm orders1 2,270 114 70 350 910
Cumulative firm orders2 5,026 1,524 1,039 1,098
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* The accounting quantity for the 787 program will be determined in the year of first airplane delivery.
1 Undelivered units are not adjusted for cancellations subsequent to June 30, 2009, March 31, 2009 and December 31, 2008.
2 Cumulative firm orders represent the cumulative number of commercial jet aircraft deliveries plus undelivered firm orders.
737 Program The accounting quantity for the 737 program increased by 200 units during the three months ended June 30, 2009.
747 Program There was no change in the accounting quantity for the 747 program during the six months ended June 30, 2009. In the third quarter of 2008, we increased our cost estimates to incorporate the anticipated schedule delay and design changes and reduced margins on the 747 program to zero. We experienced further cost growth in the fourth quarter of 2008 and recorded a charge of $685 million to recognize a reach-forward loss. The charge was primarily related to higher than anticipated costs due to late changes to wing design which drove new load requirements into the fuselage and created other statement of work changes for our suppliers. During the first quarter of 2009, an additional charge of $347 million was recorded. This charge was primarily caused by a reduction in projected delivery price increases associated with escalation and production rate changes. Delivery of the first 747-8 Freighter is targeted for the third quarter of 2010 and the 747-8 Intercontinental is targeted to deliver in the fourth quarter of 2011. A gap between when the last 747-400 is produced and the first 747-8 is delivered will contribute to lower 747 program revenues until deliveries of the 747-8 begin. We believe that the cost and revenue estimates incorporated in the financial statements are appropriate; however, this remains a development program, with the associated inherent risks.
767 Program There was no change in the accounting quantity for the 767 program during the six months ended June 30, 2009. In April 2009, we announced a delay in previous plans to increase production.
777 Program There was no change in the accounting quantity for the 777 program during the six months ended June 30, 2009. Delivery of the first 777 Freighter occurred in February 2009. In April 2009, we announced that we will lower the production rate on our 777 airplane program, affecting deliveries beginning in June 2010.
787 Program On June 23, 2009, we announced that first flight of the 787 was being postponed due to a need to reinforce an area within the side of the body section of the aircraft where the wing joins the fuselage. Prior to the announcement first flight was targeted for second quarter of 2009 with first delivery targeted for the first quarter of 2010. We have now analyzed the problem and have identified a technical solution from among a number of options. We are currently evaluating alternative ways to implement that solution. . . .
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